James Kwak — Moral Worldviews and Empirical Beliefs

Discovering the obvious. Values tend to shape beliefs about fact.

Funny thing, Twitter. My most-viewed tweet ever is the following:

"A survey of 131 economists found that their answers to moral questions predicted their answers to empirical ones." https://twitter.com/neelkashkari/status/731448820697989125 …

Baseline Scenario
Moral Worldviews and Empirical Beliefs

James Kwak

Philip Pilkington — Marginalist Microeconomics: The Path to Totalitarian Tyranny

Fortunately the totalitarian tendencies of marginalist microeconomics are kept in check in Western democracies to a very large extent. But one can imagine the social chaos that might be unleashed were a government ever to get in that allowed to microeconomists free-reign. Given the opportunity — especially by an authoritarian government — their attempts to impose their bizarre notions of rationality on the population could quickly turn into something out of a dystopian science-fiction novel.

Of course, the microeconomists will say that I’m misrepresenting them and that their doctrines are based on the idea of individual choice. This is entirely untrue, of course, because, as I have written before, in marginalist economics people are nothing but calculating machines — not actual decision-makers. But then, tyranny always comes selling itself as the path to greater freedom, now doesn’t it? And the harbingers of this tyranny often come wearing the frocks of the scientist and insisting on the ‘total objectivity’ of the evils that they do.

Marginalism is another name for neoclassical economics. It pretends to be descriptive, but it is normative and prescriptive — not so much science as ethics, and bad ethics at that, where "efficiency" is the criterion of good. The way to efficiency is by reducing waste, and "waste" is defined as anything that does not meet the criterion of being "rational" in terms of pursuit of maximum utility.

Fixing the Economists
Marginalist Microeconomics: The Path to Totalitarian Tyranny
Philip Pilkington

Rumplestatskin — Economics is applied morality

Utilitarianism is the moral foundation of economics. The idea of the greatest good for the greatest number is intuitively appealing. But applying a utilitarian framework relies on value judgments about the desires, and a comparable measure of their intensity, of every individual. Some of the defining debates in economics over the past century have centred around the measurement and comparability of utility between individuals.

Thus any application of economics requiring estimation of costs or benefits is applying a judgment about the worthiness of competing desires of the population at large. That judgment is necessarily a moral one.

Utilitarianism is a subset of consequentialism (outcome-based), which is one of the major divisions of ethical theory along with deontology (rule-based), rights, natural law, divine injunction, casuist (case study), situational (love is higher than law), and virtue (character-based) ethics. Ethics is a subset of axiology or value theory, and also an aspect of theory of action.

Conventional economics simply assumes away millennia of debate and controversy over the relationship of the normative, prescriptive, and descriptive, as if economics is exempt from such considerations. However, the normative and prescriptive is built into human affairs and ignoring it simply creates hidden assumptions and unacknowledged biases.

Macrobusiness
Economics is applied morality
Rumplestatskin

Dirk Ehnts — The Good Economist

AEN: I take it that you don’t hold much confidence or faith in attempts at economic prediction through econometric techniques.

SHACKLE: No, frankly I don’t. I shall be shot out of the profession even further than I have been already; this will be the end of my career, if it hasn’t ended many years ago. However, I will be honest and say that I don’t think that economics can yield constants of the kind that physics does. Physicists have constants, e.g., the acceleration due to gravity, the table of atomic weights. I don’t believe that economics can have constants like that, You might make measurements which are all right for today. But, there are countless people whose interest it is to make nonsense of those measurements tomorrow. Well, now I have really been quite honest.

AEN: If one takes that position, then a question could be asked of you: Given what you have said, what should economists do? 

SHACKLE: I think they should give up giving advice, except on the most hesitant, the most broad grounds. I think they should introduce an ethical element, a more than ethical element. If a man is asked whether public expenditure should be cut or not, he perhaps should say, “Well, if we cut it, we shall cause a great deal of misery; if we don’t cut it, we don’t know what the consequences will be, but we can’t at least have this misery on our consciences”. This sort of argument is not an economic argument, it’s an argument with one’s conscience.

econoblog101
The Good Economist
Dirk Ehnts | Berlin School of Economics and Law

David Fields — A Short Note on Social Theory and Enquiry

Brief summary of the epistemological conditions that influence methodological options is the social sciences. Fields know how to pack a paragraph. Very nice.

Short translation: Everyone has a POV and that POV introduces epistemological presuppositions as methodological assumptions into all theoretical enquiry. Methodological assumptions function as norms in selecting and organizing data, for example, through prioritizing.

Naked Keynesianism
A Short Note on Social Theory and Enquiry
David Fields

Chris Dillow — Efficiency Vs Sanctity

The point here is that efficiency is not an incontestable value. It collides with others, the belief in the sanctity of some goods.

Economists tend to have a tin ear here - they just don't hear the arguments against efficiency....

I don't say all this to take sides. I do so merely to show that values are contestable, but that a debate about them is possible.

Stumbling and Mumbling
Efficiency Vs Sanctity

Chris Dillow | Investors Chronicle (UK)

I would frame it the way that Peter F. Drucker did, "Efficiency is doing things right and effectiveness is doing the right things." Effectiveness involves choosing goals and this choice involves normative criteria, i.e., "values." efficiency is subordinate to effectiveness, since efficiency is about means and effective about goals, and means are subordinate to goals.

Cullen Roche — The “Dismal Science” and Getting Back to Da Vinci’s Methodology

Cullen writes an interesting article with a laudable goal, which is making economics an science by purging it of the non-descriptive. However, a great deal has already been written about why this is not possible in the social sciences, which I won't repeat here other than to mention it and say that there are formidable obstacles to accomplishing this, which is why it hasn't happened yet.

