Andrew Gelman — Our hypotheses are not just falsifiable; they’re actually false.

On the practical side of philosophy of science. Adding nuance to Karl Popper on falsification.

Further argument for the view that theories are useful but not "true." This may seem to contradict the realist view that theories are general descriptions of causal relationships. But I don't think that this is what is is implied. Rather, useful theories can be viewed as fitting the data because they reveal underlying structures that are not observed directly but only indirectly. 

There is a often a tendency to transfer simple analogies too complicated and complex situations and events. Some causal relationship are observable, as it a hammer driving a nail, with the physical theory explaining it in terms of simple variables related in a function. 

But most interesting issues are much more complicated and nuanced and may be complex, e.g., subject to emergence owing to synergy. There may a constellation of factors involved, and this may be difficult to order in a hierarchy. Some factors may be catalysts that are necessary for an operation but do not themselves enter into it. These may be presumptions that are hidden assumptions.

In addition, statistics is by definition "inexact" in that it deals with probabilities, unlike deterministic functions in which the variables are all known and measurable, and are expressible in terms of a simple function.

While physics is mostly tractable other than at the edges, life sciences are less so, and social sciences and psychology even less. Economics combines social science and psychology, especially macroeconomics and political economy. Economic sociology and economic anthropology take this into account, global economic history also demonstrates it.

This is coming to the fore now as some critics of MMT, the Green New Deal, and "socialism" demand to see data-based model that "prove" proposed solutions have worked in the past. Of course, the record is important, but the demand for "proof" requires a degree of stringency that is not applied in social science and psychology because it is unattainable. Nor is this standard applied to conventional economics either, its econometric approaching being based on formalism rather than being empirically based.

Another important point that Andrew Gelman makes is the futility of pitting theories against each other. That is a recipe for disagreement in that the party that determines the framing wins. Whose assumptions are going to set the criteria? Why?

And, no, I don’t think it’s in general a good idea to pit theories against each other in competing hypothesis tests. Instead I’d prefer to embed the two theories into a larger model that includes both of them.

This is a good suggestion but it is general. Often, the disagreement is over fundamental criteria that determine a frame of reference. This should be obvious in the different approaches to economic theory and economic practice., e.g., econometric and institutional, static and dynamic, simple and complex, natural and historical.

Obviously, a short post like this can only suggest matters that need deeper reflection, open inquiry and sincere debate aimed at solutions to pressing design problems. This is no long just "theoretical." Humanity has to get this right to survive, let alone prosper. We have seemingly dug ourselves into a hole based on policy that is has turned out to impractical in the extreme, such as socializing negative externalities that have led to environmental degradation and threaten ecological collapse if not addressed successfully in a timely fashion. So, let's get with it.

Statistical Modeling, Causal Inference, and Social Science
Our hypotheses are not just falsifiable; they’re actually false.
Andrew Gelman | Professor of Statistics and Political Science and Director of the Applied Statistics Center, Columbia University

Ellis Winningham — Key Points to Understand Regarding Macroeconomic Reality

MMT and instrumentalism.

Ellis Winningham — MMT and Modern Macroeconomics
Key Points to Understand Regarding Macroeconomic Reality
Ellis Winningham

Jason Smith — Economics, physics, and data: a response to Blackford

This is a bit wonkish if you haven't been following this exchange, but it makes some good points relevant to philosophy of science and philosophy of economics. It is about Milton Friedman's famous article on "as if" methodology, that is, instrumentalism rather than realism relative to economics and physics. Blackford is a heterodox economist, and Jason Smith is a physicist.

Information Transfer Economics
Economics, physics, and data: a response to Blackford
Jason Smith

Brian Romanchuk — Pragmatism And MMT

Brian responds on the foundations debate and the future direction of MMT.

Bond Economics
Pragmatism And MMT
Brian Romanchuk

Invisible hand-waving — Is economics a science?

Laktos v. Popper in philosophy of science applied to econ. First on a series on economics as science by two grad students at Oxford.

