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3/25/2018 2:26 pm  #11


Re: Positive economics and normative political economy

Jeremy Taylor wrote:

My understanding is that rational choice theory generally assumes an individual has perfect information and the unlimited ability to rank one's preferences, not to mention that it is possible to aggregate individual choices to derive a smooth, downward sloping demamd curve that intersects the supply curve once.

I am not sure what good such an approach would do to examining any social phenomena (unfortunately, mainstream macroeconomics now incorporates rational choice theory, as well as rational expectations).

Your definition of rational choice theory is correct. My problems with RCT are twofold:

(1) The aggregation feature of RCT was questioned in the 1930's by John Hicks and Nicholas Kaldor in their works on welfare economics. To put the problem simply, how can economics propose scientifically proven policies if they cannot scientifically aggregate subjective preference scales?

(2) There are cases in which transitivity does not hold true. The Condorcet paradox comes to mind as a colorful example.


K. Roland Heintz, B.A.
Economics, U.C. Santa Cruz 2017
Blog | Website
 

3/25/2018 2:39 pm  #12


Re: Positive economics and normative political economy

UGADawg wrote:

No, rational choice theory doesn't assume people have perfect information. So much to the contrary, informational limitations are easily incorporated into the model as information costs, which just alters the choice constraint. Mutatis mutandis for preference rankings.

Don't Austrian/market process critiques often begin with the critique of mainstream formalism (e.g. perfect information, transitivity)?

UGADawg wrote:

It's important to keep in mind the meaning of "rational" in "rational choice theory" is very thin, being nothing more than an instrumental rationality (perhaps a helpful analogy would be to compare this with Aquinas's very thin notion of goodness when he says individuals always pursue what they take to be good in some way or another). This kind of choice theory is the basis of all economics, not just modern neoclassical economics that is (perhaps) overly concerned with mathematical tractability. In fact you can't do any economics at all without rational choice theory; it is, quite literally, impossible (laughable attempts from left-heterodox economists to model economic phenomena along fundamentally different lines notwithstanding).

True. However, there is a world of difference between the minimalist definition of rationality one finds in the Austrians and the technocratic definitions that is often the target of behavioral/experimental economists.

UGADawg wrote:

​Nor is this some curious invention modern economists are reading back into previous generations of economists. Go back to Adam Smith. What does his analysis and explanation of the economic coordination he was concerned with (the "invisible hand") look like? Well, he starts with the rational choice postulate and traces out the implications of that assumption in a market institutional context (see e.g. "...it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner..."). Much of TWoN is very similar, i.e. it's just applying rational choice theory to different institutional contexts to explain social cooperation and coordination, but it looks different because he was going off his intuitions rather than having some completely formalized model.

Adam Smith also relies heavily on argument from first principles. Nowadays neoclassical economists are running around, claiming that experimentation and mathematical regressions are what make them scientists.

I think Vernon Smith described Adam Smith as a behavioral economist who recognized the importance of institutions in mitigating/controlling uncertainty. It would have been nice if that had been the focus of my economics classes instead of mathematical formulas. (My economics of law class was a nice out-lier, in that regard.)


K. Roland Heintz, B.A.
Economics, U.C. Santa Cruz 2017
Blog | Website
 

3/25/2018 4:28 pm  #13


Re: Positive economics and normative political economy

@ Karl

It depends. The LvMI types seem to think there's no place for mathematical modeling whatsoever. The GMU or Hayekian types seem to think it has a certain place, sort of as ideal types, but that there are limited insights one can draw from those models. I'm largely in agreement with the latter sort of position. But I would argue that kind of Austrian is still engaging in a rational choice analysis of institutions even when they step outside purely mathematical formalism, e.g. see Hayek's discussions of what he terms the "pure logic of choice" and the individual always being in equilibrium w.r.t. subjectively perceived costs and benefits being consistent with discoordination at the macro-level (because of the problem of "unknown unknowns" or "radical ignorance" of the sort Jeremy mentioned).

Successful non-Austrian economists that are largely regarded as being within the mainstream have made similar points, e.g. see James Buchanan's What Should Economists Do?, and additionally some of his emphasis on the subjective nature of costs. They both talk about the importance of institutions (rather than merely treating economic analysis as a maximization problem), but the relationship between institutions and individual choice conditioned by perceived costs and benefits always remains at the forefront, with Hayek's emphasis on knowledge and information feedback mechanisms in market institutions and Buchanan's analysis of incentive compatibility problems in political institutions being prime examples.

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3/25/2018 5:45 pm  #14


Re: Positive economics and normative political economy

Karl3125 wrote:

I think Vernon Smith described Adam Smith as a behavioral economist who recognized the importance of institutions in mitigating/controlling uncertainty. It would have been nice if that had been the focus of my economics classes instead of mathematical formulas. (My economics of law class was a nice out-lier, in that regard.)

I think this is a good point. I think economics definitely took a wrong turning when it went down the marginalist/neoclassical route instead of the institutionalist/historicist one.

Still, I don't agree with those critics of mainstream economics who reject mathematical economics entirely. The truth is that mainstream economists, despite their pride in being mathematically minded, are using long out of date static analysis and linear functions, whereas they should be using dynamic analysis and nonlinear differential equations. It has long been known, in all sorts of scientific disciplines, that such techniques are far better for better for modelling any type of complex system. The problem is that such analysis been shown a market is extremely unlikely to be in equilibrium. Indeed, there can be multiple equilibria, and a slight deviation from any can cause the market to move further from the equilibrium, sometimes greatly (one of the problems with the Austrians is that, although they reject equilibrium analysis, they imply the market will tend to stay close to equilibrium, but this is not necessarily the case).

