Daniel Little — The place for thick theories of the actor in philosophy

The neoclassical foundational assumption of rational maximization and Buchanan's rational choice theory are "thin" theories of the actor. As a result the models created on the basis of such assumptions are simplifications. The questions is whether they are oversimplifications. That depends on the case. Such assumptions may apply generally in certain simple cases but not to all. Moreover, the assumption of methodological individualism on which microfoundations depends is similarly limited. These assumptions don't scale owing to social embeddedness and historical, cultural and institutional influence. Attempting to scale them beyond their limits results in the the fallacy of composition, that is, incorrectly assuming that a whole is the sum of its parts when the relationship of the parts supervenes.

Understanding Society
The place for thick theories of the actor in philosophy
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Simon Wren-Lewis — Why the microfoundations hegemony holds back macroeconomic progress

When David Vines asked me to contribute to a OXREP (Oxford Review of Economic Policy) issueon “Rebuilding Macroeconomic Theory”, I think what he hoped I would write on how the core macro model needed to change to reflect macro developments since the crisis with a particular eye to modelling the impact of fiscal policy. That would be an interesting paper to write, but I decided fairly quickly that I wanted to say something that I thought was much more important.

In my view the biggest obstacle to the advance of macroeconomics is the hegemony of microfoundations. I wanted at least one of the papers in the collection to question this hegemony. It turned out that I was not alone, and a few papers did the same. I was particularly encouraged when Olivier Blanchard, in blog posts reflecting his thoughts before writing his contribution, was thinking along the same lines.… 

Mainly Macro

Why the microfoundations hegemony holds back macroeconomic progress
Simon Wren-Lewis | Professor of Economics, Oxford University

Bill Mitchell — Mainstream macroeconomics in a state of ‘intellectual regress’

At the heart of economic policy making, particularly central bank forecasting are so-called Dynamic Stochastic General Equilibrium (DSGE) models of the economy, which are a blight on the world and are the most evolved form of the nonsense that economics students are exposed to in their undergraduate studies. Paul Romer recently published an article on his blog (September 14, 2016) – The Trouble With Macroeconomics – which received a fair amount of attention in the media, given that it represented a rather scathing, and at times, personalised (he ‘names names’) attack on the mainstream of my profession. Paul Romer describes mainstream macroeconomics as being in a state of “intellectual regress” for “three decades” culminating in the latest fad of New Keynesian models where the DSGE framework present a chimera of authority. His attack on mainstream macroeconomics is worth considering and linking with other evidence that the dominant approach in macroeconomics is essentially a fraud.…

Bill Mitchell – billy blog
Mainstream macroeconomics in a state of ‘intellectual regress’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Jason Smith — Keen, chaos, and equilibrium

Physicist Jason Smith critiques a debate among Steve Keen, Roger Farmer, Noah Smith, and David Andolfatto over Steve' recent Forbes post asserting that the economy is best modeled as a complex non-linear system instead of using the conventional linear stochastic models (DSGE) based on assuming general equilibrium.

Actually, as a physicist, I would say that even if the economy was a complex nonlinear chaotic system, linear stochastic models would still be its effective theory description. Regardless of what the quantum theory of gravity is, general relativity -- and even Newton's universal law of gravitation -- is still its long-distance effective theory.

Anyway, this prompted me to write something about Steve Keen's article in Forbes. Keen suffers from a problem that all public economists seem to suffer: asserting matters of opinion as matters of fact, and ongoing research programs as well-established frameworks. This will be made clear as we progress. Let's begin, shall we?