I think that rather than seeing science as just the sum of all scientific statements, we should view science as a web of research programmes, such as quantum mechanics or evolutionary biology. This is the view put forward by Imre Lakatos. Research programmes are essentially comprised of three parts: certain fundamental views and baseline assumptions which are unfalsifiable (the ‘hard core’), some rough rules of how and how not to go about solving scientific problems (‘positive and negative heuristics’), and a set of hypotheses which scientists use to generate and test predictions (the ‘protective belt’). For example, in the Newtonian research agenda, the ‘hard core’ consists of unfalsifiable baseline theoretical assumptions such as ‘every action has an equal and opposite reaction’. There is a ‘positive heuristic’ towards mechanistic, materialistic explanations of natural phenomena (hence Newton’s problems explaining gravitational forces). The ‘protective belt’ would include hypotheses like the predicted motion of the planets.

For Lakatos, the hallmark of a ‘progressive’ scientific research programme is not whether it is falsifiable. In fact, the ‘hard core’ is unfalsifiable, and much of the protective belt is often falsified as scientists puzzle over how to accommodate various pieces of evidence. Rather, the hallmark of a progressive scientific research programme is whether or not the theory makes successful novel predictions. In other words, is the theory is able to successfully predict new phenomena which it was not originally built to explain?….

Invisible hand-waving
Is economics a science?

ht Mark Thoma at Economist's View

Also

Argues for Friedman's instrumentalism.

I think this grossly overlooks the motivation for pursuing knowledge in the first place. This putting forward the most reasonable explanation of change that answers the questions, how and why. In philosophy, this is based on self-evident first principles, which are called assumptions in economics. In science, the answers are tentative on testing through hypothesis testing. Friedman's instrumentalism is not science but philosophy.

In philosophy, the why question is answered by reasons, e.g., in accordance with the principle of sufficient reason. In science, on the other hand, the answer is expected to be in terms of causes, that is, answering the questions both why and how.

Correlation does not prove causation, and satisfactory explanation is about causation unless one accepts Hume's metaphysical assertion that causation is only constant correlation since human knowledge does not extend to causal mechanism. That is a philosophical position that is dogmatically asserted rather than a scientific one, and it is a contested one in theory of knowledge.

Causation is one of the deep issue of human intellectual history, debated for millennia. It is still unresolved. Friedman's instrumentalism is hand-waving. If this is the best that economists can do, they should just hang it up.

Assumptions, Milton Friedman and wise trees

Jason Smith — Noah is stealing my material

More on econ as science.

Noah says to prove the assumptions are wrong. Lars says show that they are correct. Who has the better case?

The issue is how well a theoretical model works. Assumptions are always simplifications for economy and tractability of explanation. 

There is nothing inherently wrong about assumptions not being precise. They only need to be precise enough to yield results within an acceptable degree of tolerance.

The proof of the pudding is though hypothesis testing more than verifying assumptions, although if assumptions are not reasonably correct, then the model is questionable as an explanation that is generalizable. 

It is possible that a dodgy model can sometime yield positive results (pace Friedman's instrumentalism), as broken clock is correct twice a day. The test of theory is how well the model performs as an explanation of how things stand over time, that is, taking change into account. Theoretical models that don't reliably predict as not generalizable explanations. They are only generalizable in terms of restrictive assumptions that may or not hold in specific cases. That is to say they are models of special cases. 

I would say that scientific method is applicable in econ as it is in other social sciences and also in philosophy, since even speculation must take established truths into account. The question really is whether econ is a natural science like physics, a hybrid science positioned between natural science and life and social sciences, a narrative explanation of occurrences like history, or speculation based on principles grounded in intuition, like speculative philosophy. 

I would say that econ as practiced is some of each, and all approaches make their own contributions to the field. Defenders of econ as science can cite examples to make their case, and opponents can do likewise.

Jason Smith has written on this previously, to which I have linked here at MNE.

Is human agency Noah's big unchallenged assumption?

Falsifiabilité, simplicité, succès ... ou la mort

On the use of hypotheses: or, what do you get when you assume non-ergodicity?

