Economics is not consequentialist.  The framework allows for the natural imposition of a broad range of consequentialist ethical judgements yes, but by design economics itself is not consequentialist – in fact it is pretty easy to observe an economic argument and just make a deontological statement that gives you some conclusion (see John Rawls and how his discussions fit neatly in contemporary normative economics literature).  Just because economists use the term “utility” when talking about people making a choice does not mean we have a utilitarian ethical framework in mind for justifying choices – we are trying to describe what happens, not prescribe what should happen.  Even normative economics, with its reliance on ill defined social welfare functions, is simply trying to describe types of ethical consequences from policy – the process of deciding what “should” be done is the responsibility of policy analysts and politicians given the description that is provided.

Mankiw’s separation between economist as scientist and economist as engineer is apt in this regard.  In both ways the economist is not imposing values – they are either trying to describe trade-offs, or to describe a policy they are commissioned to.  The value judgement comes when stating what should be done.

I say this because people constantly confuse the policy prescriptions that are made using economics language with economics itself.  I have discussed this in more detail here.

Confusion between economists discussing policy and many non-economists (but technical experts) discussing policy is this distinction – economists have a preference for discussing trade-offs and stating that the choice between them needs to be dealt with by further analysis.  Many non-economist experts start with a normative position (we SHOULD lower obesity, or the Gini coefficient, for example) and then work to try to “solve” from there.  This “normative economic” position is a lot more fraught, but we can’t pick an option without confronting it – in truth it requires a lot of analysis and understanding from a variety of disciplines.

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In fact, to reach a “conclusion” by definition requires assumptions that have some value content.

Take the example of physicist and engineer and the building of a bridge.  Yes there are sub-branches of economics that are similar to these – in terms of either describing theoretical relationships or trying to discuss the implementation and trade-offs of a policy.  But neither makes the choice to build the bridge, they simply fill a roll in its construction – either by describing the theoretical framework of a bridge or practically designing the bridge to meet the given specifications.  If the bridge was the “wrong choice” we wouldn’t blame the physicist or engineer, so if a politician or the public chooses a bad policy why blame the economist?

Economists may be complicit in not describing trade-offs appropriately, but that is not the result of the discipline being consequentialist.  Instead we need to ask why broad knowledge of the trade-offs involved with a policy was not articulated and received by the public and politicians.  What were the incentives involved – on all sides – that led to that outcome?  What are the issues with the way economic knowledge is communicated to intelligent lay people in relation to their “common sense” models of what is true.  What are the issues with how the type of knowledge the discipline generates matches the concerns and needs of people asking questions about economic outcomes?

Given this, the application by economic experts may have issue even if the discipline itself is robust.  When I return to this issue I will be less kind to economists by discussing what we do in practice – specifically the fetishisation of policy perfection that pervades the discipline.

Note:  This isn’t a critique of any economist you may picture – in fact it is easily as much of a critique of myself as it is others.  I’m increasingly of the view that issues of interpretation of economic ideas stem from economists and the narratives we use to communicate, not the underlying methodological foundations of economics itself.

I hope that I didn’t give the impression in my last post that Mankiw actually likes philosophy.  If anything, he sounds rather negative.  Economists drawing on philosophy when making policy advice is apparently a “dirty little secret”.  The point seems to be that making a case for a policy will involve value judgements, often on disputed value judgements about distribution. 

Hey, I get it.  Just about any substantive policy would help some people but harm others.  So how does Mankiw propose to avoid the need to call in some philosophy?  His proposed principle is, …. hang on, I had it a minute ago … “[f]irst do no harm”.  Eh?  Didn’t he just say that government policies pretty much always harm someone?

I guess I must be getting the wrong end of the stick.  Perhaps I am failing to distinguish tasty and sweet-smelling type 1 harms from those nasty type 2 harms.  Or something.  He does give us a couple of hints about what it is all supposed to mean.  But I really think we could ask for some more clarity about the normative foundations of his perspective.  You know, like doing a bit of philosophy.

