The ladder of social science reasoning, 4 statements in increasing order of generality, or Why didn’t they say they were sorry when it turned out they’d messed up? — Andrew Gelman

Reinhart and Rogoff. Why didn't they take responsibility, a student asked Andrew Gelman. Statistics professor Gelman answers:  It wasn't actually about the data in the minds of R & R, so being wrong about it apparently made no significant difference to them. Empirical result? Meh.

Rationalists, or just ideologues with a cognitive bias?

Statistical Modeling, Causal Inference, and Social Science
The ladder of social science reasoning, 4 statements in increasing order of generality, or Why didn’t they say they were sorry when it turned out they’d messed up?
Andrew Gelman | Professor of Statistics and Political Science and Director of the Applied Statistics Center, Columbia University

See also

Paper by Mohsen Javdani and Ha-Joon Chang
Marginal Revolution
Ideological bias and argument from authority among economists
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center

How economics can raise its game — Tim Harford

Another one on methodology.

I, my view, Tim Harford is basically correct in thinking that the optimal methodological approach in economics, as in the social sciences, is to "let a hundred flowers bloom," to borrow a metaphor from Chairman Mao. But from the POV of the "hard" sciences, "soft science" is not "real" science. That is drawing lines arbitrarily. It basically says that the other "sciences" are not physics or chemistry. Well, doh.

Anyway, the post is worth a read. It takes off from a recent paper by George Akerlof.

Tim Harford — The Undercover Economist
How economics can raise its game
Tim Harford, FT columinst

Asad Zaman — Defining Islamic Economics

More on pluralism in economics. Traditionalism has something to say to liberalism about both substance and process.

What is Islamic Economics? A paper by Hafas Furqani “Defining Islamic Economics: Scholars’ Approach, Clarifying The Nature, Scope and Subject-Matter of The Discipline” lists more than 21 definitions, citing in addition several authors who state that there is no need for such a definition. Why is there such a variety of definitions, and what can be done to arrive at consensus regarding this matter? The problem is deeper and more complex than it appears on the surface. We list two major obstacles in the path of its solution:

An Islamic Worldview
Defining Islamic Economics
Asad Zaman | Vice Chancellor, Pakistan Institute of Development Economics and former Director General, International Institute of Islamic Economics, International Islamic University Islamabad

Regarding Western economics, in which he is rigorously trained, Asad Zaman is probably closest to Institutionalism and Post Keynesianism, even though he is an econometrician and statistician.  He has recently been writing on Islamic economics, as well as on economic pedagogy.

Asad Zaman (born 1953) is a Pakistani Professor, Economist and social scientist. He is currently Vice Chancellor of the Pakistan Institute of Development Economics, Islamabad.[1] Previously he was Director General of International Institute of Islamic Economics, International Islamic University, Islamabad. He earned his PhD in Economics from Stanford University in 1978, MS Statistics from Stanford University in 1976 and BS in Mathematics from MIT in 1974. He is also a member of Monetary Policy Committee of State Bank of Pakistan and Editor of International Econometric Review.[2] He has been appointed as member of Economic Advisory Council formulated by Imran Khan, the Prime Minister of Pakistan.

Zaman finished high school in Karachi, Pakistan in 1971, and moved to MIT, Boston for higher Education. He finished his BS in Math in 1974. He finished his Ph.D. in Economics from Stanford University in another three years from 1974 to 1977, picking up a Masters in Statistics along the way. He was unique in taking first year graduate sequences at Economics, Mathematics, and Statistics simultaneously. This was because he planned a doctorate in Econometrics, which required knowledge of all three fields.[citation needed]
Zaman did a post-Doctoral year at the Center for Operations Research and Econometrics (CORE), at the Universite Catholique de Louvain, Louvain-la-Neuve, Belgium from 1977 to 78. — Wikipedia.

See also

The US Catholic bishops advocate an economics integrated with social democracy and "natural law" as the basis of human rights, human behavior, and human interaction.

 We urge Catholics to use the following ethical framework for economic life as principles for reflection, criteria for judgment and directions for action. These principles are drawn directly from Catholic teaching on economic life.

