Maths in Philosophy — Alexander Douglas

Alexander Douglas mounts a defense of rationalism against empiricism. 

Backgrounder to understanding the issues here. The Western intellectual tradition arose in ancient Greece with dissatisfaction with mythological explanation, the favorite form of explanation in the very ancient world — god and all that. The first "philosophers" in the sense of speculation based on reason attempted to provide a "rational" explanation of the world. The Greek terms are logikos and orthologikos (ortho signifies right, correct, straight), obviously the etymological root of "logic" in English. The corresponding Latin term is ratio, meaning "reason" as the faculty of understanding, or knowing in terms of universals rather than particulars. "Rational" in Latin is rationis ("of reason), rationalis, and rationalibus (akin to English "reasonable"). Thus, "rationalism" as an approach to gaining knowledge. 

Aristotle would extend this approach in his Metaphysics to causal explanation. This became the basis of the Western intellectual tradition. Aristotle also favored relying on observation with the senses where appropriate, e.g., the proto-science that was then developing. But Aristotle emphasized the rational over sense observation, and his approach would later be seen as an obstacle to the development and acceptance of scientific method owing to the influence of his philosophy in the Church after Aquinas. Plato was the other influence through Augustine and this was an even greater obstacle to the acceptance of science. Scientists have not forgotten this. 

The advantage of the rational approach at the outset was that it is not mythological, that is, explanation by story, i.e, allegory and analogy, but by reasoning based on principles that are, like the gods, immortal. But unlike the gods, these principles are unchanging. This was the great contribution of Pythagoras and the Pythagoreans in their emphasis on mathematics, as well as Plato's in the Academy. The Western intellectual tradition began as math-based. Aristotle extended this to logic in his Organon as a prerequisite to serious study.

The other end of the knowledge spectrum from the universal and unchanging is empiricism, which is based on observation and mediated by sense data, hence particular and subject to change. Sense data provide only secondary knowledge through phenomena (appearance) rather than being immediate (unmediated) knowledge of objects and events. Moreover, sense data are unreliable, unlike the objects of reason, numbers and concepts. So reason is preferable to sense observation.

Why is this relevant to economics? Because most conventional economists are rationalists that proceed on the basis of intuitive discovery for assumption identification and rely chiefly on formal argument using mathematical models. In other words, they are behaving like speculative philosophers instead of scientists that are guided by data in addition to mathematics, with observation having the final say.

As a philosopher I am a rationalist, and in matters where scientific method is applicable, I prefer to use it as most appropriate. The challenge is determining when those condition apply. Most of the enduring question are enduring because so far no way to apply scientific method to them has been devised in a way that compelling of acceptance.

The issue is fundamentally about criteria and how to identify and apply them. 

Returning to Alexander Douglas's post. I regard most of these issues as pseudo-problems. Philosophers have recognized for a long time that the chief procedural method of philosophy is logic and logic can be formalized. Not everything of interest philosophically is quantitive or can expressed quantitively, so mathematics is of limited use. That is not the issue. The is and has been the balance between rational and empirical in gaining true knowledge. Empiricism reduces the criteria to observational (sense data) and that excludes many if not most of the enduring issues.

Why is this significant? Because macroeconomics is policy science and policy presumes values, which are essentially qualitative rather than quantitate.

Alexander Douglas at Medium
Maths in Philosophy
Alexander Douglas | Lecturer in Philosophy, University of St. Andrews

Branko Milanovic — A short note on Skidelsky’s interpretation of Schumpeter

Why do we have this “problem” with Schumpeter? Because in his own work, Schumpeter shows a duality, or even a contradiction, between his often unquestionable endorsement of “economics as physics” in HEA where it is hailed as an unambiguous progress toward economics becoming an exact science, and scarce use of this approach in Schumpeter own work. His “Theory of Economic Development” is indeed in its structure very abstract and arid, somewhat similar to Ricardo’s “Principles” (of whose methodology, by the way, Schumpeter was very critical in HEA), but is not mathematical at all. His “Business Cycles” is heavily empirical but shown scant relationship to Walras and is generally anti-theoretical. (I have to confess that I tried three times to read his “Business Cycles” and that I always failed. It seems almost unbelievable that such a splendid writer and beautiful mind produced a work--which moreover he originally saw as a competitor to “The General Theory”—of, yes, such messiness and unreadability.)

Global Inequality
A short note on Skidelsky’s interpretation of Schumpeter
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Also

Liberation from the shackles of space

Full text of my New Republic interview

Maria Alejandra Madi — The formal and the substantive meanings of ‘economics’

Conventional economics is formalistic and deal with homo economicus, whose sole reality is as a set of restrictive assumptions as the basis of a particular style of formal modeling.

Some heterodox economics, economic sociology, and economic anthropology are substantive and deal with homo socialis, whose reality is as a conceptual model based on empirics.When differences arise in conceptual models the appeal is not to intuition or definition, but rather to observation and data.