The social sciences, as well as psychology, are combinations of philosophy and science insofar as they are interesting and science only insofar as they limit themselves to the strict application of scientific method, which is limited in the social sciences due to the subject matter, for a variety of reasons.

The best we can hope for with existing methodology is to differentiate as clearly as possible between the descriptive and non-descriptive, but this is very difficult due to pesky things like subjectivity and hidden assumptions.

However, it is worthwhile talking about to throw some sunlight on the issues. For example, New Classicalism and Neoliberalism purport to be descriptions only involving the the natural, while critics have pointed out that this is just ignoring unacknowledged assumptions that cannot be reduced to the natural and demonstrated empirically.

Read it at Modern Monetary Realism
The “Dismal Science” and Getting Back to Da Vinci’s Methodology

by Cullen Roche

Floris Heukelom — Economics as a doctrinal discipline

This is a provocative post challenging the notion that economics is or can be an entirely empirical science since it is grounded in norms and values, which act as hidden assumptions. Better to admit them, shine light on them and examine them rationally instead of pretending that they don't exist.

Read it at INET | History of Economics Playground
Economics as a doctrinal discipline
by Floris Heukelom
(h/t Matt Stoller at Naked Capitalism)

The descriptive v. the normative in MMT as a macro theory

Distinguishing the descriptive (positive) from the prescriptive (normative) in MMT is theory-dependent. A theory is a generalized explanation that leads to predictions based on putative causation. Testing predictions formulated as hypotheses is the experimental aspect of the theory and it is part of the descriptive (positive) aspect, i.e., tests causal claims.

A scientific theory contains causal explanations that enable predictions. (There is a huge literature in the philosophy of science about nature of causality and its use as a theoretical tool.) This predictive capacity underlies the application of theory in engineering and technology. Broadly speaking, applied macro includes its application to formulating policy options. This application macro may result in a range of policy options. Options can be judged based on efficiency and effectiveness.

According Peter R. Drucker in The Effective Executive, efficiency is "doing things right,"  and effectiveness is "doing the right things." Assessing efficiency is a scientific (positive) concern, and the criteria for "doing things right' are generally clear and agreed upon.

Correctness wrt to effectiveness is based on the goals chosen. This is where the prescriptive (normative) enters. Economics does not supply policy objectives, which are a political matter, decided by representatives elected by citizens in a liberal democracy. Economists can only inform those responsible for governing about economic possibilities of various policy options.

The JG is part and parcel of the theoretical aspect of MMT as a macro theory that addresses reconciling the big three: production, employment and price. This is not a choice. Any macro theory that expects to seem credible in the currency academic universe of discourse has set these are priorities.

Take the JG out as a price anchor in addition to an employment buffer, and you don't have MMT as the macro theory it is. As Warren Mosler has said, the JG can be eliminated in making policy decisions, but don't then blame MMT economists if inflation results. One is just not following MMT as a macro theory anymore if one make that decision.

Of course, anyone can take other aspects of the MMT description and try to build another macro theory with knowledge that MMT economists have uniquely contributed. But it won't be Mosler-Wray-Mitchell (in temporal order) MMT macro, as amplified by MMT economists that have followed them in developing MMT as a macro theory.

That is say, the JG is not a normative policy option that is optional along a spectrum of policy options to choose from. It is part of the macro theory as a generalized description that enables prediction. MMT economists are firm in stating that if you want full employment and price stability, this is the only existing theory that shows the way to achieve it in the existing monetary and economic framework. Not that there cannot be others. But as of now, there aren't any.

It is also important to note that the JG is not an independent proposal. There have been JG type programs already, but they are not MMT JG because they have not been implemented as part and parcel of the MMT macro paradigm, which includes monetary theory, SFC macro modeling, Minsky's approach to finance, and Lerner's functional finance, integrated into a coherent and comprehensive macro paradigm.

As the MMT economists have said, if one rejects the JG, then one must either accept a buffer stock of unemployed as a default, or else provide alternative buffering solution to the JG that obviates the buffer stock of unemployed. The MMT economists remind that in accepting a buffer stock of unemployed one is simultaneously accepting significant inefficiency that results in economic underperformance, idle resources, and massive waste over time. This is an externality of the existing system that as costly as any of the other large negative externalities such as environmental pollution and degradation.

So to successfully attack the JG, one would need to show that a buffer of employed is less efficient and effective than a buffer of unemployed even with the enormous waste, or else provide an alternative buffer.

Let me emphasize — This is a macro problem, not a political one, not an ideological one, and not a micro one, which is the way most people on the blogs are addressing in the recent debate. It is claimed to be straight up macro, which requires knowledge of the history of the debate since the days of Classical Economics if one is going to join the debate, let alone advance it.

Finally, it is necessary to point out that some of the criticism of the JG-ELR, as well as other aspects of MMT such as fiscal policy, is based on the view that adopting such an approach undermines "capitalism," e.g., by destroying motivation, enlarging government intervention, and so forth.

Some of these issues are empirical claims that can be assessed through economic data as well as the finding of other branches of science like psychology, sociology, anthropology and evolutionary theory.

However, many of these issues are not decidable empirically. These are ideological issues rather than macroeconomic ones or scientific ones. This is the stuff of philosophy.

Some ideologies reject the very concept of macroeconomics as a valid discipline. So the contentiousness of the issues goes far beyond the JG or any specific aspect of MMT. In this regard the debate becomes a philosophical one rather than an economic one.