1. The economy exists for the person, not the person for the economy.

2. All economic life should be shaped by moral principles. Economic choices and institutions must be judged by how they protect or undermine the life and dignity of the human person, support the family and serve the common good.

3. A fundamental moral measure of any economy is how the poor and vulnerable are faring.

4. All people have a right to life and to secure the basic necessities of life (e.g., food, clothing, shelter, education, health care, safe environment, economic security.)

5. All people have the right to economic initiative, to productive work, to just wages and benefits, to decent working conditions as well as to organize and join unions or other associations.

6. All people, to the extent they are able, have a corresponding duty to work, a responsibility to provide the needs of their families and an obligation to contribute to the broader society.

7. In economic life, free markets have both clear advantages and limits; government has essential responsibilities and limitations; voluntary groups have irreplaceable roles, but cannot substitute for the proper working of the market and the just policies of the state.

8. Society has a moral obligation, including governmental action where necessary, to assure opportunity, meet basic human needs, and pursue justice in economic life.

9. Workers, owners, managers, stockholders and consumers are moral agents in economic life. By our choices, initiative, creativity and investment, we enhance or diminish economic opportunity, community life and social justice.

10. The global economy has moral dimensions and human consequences. Decisions on investment, trade, aid and development should protect human life and promote human rights, especially for those most in need wherever they might live on this globe.

United States Conference of Catholic Bishops
Catholic Framework for Economic Life

Related

Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. EconomyUnited States Catholic Bishops, 1986

Lars P. Syll — Noah Smith’s new MMT critique — more nonsense on stilts

Noah Smith assumes that the methodological question has been decided in favor of formalism.

Lars P. Syll’s Blog
Noah Smith’s new MMT critique — more nonsense on stilts
Lars P. Syll | Professor, Malmo University

Lars P. Syll — a question of economic methodology

Radical uncertainty is feature of a complex adaptive system a chief characteristic of which is emergence. Emergence is at the heart of evolution theory. Emergence in this context means that there is no way to predict what will emerge from a complex adaptive system based on investigation of the past and present state of the system. This implies that surprise is a characteristic of such systems.

This also implies that complex adaptive systems are like open systems rather than closed, receiving input exogenously, although in reality the additional input arises endogenously through the system dynamics, e.g., through reflexivity that engenders feedback and learning, but it a way that cannot be foreseen based on the present and past system states and operations.

Treating social systems as if they conformed to the structure and dynamics described theoretical in natural science, e.g., based on endogeneity, involves oversimplification. There is a strong tendency among rationalists that prefer formal solutions to adopt methodological assumptions based on mathematical tractability and convenience instead of accepting the empirical limitations of complex adaptive systems like human societies.

This has resulted in what Michael Hudson has dubbed "junk economics." Elegant but wrong.

It's long past time to admit that Keynes and Knight were correct and that Ramsey and Savage were wrong.

Lars P. Syll’s Blog
Radical uncertainty — a question of economic methodology
Lars P. Syll | Professor, Malmo University

Yannick Slade-Caffarel — The nature of heterodox economics revisited

While the mainstream is defined by an insistence on method, the heterodoxy is defined by a concern with reality. What is so powerful about the conception, and what seems to have been almost entirely ignored, is what comes next.

The implication of Lawson’s conception is that heterodox economics encompasses all those researchers that desire to study economic phenomena in accordance with our best understanding of how social phenomena exist. What method they decide to use is not a factor in determining whether or not a researcher is heterodox. However, Lawson’s assessment also identifies what specific methodological issues might be impeding heterodox economists from achieving that goal. For Lawson is arguing that in most instances, mathematical modelling of the sort used in economics is inappropriate for studying social phenomena. And he is imploring those heterodox economists who use such methods to pay attention to that probable mismatch.