Prescott and Lucas aren't Romer's problem

What does the AD-AS model mean?

There are more posts there, but these are representative.

The title,  Is human agency Noah's big unchallenged assumption?,  hits the nail on the head. The social sciences are about human agency, and so are behavioral psychology and motivational psychology and some other branches of psychology. So is theory of history. And in philosophy, so are theory of man, ethics, theory of action, and social and political philosophy.

Economics is based on a theory of man and theory of action. The theory of man and of human action are not subjects of study in the field of economics, or at least not exclusively so (pace Ludwig von Mises).

There is no agreed upon general theory of man or of human action in either the sciences or philosophy. Why? Foundational disagreement is often due to lack of criteria that are agreed upon, or failure of agreed upon criteria to determine a definitive result. It is also possible that data or method are insufficient. 

As a result, general agreement is usually limited to quite specific cases under particular conditions that are not generalizable, that is, special cases. As a result, the case method is generally used in business schools, for instance, that than theoretical economics.

Information Transfer Economics
Noah is stealing my material
Jason Smith

Jason Smith — All models are wrong, but some are tedious

All models are wrong is properly taken as a rallying cry against tedium. Macroeconomists should not be adding variables and complications to their models because there simply isn't enough data to warrant doing so. Read Nate Silver on overfitting -- there are only about 200 quarterly observations of economic data in the post-war US economy where data is relatively good, which implies that a model should at most have about 10 parameters (some DSGE models have 40 parameters or more!). Noah Smith likes to say that macro data is uninformative. Really what that means is that economists have ignored Box: they shouldn't have so much overparameterization. With fewer parameters, the data isn't uninformative ... if you just have two parameters, the data is actually completely informative.

Information Transfer Economics
All models are wrong, but some are tedious

Jason Smith

Paul Tyson — The Metaphysics of Money

Another historical study of the concept of money and its implications, along with an account of a theological basis for the gold and silver fetish, that distinguishes the essentialist and instrumentalist approaches.

The reason why I have taken you into the exotic realm of Medieval economics is that it shows us how different metaphysical approaches to money can be, and it makes us aware that our Modern understanding of the nature and meaning of money is not a fixed and certain reality. We can now hopefully see that our astonishingly instrumental and abstract assumed metaphysics of money is one option amongst many possible ways of understanding the nature and meaning of money. Modern money is one way of thinking and acting concerning the relations between work, commerce and finance; it is one way of approaching the nature of finance and its (non) relation to wealth, morality, reality and power. Perhaps, even, the abstract and instrumental nature of our assumed metaphysics of money is deeply implicated in the horrifying pathologies of high finance?...

If we are to change this situation, we need to change the way we think about money, wealth and power. This is where the fundamental matters are that will determine our future.

We are not, of course, going to banish extortion or immoral instrumentalism just by having better metaphysics. Criminals, extortionist and abusers of violent power were as common and powerful in the Middle Ages as they are today. Yet if we do not appreciate the relationship between the prevailing order of wealth and power and the metaphysical assumptions which we all share when we engage in the use of money and the practise of politics, then the vital collective sources of our norms and of how power is sustained will be invisible to us. The main game is, indeed, a struggle for our minds. Plato saw this with characteristic insight. As long as we believe that illusions are reality, we are controlled by those who manipulate the collective illusions that structure the operational norms of the world of finance and power as we currently know it.

How do we get money tied to the realities of real human life so that it becomes a fair function of the actual production and distribution of real wealth? How do we re-introduce the idea that finance should be tied in some concrete way to the real world in which actual producing and consuming people live? How can we get finance to serve human (that is political) ends rather than politics facilitating financial ends for high flyers in investment banking? These are the vital questions for us today in the post-2008 world.

MMT proposes a price anchor that establishes the value of a currency to an hour of unskilled labor connects the nominal to the real in a way that involves human beings rather than a commodity like gold or silver. Chris Cook proposes an energy standard.

Yanis Varoufakis
The Metaphysics of Money – Guest post by Paul Tyson
Dr Paul Tyson | Honorary Associate Professor of Theology, University of Nottingham