Greg Mankiw has an article in the New York Times.  It is notable for making explicit reference to literature in normative philosophy.  Does this mean that he has been doing some homework?  Some of his earlier forays into philosophical territory didn’t show much evidence that he was aware of work in that discipline.  Some philosophically literate readers weren’t very charitable about the sophistication of what he came up with.  “Low quality freelance philosophy done by people with PhDs in economics” according to Matt Yglegias.  A “laughably sophomoric attempt at political philosophy” according to Chris Bertram.

After he finishes his homework, perhaps we can look forward to some better freelance philosophy.

Economists try to answer questions about “the allocation of resources given scarcity”.  Every question is quite specific and different, economics education involves learning a broad set of skills that allow us to tackle questions.  To do this economists use models.  Models embody a set of assumptions, assumptions that create an “artificial world” that we can deduce conclusions from given these assumptions.  We then use data, robustness testing, and rhetorical debate to help us inductively infer conclusions about the real world question we are asking from these artificial worlds.

As a result, economics is a discipline that can discuss a wide range of social questions that range from deterministic statements, to prediction, to description, to exploration – but the answers provided are always conditional on the question asked, and the assumptions we have made for answering that specific question.

Further details can be found in these (in order):

1. What is economics in the most general sense.
2. On economics as method.
3. On assumptions – and again on assumptions.
4. What does it mean to have many models?
5. Economics and science – careful with the prediction call.
6. Before railing against economics – what economists do.

If you know of any literature I should peek at to help inform myself on the status of the accumulation of knowledge and method in the discipline (as there is A LOT of improvement I can do in my understanding here) I would really appreciate it.

Those who are too smart to engage in politics are punished by being governed by those who are dumber.

Economists like to think they’re above politics and deal only with positive questions. Is that really much of a boast?

“Is economics a respectful and useful reality-oriented discipline or just an intellectual game that economists play in their sandbox filled with toy models?”

Variants of these questions fly around all the time. Why are economists making unrealistic assumptions? Why won’t they just assage to “common sense” about the situation? Why are they making the ‘wrong’ choice in some trade-off between looking at the real world and narrative and/or mathmatical beauty?

These questions sound appealing, but in many ways they are often misspecified – not pointless, but without enough content to actually be answerable. As Maki says:

“As soon as one looks more closely, what one starts seeing is fact and fiction, in a variety of combinatory incarnations. One also begins to appreciate both of them as necessary elements in a scientific study of the social world”

The book then heads through essays by a number of prominent writers, discussing the form of models, causal ordering, constructionism (and collective beliefs – I would also note a paper “Why I’m not a constructivist” by Blaug here), and the nature and incentives of economists. I haven’t read every essay in the book yet – but I’ve read most a while back and found them very useful.

Note:  I promise more substantial posts from my end will return – but just not the number I was previously writing.  I am in the throws of adjusting what I write about, and this has limited my posting somewhat!  Luckily it appears a bunch of more interesting people have taken up the slack here – spectacular!  By the way, if any other economists want a sounding board for their views – flick me an email and we’ll work something out

Also you may have noticed that what I have been writing has been about why economics is useful and worth studying (here and here).  This is true.  Hopefully this provides some counterbalance to the poorly put together criticisms floating around about ‘studying economics’ which seem determined to make us all sound like archetypical monsters from some Grimm Fairy Tale.  Saying “we shouldn’t look at trade-offs because then we lose our sense of community” sounds strangely like “we shouldn’t study the natural world or we will lose our sense of faith” don’t you think – and when all the ‘evidence’ is subject to an ignorance about the basic concept of revealed preferences I can’t help but feel that there are some people out there that were bullied by an economist at grad school, and have tarred us all with that brush

Interdisciplinary, group, social science is going to be extremely powerful in the coming decades – let us not undermine it by introducing ill informed prejudices.

Note 2:  Then again, it looks like arbitrary attacks of economics within our own discipline is nearly as wrong-headed.

Seriously, attacking the U-shaped cost curve … it is a framework to allow us to empirically test actual industries FFS.  When teaching it in first year you discuss with students the idea that you can have diminishing marginal product in factors and still have economies of scale.