Lawson’s conception of heterodox economics includes, in the simplest terms, all those economists who are trying to be realistic. This seems relatively uncontentious. However, the conception also shows that methods of mathematical modelling that seem to be used increasingly by heterodox economists are not going to get them any closer to that goal. Indeed, this assessment, while providing a useful definition, also serves, perhaps most importantly, to identify why heterodox economics is not in good shape.

Progress in Political Economy
The nature of heterodox economics revisited 

Yannick Slade-Caffarel | PhD Candidate at the King's Business School, King's College London, a visiting doctoral student at Sciences Po Paris, and an active member of the Cambridge Social Ontology Group

Peter Turchin — What Is the Role of Morality in a Capitalist Economy?

In September 1970 Milton Friedman published an articlein The New York Times Magazine, “The Social Responsibility of Business is to Increase its Profits.” Friedman, who has received the Nobel Prize in Economics in 1976, is probably the most influential economist of the second half of the twentieth century. His views have become the mainstream economic thinking, although few economists today care to state them as boldly as Friedman.

In my recent book UltrasocietyI use the examples of fictional Gordon Gekko (a character in the movie Wall Street) and all-too-real Jeff Skilling (the CEO of Enron) to explain why this view is wrong. Yet I have wondered on occasion, do economists really believe that “the world runs on individuals pursuing their self interests” (to use another Milton Friedman quote) and that businessmen should be motivated solely by self-interest unadulterated by any feelings of sympathy or morality?...

Evonomics
What Is the Role of Morality in a Capitalist Economy?

Peter Turchin | Professor in the Department of Ecology and Evolutionary Biology at the University of Connecticut, Research Associate in the School of Anthropology, University of Oxford, Vice-President of the Evolution Institute, and blogger at Cliodynamica — A Blog about the Evolution of Civilizations

See also

The CEO of Sears Fails His Company by Believing in Ayn Rand and the Invisible Hand

Jonathan Haidt | Thomas Cooley professor of ethical leadership at the NYU-Stern School of Business

Cameron K. Murray — Decent criticisms of economics? Here are 111 of them.

Just about any one of them is fatal.

Fresh Economic Thinking
Decent criticisms of economics? Here are 111 of them.

Cameron K. Murray

Jason Smith — In the right frame, economies radically simplify

More thoughts on economic methodology. First a framework is needed and then theories can be constructed and tested in that framework. The simplest frame and most economical theory that explains the data sufficiently to be useful is preferred.

A framework involving complexity is not necessarily better than one that doesn't as long as it gets the job done.

Smith observes that theories constructed within the conventional framework that conventional economists presume is not getting the job of explanation and prediction done very well.

He cautions that this doesn't necessarily mean that a more complex framework is better at explanation (formal theoretical model) and prediction (empirical testing of the model against adequate data).

The dynamic equilibrium frame [of Smith's information transfer economics] not only radically simplifies the description of the data, but radically reduces the information content of the data.... 

This is all to say the dynamic equilibrium model bounds the relevant complexity of macroeconomic models. I've discussed this before here, but that was in the context of a particular effect. The dynamic equilibrium frame bounds the relevant complexity of all possible macroeconomic models. If a model is more complex than the dynamic equilibrium model, then it has to perform better empirically (with a smaller error, or encompass more variables with roughly the same error). More complex models should also reduce to the dynamic equilibrium model in some limit if only because the dynamic equilibrium model describes the data.

This would suggest that the methodological debate in economics is not over, as conventional economists claim.

Information Transfer Economics
In the right frame, economies radically simplify
Jason Smith

Robert Locke — The New Paradigm that emerged in economic s after WWII

As an historian, I am somewhat appalled at the inability of economists, including those on this blog to get the history of their own discipline straight.  The obsession has been with neoclassical economic’s attempt to turn economics into a physico-mathematical discipline as Walras phrased it, and the economists usually discuss this attempt within the historical context of their discipline pre-1945, with references, to  Walras, Marshall, Keynes, and others.

It  became clear to me over thirty years ago, that the neoclassical  effort to turn economics into a prescriptive science had failed before WWII....