Real-World Economics Review Blog
The formal and the substantive meanings of ‘economics’

Maria Alejandra Madi

Peter Radford — Why Mainstream Economic Models Make Little Sense

My criticism of the use of models in economics is then not one of a denial of the value of models. It is directed at the selection of them. More to the point it is directed at the severity of the exclusion of zones of our experience that fall outside of our theoretical study because those zones are less tractable to our modeling technique. We have become monotheistic in our beliefs. Polytheism is frowned upon.

This is despite one of the great lessons of evolution: that diversity of approach gives the greatest chance of the location of solution. Economists have limited their options by reducing their subject to that set of issues most easily modeled according to the discipline’s self-referential code of modeling. And, further, they describe the problems they set out to solve in such a way as to produce results from their tests that conform to a prior code of acceptability.

So the code of modeling limits the usable technique, and the code of acceptability limits the range of problem. This duality then combines to define the discipline. Economics thus becomes defined as the subject that theorizes about problems tractable to the preferred technique.…

Evonomics
Why Mainstream Economic Models Make Little Sense
Peter Radford

Lars P. Syll — ‘Deep parameters’ and microfoundations

Lars continues on the offensive.

Lars P. Syll’s Blog
‘Deep parameters’ and microfoundations
Lars P. Syll | Professor, Malmo University

Controversy over Keynes, Minsky and Randy Wray's Why Minsky Matters

The Enlightened Economist

Mainstream macro and Minsky the maverick
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

Prime
Diane Coyle finds Minsky, but misses Keynes
Geoff Tily

The Enlightened Economist

Reading Keynes, modernising macro, and modelling
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


Diane Coyle seems to be under the mainstream spell cast by Paul Samuelson in his econometric bastardization of Keynes.

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

Lars P. Syll — Why experimental economics is no real alternative to neoclassical economics

Platonists versus Aristotelians.

Lars P. Syll’s Blog
Why experimental economics is no real alternative to neoclassical economics
Lars P. Syll | Professor, Malmo University

Max Schröder — Chessonomics – The Case for Formalism in Economics

Fun.

Glasgow University Real World Economics Society
Chessonomics – The Case for Formalism in Economics
Max Schröder

See also

Severin Reissl, Loanable funds – 75 years later

Lars P. Syll — Economic methodology

More commentary from Lars about economic assumptions including methodological, pointing out that this is really not about economics as such, but rather about scientific method, or better, its misuse in order to convey the impression of objective truth. This is not only "mathiness" but also "truthiness." It's a rotten foundation for formulating economic policy that will affect the lives of millions domestically and billions internationally.

Lars P. Syll’s Blog
Shackle on rational expectations

Solow on the need to filter nonsense economicsLars P. Syll | Professor, Malmo University

Mark Buchanan — In Economics, What Calculates Isn't Always Right

This mathematical-purist approach came from a rather odd place. As Roy Weintraub relates in his excellent book "How Economics Became a Mathematical Science," Debreu took his perspective from a secret group of French mathematicians who, starting in the 1930s, worked under the pseudonym “Nikolas Bourbaki.” The Bourbaki group thought mathematics should have an almost religious purity, refined and unsullied by contact with the practical. Educated in Paris, Debreu came under their influence, and then shifted from mathematics to economics. 

Weintraub argues that Debreu played a decisive role in transforming economics -- “not only the field's self-image, but its concept of inquiry itself.” Ever since, economic math has been Bourbakian, primarily concerned with formal structure. Practitioners downplay the need for realistic assumptions, as Paul Fleiderer noted in his brilliant essay on chameleons. They use highly dubious suppositions to generate a result, which they then use as a foundation for giving advice to policy makers. This is pretty much the opposite of good science. 

Scientists generally enlist mathematics only as a tool, and ultimately value practical understanding above theoretical rigor. They care deeply about the plausibility of the assumptions used in any model. Models, of course, are always oversimplified -- one might say “wrong” -- but it's what they get right that matters. A sphere is a good model for the Earth not because it lacks any geographical detail, such as mountains or valleys, but because it gets the rough shape right. 

The Bourbakian influence in pure mathematics actually caused a rift between physicists and mathematicians back in the 1980s. The formal and pure Bourbakian approach seemed useless to the physicists, whose more practical approach seemed suspect to the mathematicians. Since then, that rift has disappeared as math has moved on. Economics apparently hasn't recovered yet.

Good article on how conventional economics got where it is. 

It's all in the head.

Bloomberg View
In Economics, What Calculates Isn't Always Right

Mark Buchanan

See also

Lars P. Syll’s Blog
Anti-Romer
Lars P. Syll | Professor, Malmo University

Chris Dillow — "Consistent with"

In discussing Paul Romer's wonderful concept of mathiness*, Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. 

If a man has no money, this is "consistent with" the theory that he has given it away. But if in fact he has been robbed, that theory is grievously wrong. Mere consistency with the facts is not sufficient.….