The understanding and framework provides a base that allows us to actually test things – the theories ARE NOT about the way the world “ought” to work, it is a series of assumptions (a theory) that we can use along with data to perform inductive inference about whether the logical results of the theory hold in the ‘real world’.

@pdmsero @Spencer_DavidA When it is actually a recognition we need theory/sets of assumptions before we can interpret data.

— TVHE (@TVHE) November 10, 2013

We are creating a series of credible worlds, and economics teaching shows us how to do this for a given question – it isn’t a f’ing set of universal rules regarding what we should do passed down from on high, and it is the people who want a discipline that does that who are overconfident in their own knowledge and are frankly dangerous.

Common sense is an important thing to keep in mind, and the concept undeniably has a place when thinking about the application of economic ideas, or the reference point from where the social sciences should put effort into building understanding.

Common sense refers to judgements, knowledge, and beliefs that are shared between people. The context I’m using here is a touch weaker – but similar to the more common definition:

“Common sense is a basic ability to perceive, understand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate”

The main difference is that this is descriptive of the way common sense is treated, not an indication of the way we should treat it

‘Common sense’ and what this entails played a formative role in the formation of economics, and it remained an explicit and central part of the general philosophical underpinnings of the nature of economic arguments prior to the ‘positivist revolution’.

However, I often see views of common sense both within and outside of economics deteriorate into one of two camps:

1. Common sense is inconsequential: namely, the purpose of the study of something like economics is to show (describe) areas where common sense fails, as this is where economists add value. Someone I know once defined this view as “common sense is for common people” – which I can only assume was a joke
2. Common sense is all that matters: Our common sense evolved within our unconscious mind and across institutional structures formed from basic, and fundamental, human interactions. As a result, the purpose of the study of something like economics is to show (describe) how common sense arguments work – and how most of the time the answer to vexing social issue is common sense!

Of course, these definitions are not actually mutually exclusive – and actual economic thought about common sense includes both of them. The clearest example of this is Rubin’s work on folk economics (REPEC).

However, when it comes to thinking about what economists do (rather than just their view on what common sense entails) the requirement to sit in one of these ‘common sense camps’ becomes even weaker. The exceedingly harsh conclusions of the two views above (common sense sucks, common sense rules) don’t actually follow from the premises involved – economics describes situations where common sense beliefs are right, and when they are wrong!

And this is the kicker. Economics is a social science – it is applying the scientific method to help describe and understand social phenomenon. It is not about saying whether beliefs are right or wrong, it is about trying to create knowledge to help us form beliefs.

Now, given that the formation of beliefs is an important part of describing social phenomenon (since choices are based in part on beliefs, and social phenomenon are the result of choices), the issue of belief formation does appear in full force. However, this does not imply that we have to make an a prori choice to state that common sense is wrong or right – instead it suggests we need to think how beliefs, and expectations, are formed and (where possible) use data to help us find what appears to be the most appropriate assumption.

This is why criticising economics as only the study of common sense, or stating that it is ignorant of common sense, is a weak criticism.

However, it is also important to note that stating that policy conclusions are ignorant of ‘common sense beliefs’ can actually be a more poignant criticism – as it indicates simply that we do no agree with the set of beliefs and/or value judgements involved in the policy conclusion.

Instead of targeting an arbitrary set of outputs that treat New Zealand like a machine, policy should be based on the inherent trade-offs that exist for the policy question we are asking.  Focused research on the costs and benefits of educational achievement, health outcomes, benefit policy etc – these are the ways we can incrementally improve policy, and build a better society together.

These outputs may suggest to us there is an issue that deserves investigations– but they should not be seen as an end to themselves.

Policy justified on the basis of the target of an arbitrary GDP or happiness index doesn’t do this, and instead threatens to tie our outcomes closer and closer to someone else’s view of what is right, what is just, what is happiness, and what wellbeing.  Instead the aim of government policy should be to ensure people in society have the ability to reach, and access to, choices that allow them to gain wellbeing.

