Category Archives: Philosophy

Invalid opinions

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IF you follow the econ blogs in New Zealand you’ll have seen Matt and others getting pretty grumpy about the uninformed comments sometimes made in the media. That has only been exacerbated by the recent misunderstanding of quantitative easing. A philosopher writing in the Herald sums up how I think economists feel:

If “everyone’s entitled to their opinion” just means no one has the right to stop people thinking and saying whatever they want, then the statement is true, but fairly trivial. …But if “entitled to an opinion” means “entitled to have your views treated as serious candidates for the truth” then it’s pretty clearly false… [because it] implies an equal right to be heard on a matter in which only one of the two parties has the relevant expertise.

Economists are technical experts but work in a field that affects everybody’s daily lives. So, much like doctors, they have to cope with everybody thinking they’re an expert without a shred of real knowledge. And, just like in public health debates, credence is given to groups who have an opinion but no expertise. Understandably, economists get frustrated!

However, we need to be careful where we draw the line between those with expertise and those without it. Continue Reading →

Bleg: The scope of abductive reasoning in economics

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Time to ask another question.  I was wondering, how much does the form of explanation in economics appear to take the form of abductive reasoning?

Often in economics, we will observe a stylised fact.  We then have a method that can explain that fact in a myriad of ways.  We will then build a model that shows how a given cause will lead to that stylized fact, and pat ourselves on the back.  But if this is really just a form of abductive logic, and there are a myriad of ways to “explain” said stylized fact, how can we have any confidence in our description – how can we really say that we have explained anything?

Ethics and description

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In the past couple of days I’ve run into a couple of places in the internet that left we confused.

First, via Education Directions I noticed this article on the way of “valuing assets” that takes into account social value.  The claim is that:

Western accounting needs to recast the narrow, individualistic and economically bound concept of asset, claiming that much would be gained from recognising that there are things of value beyond those defined by individual property rights and economic reckoning

This seems like an aimless statement to me.  Private individuals value their asset based on issues of private value – this is hardly surprising.  Government takes into account concepts of broader “social value” when they do accounts, or look at the value of policies.  What methodological value is there from using a different word for social value to describe it?

Giving things new names doesn’t actually add value to how we describe them, unless the context is to translate these broad concepts for a cultural specific context!  In truth, it isn’t “western accounting” that needs to learn from this – if the government is trying to work out social value, then we would want to use standard western accounting methodologies with these specific cultural contexts in mind.

Now don’t get me wrong, the willingness to attack “western” accounting immediately shows that the authors want to attack an arbitrary strawman, than to credibly discuss what organisations are trying to achieve with accounting values and then asking how to transparently represent that.  And this brings me to my second link – Buddhist economics.

Contrary to the description given of “western” economics on this post, there is a focus on “social value” in mainstream economics – there is a huge focus on it.

But the very description behind Buddhist economics here is worse than that – for some reason the author of the Wikipedia page has decided that the purpose of economics is to tell people how to live their lives, rather than describing scarcity and trade-offs.  Given this, the article finds fault with economics because it dares to assume that people act in a self-interested way.

Of course, we’ve seen this ethical confusion before – a million times.  People presume that since economists are willing to discuss trade-offs we lack morals.  Now, a clear moral and ethical standpoint IS required to decide on what SHOULD be done, and what policy SHOULD be picked by government.  But everything that I keep seeing economists attacked for, and in this case accountants as well, is merely describing something.

Now does this happen because people find it hard to distinguish between description and prescription?  Or is the issue that people think economists framing of issues IS the driver of certain ethical outcomes in policy, and that our pretense of separating “description” and “prescription” is flawed?

Does libertarianism apply to animals, too?

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Frances Woolley at Worthwhile Canadian initiative:

An average dog might prefer, say, chocolate over dry kibble. Yet an average dog owner has no qualms about ignoring the dog’s preferences and feeding the dog kibble over chocolate. Chocolate can kill a dog.

In the same way, an average human might prefer, say, soft drinks over water. Excessive soft drink consumption leads to a variety of health problems, such as increased risk of diabetes. Yet any attempt to encourage people to consume water rather than soft drinks through, for example, soda taxes, or bans on super-size soft drinks, is extremely controversial.

Why is it acceptable to limit animals’ choices, but not humans’?

Any economists who find this inherently daft might want to revisit Singer’s work on the subject from a utilitarian perspective.

Habit formation and the economic core

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I have repeatedly been informed that the “economic man” is a poor description of individuals, and given this economic models provide a poor description of the world we live in.  As I have said previously, I don’t agree with this conclusion – and we really need to ask what an economic model is, and why we are using it, to understand the scope of economics and the appropriateness of the assumptions.

In essence my view is that we use economic models to describe, and in some way explain, tendencies that exist (from induction) using assumptions about choice that satisfy two conditions:

  1. They are as weak and loosely binding as possible
  2. They are appealing in the sense that, when I ask myself about my actions I can deduce laws that guide them.  I could go a step further and say that we can set up “ideal experiments” in our minds, but I’ll leave that for now.

This is all well and good.  But then someone will say “what about habit formation“.  This is an important issue, people obviously develop habits and these habits bind and constrain behaviour.

In fact, I would go as far as to say that habits, and the formation of habits, provide the key to tying together a lot of different strands in experiments and behavioural economics – and that an understanding of habits and habit formation is an important part of improving economists way to describe the world and give advice.

So how do we “describe habits”?

Continue Reading →