 

3/25/2018 6:37 pm  #15


Re: Positive economics and normative political economy

Jeremy Taylor wrote:

I think this is a good point. I think economics definitely took a wrong turning when it went down the marginalist/neoclassical route instead of the institutionalist/historicist one.



The kind of institutionalist economics Vernon Smith would be referring to is the so called "new institutionalist economics", which is far different from historicism or the old institutionalist economics.

BTW, you shouldn't really get your economics from Steve Keen. The man is an imbecile that couldn't do basic maths to save his life, see here

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3/25/2018 7:11 pm  #16


Re: Positive economics and normative political economy

I was making a more general point. The New Institutionalists, alas, wedded institutional analysis to marginalism.

On Keen, one possible mistake like that hardly seems to warrant such a strong dismissal. Much of Keen's book is just a rendition and summation of known issues in neoclassical economics, discovered either by neoclassical economists themselves (like the issues with aggregation of demand), or by critiques like Sraffa and Keynes. It would be sophistic to reject this analysis because of a maths mistake. Of course, Keen himself denies the mistake in question:

http://disq.us/url?url=http%3A%2F%2Fwww.paecon.net%2FPAEReview%2Fissue53%2FKeenStandish53.pdf%3ANeOaK1sQgTK243OmpmwA6wgakmM&cuid=5125708

http://arxiv.org/pdf/nlin/0411006

http://underhandedeconomist.blogspot.com.au/2013/08/keen-on-collusion.html?m=1

 

3/25/2018 7:30 pm  #17


Re: Positive economics and normative political economy

I mean, I'm just telling you he's something of a laughingstock in the profession and nobody takes him seriously, and that there's a reason for that, which largely explains his inability to be published in high level journals. His butchering of undergrad level economics is just a particularly egregious illustration. Other examples might be his neo-chartalism, his belief that mark-up pricing is evidence against competition's equilibriating tendencies, etc.

Last edited by UGADawg (3/25/2018 7:31 pm)

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3/25/2018 7:36 pm  #18


Re: Positive economics and normative political economy

But the example you gave is arguable at best. And, leaving aside any ideological component, he's a strong critic of mainstream economics, so of course he is not popular amongst its practitioners. He treats them almost as you treat him. The alleged closed minds of neoclassical economists are why heterodox economics exists. In general, one must accept the assumptions of neoclassical microeconomics to publish in mainstream journals. No Post-Keynesian or other heterodox economist could publish anything that went against the main pillars of economic orthodoxy. It remains the case much of the book in question is a rendition of the findings of either neoclassical economists themselves or other critics, like Sraffa. Personally, I'm less interested in Keen's own embellishments than these fundamental criticisms or issues. I would certainly not recommend taking Keen, or any other economist as gospel, either in terms of their analysis or policy prescriptions. One should read widely, from many competing perspectives. But Keen is well worth a read, and for a compendium of the important shortcomings of neoclassical economics, his work is almost unique.

 

3/25/2018 11:20 pm  #19


Re: Positive economics and normative political economy

I'm not really buying this kind of borderline conspiracy theory aspect that Post-Keynesians or other heterodox types like Keen can't get into top publications because they disagree with certain aspects of neoclassical economics. I can think of many economists who in fact were extremely successful despite pointing out faults, or at least insufficiency, with purely mainstream approaches, e.g. Hayek, Buchanan, Coase, North, Smith, Ostrom. 

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3/25/2018 11:53 pm  #20


Re: Positive economics and normative political economy

It would be absurd to suggest that there were not important and successful, in some sense at least, economists amongst the Post-Keynesians - Keynes himself, Joan Robinson, Sraffa (if he is counted as a Post-Keynesians), Minsky, Kalecki, Kaldor, etc. Now, there might not be quite the talent amongst today's Post-Keynesians, but I don't think the tradition suddenly fell into the hands of imbeciles and quacks.

​The question is which journals are we talking about and what kind of area or contribution your article is trying to make. The issue is not whether one could publish a paper on some model considered a special condition or some relatively minor part of a theory, but whether one could, for example, dispense the main theories of neoclassical economics (general equilibrium or marginal productivity theory, for example) and write an article that aimed that advanced a replacement. This is what Herbert Gintis had to say on the matter:

Moreover, although the journals are not ideologically rigid, they generally agree on what constitutes publishable economic research, and this covers an extremely narrow range compared to some other disciplines, including sociology and political science. Finally, this narrowness is not deserved in terms of the explanatory power of the theory they espouse. Many articles in the journals run by heterodox economists are superior to many articles in the most prestigious of the mainstream journals.

​The presuppositions an article must accept before being published in many mainstream journals are hardly a secret.

Could you, for example, use a Sraffian model of value and get published in the central microeconomics journals? I doubt it, though arguably the Sraffian model is in better shape than the neoclassical one (although Sraffian economics itself suffers from some of the same static, equilibirum analysis issues as neoclassical economics, though it is open to question whether its great founder ever saw his model in Production of Commodities by Means of Commidities as more than a means of critiquing neoclassical economics).​[/color]

I don't see this as particularly different from, for instance, trying to publish in a mainstream sociology, anthropology, or literary theory journal without holding to the general assumptions and framework of the schools of thought that dominate these areas, though there are differences between disciplines of course (as Gintis notes, not always favourable to economics). The gatekeepers will screen out, to a greater or lesser degree, articles that radically conflict with orthodoxy in those areas. Psychology is a good example, where the premier journals and associations have often weened out papers, and sometimes even findings, that failed to abide by what might be called methodological naturalism. Keen's book, indeed, reminds me of works like Irreducible Mind by Kelly, et al (a work that met similar responses from true believers in current orthodoxy).

 

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