When I wrote my chapter on The New Paradigm in Management and Higher Education Since 1940, CUP, 1989, I focused on the methods of Operational Research developed during WWII and the Cold War, that neoclassical economics imbibed . I wrote, for example, about how the Rand Corporation working on OR problems for the US Air Force gave birth to George Dantzig’s linear programming algorithms in 1947. 

Postwar military planners and the economists who worked with them at Rand believed the new toolkit would transform neoclassical economics into a prescriptive science. At Rand in 1948, the economist Kenneth Arrow used the toolkit in his work on Rational Choice Theory. The neoclassical economists Joseph Dorfman, Paul Samuelson, and Robert Solow applied linear programming to their subject as well (in Linear Programming and Economic Analysis, 1958).

Why isn’t the source of the new paradigm in OR being discussed, instead of preWWII economists.

When I wrote the second chapter in my 1989 book, “The New Paradigm Revisited,” I questioned through the critics, how the prescriptive prowess of The New Paradigm fizzled. The people I cited were primarily OR scientists themselves. That is, I note that the people whose methodologies led to the New Paradigm, questioned the effectiveness of their own discipline. The prime example of this volte-face is Russell Ackoff, who popularized OR methods in the UK in the 1960s, only to write in a 1979 article, “The future of operational research is past,” “OR problems can never be a perfect representation of a problem. They leave out the human dimension, the motivational one. [Problem solving requires] the application not only of science with a capital S, but also, all the arts and humanities we can command.”....

Real-World Economics Review Blog
The New Paradigm that emerged in economic s after WWII

Robert Locke

Alexander Douglas — Simon Wren-Lewis, MMT, maths

Alexander Douglas replies to Simon Wren-Lewis on MMT.

Stories by Alexander Douglas on Medium by Alexander Douglas
Simon Wren-Lewis, MMT, maths
Alexander Douglas | Lecturer in Philosophy, University of St. Andrews

Lars P. Syll — Methodological arrogance

On reductionism.

This is also the case in philosophy where different methods attempt to exclude other methods by reducing the debate to a lower level of data, e.g, sense data only, or lower order of abstraction, e.g., all abstraction must be reducible to first order. These methodological assumptions reduce justification to observations of objects. For example, David Hume used philosophical reduction to sense data to exclude causality, arguing that causality is nothin more than observation of constant correlation.

The idea is that everything at a higher scale must be accountable at a lower scale. This doesn't even apply in physics (yet) as the hardest science, where the scope of quantum mechanics (micro) and cosmology (macro) still fall outside each other, and questions loom about how to reconcile the micro and macro levels.

To insist on reduction to individual psychology and behavior in economics is indeed arrogant, especially when the social unit in sociology is the family and economic considers economic units in terms of households and firms, and neither human psychology nor behavior are well understood (explained) scientifically.

Reductionism is a methodological assumption that is unsubstantiated by rigorous criteria. It is a stipulation and insisting on it as exclusive is arrogant when there are alternatives in the debate. This is the arrogance of dogmatism rather than open inquiry as the basis of gaining knowledge and the origin of scientific method in an environment where theology reigned.

In short, it is not only arrogance, it is dangerous, as Popper recognized. This is the point of the open society he advocated. Freedom of thought and expression is the basis for inquiry, discovery, and creativity. The discipline of economics risks falling into irrelevance if orthodoxy insists on imposing methodological reductionism as "settled."

Lars P. Syll’s Blog
Methodological arrogance
Lars P. Syll | Professor, Malmo University

Selim Yaman — It’s gotta be true, because data says so

Nicely framed post on the use and misuse of data. Remember Reinhart & Rogoff.

What they don't mention is that often the data are not made available publicly because it comes from proprietary sources. "Trust us."

The Minskys
It’s gotta be true, because data says so
Selim Yaman, TRT World Research Centre and graduate student in Political Economy of Development, SOAS, London.

Erik Bähre — Towards a Heterodox and Reflexive Economics

After the 2008 financial crisis, the call for a more heterogeneous approach to studying and teaching economics intensified. But how can heterodoxy take up a more prominent place in economic science? A cultural anthropologist offers three suggestions.