Information Transfer Economics
Keen, chaos, and equilibrium
Jason Smith

Mean Squared Errors — The Microfoundations Hoax

Demolition work on the rotten edifice of "modern macroeconomics" continues apace. The emperor, it turns out, is not merely without clothes. Upon closer inspection, he appears to be simply an empty cardboard box with the words "Emperor Inside" scrawled across its surface in felt-tip pen. Paul Romer's devastating critique really deserves to be the final word on the matter. But even Paul leaves one stone unturned, an element of modern macro so transparently intellectually dishonest that it may properly be termed a hoax: its so-called "microfoundations."
No modern macro model is complete without a pean to the virtues of its own microfoundations. It seems that the word "microfoundations" is not allowed to appear unaccompanied by at least one self-congratulatory adjective -- "careful," "well-specified," even (shudder) "rigorous." But, as diligent readers of George Orwell will recall, war is not peace, freedom is not slavery, ignorance is not strength, and representative agent models are not rigorously microfounded.
But let's back up a step. What is this "microfoundations" business anyway, and why should anyone not currently seeking a tenure-track appointment in econ care even a tiny bit? Here's a short version of the very long story:

Mean Squared Errors
The Microfoundations Hoax
JEC

Brian Romanchuk — Anwar Shaikh On Micro And Macro Economics

As I noted in my discussion of Anwar Shaikh's new book Capitalism: Competition, Conflict, Crises, one of the most interesting parts of the work was his discussion of how microeconomic behaviour is reflected in aggregate performance. There are fundamental constraints upon individual behaviour that result in the same aggregate patterns at the macro level. Using the currently popular buzzword, macro behaviour is emergent, and cannot be predicted from individual behaviour with reference to the aggregate system. In my view, this is useful for macro analysts, as it means we do not waste our time obsessing about the lessons of microeconomics. For mainstream ("neoclassical") economics, this line of thinking is disastrous, as it means that entire "microfoundations project" has all the usefulness of a foundation made of sand.…

Bond Economics
Anwar Shaikh On Micro And Macro Economics
Brian Romanchuk

Brian Romanchuk — Equilibrium And Steady State In SFC Models

Noah Smith had already observed that "equilibrium" is an ambiguous term in economics. Brian delves into specifics.

Bond Economics
Equilibrium And Steady State In SFC Models
Brian Romanchuk

Jason Smith — One more physics analogy

Continuing the debate.

David Glasner found a back-and-forth between me and a commenter (with the pseudonym "Avon Barksdale" after the character on The Wire who ends up taking an economics class) on Nick Rowe's blog who expressed the (widely held) view that the only scientific way to proceed in economics is with rigorous microfoundations. "Avon" held physics up as a purported shining example of this approach.

I couldn't let it go: even physics isn't that reductionist.

Is the assumption of stable equilibrium based on rationality taking a special case for a general one?

Information Transfer Economics
One more physics analogy
Jason Smith

David Glasner — There Is No Intertemporal Budget Constraint

Somewhat wonkish, but if you have been following the debate that Nick Rowe started, you may find it interesting.

Uneasy Money

There Is No Intertemporal Budget Constraint

David Glasner | Economist at the Federal Trade Commission

Simon Wren-Lewis — Heterodox economists and mainstream eclecticism

The gloves are off.

I think that SWL misses the point. The objection is to "our way or the highway."

And Lars was right. The original post that got this debate going reflected that by the limits that SWL put on eclecticism in the choice of his example, which were different approaches with respect to economic formalism with a disregard for realism.

Oh, and SWL accuses Lars of being "angry," when it is SWL who clearly is angry.

Mainly Macro
Heterodox economists and mainstream eclecticismSimon Wren-Lewis | Professor of Economics, Oxford University

Neil Wilson — How Not to Model Human Behaviour

Human beings are not atoms, or amoeba, either.

3spoken
How Not to Model Human Behaviour
Neil Wilson

Daniel Little — Do we still need microfoundations?

On examining assumptions and avoiding reductionism without invoking magical thinking, and ontological individualism as an overly restrictive reductionist assumption.

Understanding Society
Do we still need microfoundations?
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Daniel Little — Microfoundations and causal powers

Examining the new realism relative to causal explanation. 

How is this different from reviving Aristotle — and avoiding Hume's fork without assuming intellectual intuition, which itself calls for explanation, or invoking Kant, which makes causality a pure concept of understanding (category). 

Daniel Little's background is in philosophy but he doesn't mention the obvious philosophical issue involved in "the new Aristotelianism," which as the same as the old Aristotelianism relative to modern science.