A factor that often gets missed when discussing policy options in public is that the real “target” is not observable.  If we are not careful about the way “observable” things translate into the underlying issues we really care about, we will make a lot of false policy conclusions.

One of the reasons economists use a counterfactual that involves no government involvement is because of the idea of “revealed preferences” – that individuals will make choices that reveal the value they place on things.  Individuals know (at least to a greater degree) what they value, while the rest of us cannot hop into the minds of others and figure out what they value.

A clear view of trade-offs, and the use of markets to help ensure people reveal preferences, gets us a long way. Given that we can then go about considering the views of co-ordination that Matt also touched on last week.

The era in which an essayist can get away with ex cathedra pronouncements on factual questions in social science is coming to an end.

Very good, and Pinker’s co-operative version of science with the humanities seems appropriate to me (where instead we are merely asking about how to deal with certain propositions and using the best tools available).  I think Pinker won this debate, I am unsure why Wieseltier felt it necessary to take such an extreme position though – I think he initially believed Pinker was trying to force through a view based on the superiority of scientific authority (one that Pinker rules out in his initial article!), when he was really just suggesting the use of the scientific method (namely introducing a degree of the positivist view of theory creation) given the improvements in data availability and usability we have had.

As XKCD says:

But even within Pinker’s reasonable claims there is one area where I would be a touch careful – a direction I was hoping the debate would actually go in!   I would just caution being too confident about placing beliefs on the basis of ’empirical fact’.  We should definitely use the information and update our beliefs, but the Duhem-Quine thesis is even more binding in the social sciences than it is in the physical sciences – due to the lack of natural experiments and that more complicated causal chains involved.  [Note:  Would have also enjoyed a free will vs determinism debate]

Language and rhetoric allows us to give this context and give alternate hypotheses and elements of heterogeneity in society a fair go – even looking straight at empirical data, the use of these allows us to know what we can’t measure, helps establish a limit to the use of data, and helps us ‘pick’ what we should be trying to measure!  We should definitely make use of empirical data, and use it to establish underlying premises – but when it comes to writing an essay or op-ed the premise established from data could conceivably be so far in the background of the argument (due to the conditional nature of its use) that essayists may appear to be making ex cathedra pronouncements on issues that ‘on the surface’ appear to be factually false, but are actually appropriate.

Just to take the example in the piece, the 30-60% of Americans saying they take the bible literary (our fact) just tells us that this is what they reported to someone – it is not a revealed preference.  For this we need to see actual behaviour when making choice.  We could argue that they were saying this “to sound good to the interviewer” – even unconsciously.  Given this, the true number is well lower, and our view that literal views in religion are not widespread survives as a premise for whatever claim we are making.  In this way, the writer really has to appeal to authority – they do not have the space to write this out, but they have the argument around it in their backpocket.  Directly old auxiliary hypotheses!

I’d also note I really don’t know terribly much about these things, and it would make a lot more sense to find someone who works in an interdisciplinary field which already does this.  Someone who has a lot of experience with empirical data and models, but also write about language and works in a history focused type field.  Someone with an Economics History background.  The answer is pretty clear for the economists out there – Deirdre McCloskey.

However, I have noticed this time, in the first chapter, Hausman admits that is what they are doing – and it is to make the basic ethic principles they want to discuss “clear” to other economists.  In other words this isn’t a book about criticising economists per se – more a basic description of some important moral principles to keep in mind when translating from theory to practice in economics and policy making, and decision making more generally.  I can deal with this, and should be able to read the book far less defensively.

On that note he says:

 The idea that studying ethics could help people to do economics or policy analysis may seem far-fetched.  Why not consult tarot cards instead?

Well, if he insists …

More seriously, I find myself concerned that this piece is going to underplay the social conventions that do drive views on morality, or will treat morality as an aprori truth we can find from introversion (note, there may be non-relativistic moral facts, but they may still exist with reference to “society” rather than with reference to an individuals understanding/beliefs about society – this gets us into the hard situation of trying to determine social preferences, which is a minefield).  But it may not, and as I know very little about these things it will be useful to go back through it a bit more objectively than I did last time