Category of doh. Conventional neoclassically trained economists don't get any of this. Institutional economists do.

The Human Economy
Towards a Heterodox and Reflexive Economics

Erik Bähre | Associate Professor, Institute of Cultural Anthropology and Development Sociology, Leiden University

Simon Wren-Lewis — Do New Keynesians assume full employment?

Simon Wren-Lewis doesn't ask the fundamental question, Where does the money come from; hence he does not understand monetary economics and sectoral balance, or the difference in policy space between sound finance and functional finance. 

So this is not in the model and therefore the model can't explain actual events other than by assuming that the labor market is based on the ratio between preference for work (income) and leisure (reduced income).

I guess this is what happens when one spends one's life on campus rather than in the actual world. It's also pretty astounding since this is a principal issue that Keynes addressed.

Mainly Macro
Do New Keynesians assume full employment?
Simon Wren-Lewis | Professor of Economics, Oxford University

Diane Coyle — Shadow-boxing with reality

Mulling over the debate under way about general equilibrium and macroeconomics, I picked up Paul Samuelson’s Foundations of Economic Analysis for the first time in ages. In the foreword to my 9th (1979) edition, he wrote: “In a hard, exact science a practioner does not really have to know much about methodology. … By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis and factual refutation may spend a lifetime shadow-boxing with reality. In a sense therefore, to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems.” Hmm. We have a lot of shadow-boxers, I fear.

The Enlightened Economist
Shadow-boxing with reality
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Simon Wren-Lewis — Stock-Flow Consistent models: response to Jo Michell

Jo has a thoughtful and constructive response to my post discussing a recent Bank of England paperthat presents a new Stock-Flow Consistent (SFC) model. One of the reasons it is constructive is because it is not tribal: too many followers of heterodox schools seem to just want to rubbish mainstream macro and suggest their particular school represents the new dawn. So I thought I might make a few points on Jo’s post that might be helpful.

Mainly Macro
Stock-Flow Consistent models: response to Jo Michell
Simon Wren-Lewis | Professor of Economics, Oxford University

Jo Mitchell — Consistent Modelling And Inconsistent Terminology

Detailed comment on the points raised by Simon Wren-Lewis on SFC modeling versus DSGE modeling. Lots of history.

Critical Macro Finance

Consistent Modelling And Inconsistent Terminology

Jo Mitchell | Senior Lecturer, University of the West of England, Bristol

ht Ramanan at The Case for Concerted Action

Peter Dorman — Internal/External, Validity/Consistency

As every consultant knows, all the mysteries of the universe can be revealed in a two by two matrix. We divide the cases up one way and then some other way. That gives us four cells and vast, remunerable wisdom.

Here is my version for economics. One way of dichotomizing how much faith we should put into hypotheses is between reasoning and evidence. Reasoning is about consistency. An inconsistent argument is at war with itself in some way and should be regarded with suspicion. The other criterion is evidence. Evidence either adds to or detracts from the validity of an argument. Ideally a hypothesis should be strong on both fronts, although we know our powers of formulating and testing hypotheses are incomplete, especially in social sciences like economics. We don’t necessarily rip up and burn theories that have consistency or validity problems, but we take those problems seriously. Or should.

The other dimension is internal/external. Internal means “with respect to this particular empirical study or body of theory” and external “with respect to all the rest of the empirical cases and theory out there”. Each piece of work needs to be judged on its own terms, but research and analysis do not occur in a vacuum. We also have to be mindful of the empirical world outside our particular sample, and we should respect the models developed by other researchers, especially when they have done well on consistency and validity tests.…

Econospeak
Internal/External, Validity/Consistency
Peter Dorman | Professor of Political Economy, The Evergreen State College

George H. Blackford — Economists Should Stop Defending Milton Friedman’s Pseudo-science

Science is explanatory as well as predictive. Milton Friedman's methodology is pseudo-scientific.

Evonomics
Economists Should Stop Defending Milton Friedman’s Pseudo-science
George H. Blackford | former Chair of the Department of Economics at the University of Michigan-Flint