I find "causal powers" cringe-worthy in a contemporary context without confronting longstanding issues. Without a satisfactory scientific explanation, it is handwaving when applied in science. And "mechanisms" is just another wave of the hand. 

Understanding Society
Microfoundations and causal powers
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Cameron K. Murray — Explaining everything explains nothing: Economics

Sure, humans often make calculated decisions, but the more I learn about the nexus between individual behaviour and how we behave in groups, the more I see very little value in rational-individualist views of economic systems that see all behaviour arising from God-given personal tastes. Without acknowledging the necessity of group-coordination mechanisms intrinsic in our behaviour, we are missing the main story.

Fresh Economic Thinking
Explaining everything explains nothing: Economics
Cameron K. Murray

David Glasner — Representative Agents, Homunculi and Faith-Based Macroeconomics

Another fun excursion extending his the analogy of philosophy of mind and reductionism about representative agent modeling. Well played.

Uneasy Money
Representative Agents, Homunculi and Faith-Based Macroeconomics
David Glasner

Lars P. Syll — Macroeconomic ad hocery

Lars gives new meaning to "Lucas critique." Smackdown.

Lars P. Syll’s Blog
Macroeconomic ad hocery
Lars P. Syll | Professor, Malmo University

Daniel Little — Microfoundations 2.0?

Little considers to what degree microfoundations is a necessary condition for causal explanation in social science.

Understanding Society
Microfoundations 2.0?
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Lars Syll’s Blog — On the poverty of microfoundationalist fantasies

Kevin Hoover quote on microfoundations based on representative agent modeling. Aggregation based on similarities of individuals assume similarity of individuals. In some cases that hold, in many others, not, and where it doesn't hold are the points of interest.

Not only does the representative-agent model fail to provide an analysis of those interactions, but it seems likely that that they will defy an analysis that insists on starting with the individual, and it is certain that no one knows at this point how to begin to provide an empirically relevant analysis on that basis.

You can't get there from here.

Lars P. Syll’s Blog
On the poverty of microfoundationalist fantasies
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Microfoundations – contestable incoherence

Defenders of microfoundations and its rational expectations equipped representative agent’s intertemporal optimization often argue as if sticking with simple representative agent macroeconomic models doesn’t impart a bias to the analysis. I unequivocally reject that unsubstantiated view, and have given the reasons why here.

I think that a big reason for uncritically accepting assumptions like this is that they seem intuitive. It seems obvious that what happens in aggregate is dependent on the individuals that comprise the aggregate. Being rational implies preferring what one wants to what one doesn't want. Granted. But does that imply the homogeneity regarding utility optimization that proponents of rationality suppose?

A foundational issue in scientific inquiry is about testing intuitions by formulating testable hypotheses instead of receiving them passively as self-evident based on something as nebulous as "intuition" or "common sense". 

For example, if rational expectation about intertemporal optimization is representative enough to be generalized, why do so many people in democratic elections vote contrary to their financial and economic interests and those of their families? The representative agent account may be assuming excessive homogeneity to be a sound basis for modeling.

There nothing wrong with "microfoundations" in itself, but that requires that the assumptions be representative of reality. The actual problem is not so much "microfoundations" as what "microfoundations" is taken to be. Methodological individualism as practiced in conventional economic assume homogeneity among humans similar to atoms as elements in physical systems. It that model transferable from the physical sciences to social science? What is the evidence for it, and what is the evidence against it. Is it simply a modeling convenience?

Such questions cannot be raised in conventional economics, which declares that the controversy over methodology is over, and conventional economics has prevailed as orthodox and everything else is heterodox, that is, "heretical" in the orthodox view.

Lars P. Syll’s Blog
Microfoundations — contestable incoherence
Lars P. Syll | Professor, Malmo University

Brad DeLong — Robert Lucas Rejects the “Microfoundational” Project

Humans are not atoms. But Robert Lucas saying it is hugely important for the impact.

We’re not going to build up useful economics… starting from individuals…

WCEG — The Equitablog
Robert Lucas Rejects the “Microfoundational” Project
Brad DeLong