The difference between causes and reasons. Reasons are not necessarily causes. "The dog ate my homework."

There may be different plausible explanations for — reasons consistent with — the same data. 

Science is about establishing causal explanation in terms of "mechanism" or "transmission."

Otherwise, it is handwaving.

So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities - a point which is lost in the discipline's mathiness.

Stumbling and Mumbling
"Consistent with"
Chris Dillow | Investors Chronicle

See also

Lars P. Syll’s Blog
Consistency and validity is not enough!
Lars P. Syll | Professor, Malmo University

Peter Radford — Coase and Reality

Another screed on why conventional economics is unrealistic from Peter Redford, this one based on Ronald Coase.

In his introduction to a collection of his own work, Ronald Coase tells us:

‘Becker points out that: “what most distinguishes economics as a discipline from other disciplines in the social sciences is not its subject matter but its approach”’.

He then goes on:

‘One result of this divorce of the theory from its subject matter has been that the entities whose decisions economists are engaged in analyzing lack any substance. The consumer is not a human being but a consistent set of preferences. The firm, to an economist, as Slater has said, “is effectively defined as a cost curve and a demand curve, and the theory is simply the logic of optimal pricing and input combination”. Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organization, and even exchange without markets.’ 

All true, too true.

A philosopher would say that the chief difference between economics and the other social science is the level of abstraction. Economics is so abstract that it is difficult to connect with reality through actual behavior, in spite of the demand of conventional economics for "microfoundations" based on methodological individualism as a foundational assumption. 

In conventional economics, the individual, either "representative agent" or representative firm," is an imaginary construct rather than an observable. When agents and firms are observed, they do not match the characteristics of the methodological abstractions that represent them in conventional economic models. There is no homo economicus to be found, only homo socialis. Homo Socialis is the subject of study of the social sciences. 

The result of economists pursuing the "trail"of a non-existent homo economicus is something that resembles metaphysics more closely than physics, which is the opposite of what conventional economists are aiming for. The result is dogmatism rather than science.

Or maybe it is just snark hunting.

The Radford Free Press
Coase and Reality
Peter Radford

Edward Fulbrook — “Is there anything worth keeping in standard microeconomics?”

For me three economists stand out historically as having been the most effective at building resistance to the dominance of scientism in economics. Keynes of course is one, and the other two are Bernard Guerrien and Tony Lawson, Guerrien because he was the intellectual and moral force behind Autisme Economie which, among other things, gave rise to the RWER; and Lawson because his papers, books and seminars have inspired, joined and intellectually fortified thousands.

It is notable that all three of these economists were or were on their way to becoming professional mathematicians before switching to economics. When still in his twenties, Keynes’ mathematical genius was already publicly celebrated, most notably by Whitehead and Russell, and he had already published what was to become for his first discipline a classic work. Guerrien’s first PhD was in mathematics, and Lawson was doing a PhD in mathematics at Cambridge when its economics department lured him over in an attempt to boost its mathematical competence.

The significance for me of Keynes, Guerrien and Lawson being mathematicians first and economists second is that it meant that they were not even for an hour taken in or intimidated by the aggressive scientism of neoclassical economists, and this has enabled them to write analytically about the dominant scientism with a quiet straightforwardness that is beyond the reach of most of us.

RWER Blog
“Is there anything worth keeping in standard microeconomics?”
Edward Fulbrook

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

Lars P. Syll — On the value of theoretical models in economics

Constructing simple macroeconomic models somehow seen as “successively approximating” macroeconomic reality, is a rather unimpressive attempt at legitimizing using fictitious idealizations for reasons more to do with model tractability than with a genuine interest of understanding and explaining features of real economies. Many of the model assumptions standardly made by neoclassical macroeconomics – simplicity being one of them – are restrictive rather than harmless and could a fortiori anyway not in any sensible meaning be considered approximations at all. 

If economists aren’t able to show that the mechanisms or causes that they isolate and handle in their “simple” models are stable in the sense that they do not change when exported to their “target systems”, they do only hold under ceteris paribus conditions and are a fortiori of limited value to our understanding, explanations or predictions of real economic systems. 

That Newton’s theory in most regards is simpler than Einstein’s is of no avail. Today Einstein has replaced Newton. The ultimate arbiter of the scientific value of models cannot be simplicity. 

As scientists we have to get our priorities right. Ontological under-labouring has to precede epistemology. 

Lars P. Syll’s Blog
On the value of theoretical models in economics
Lars P. Syll | Professor, Malmo University

Lars P. Syll — ‘New Keynesian’ haiku economics

A lot of mainstream economists out there still think that price and wage rigidities are the prime movers behind unemployment. What is even worse — I’m totally gobsmacked every time I come across this utterly ridiculous misapprehension — is that some of them even think that these rigidities are the reason John Maynard Keynes gave for the high unemployment of the Great Depression. This is of course pure nonsense. For although Keynes in General Theorydevoted substantial attention to the subject of wage and price rigidities, he certainly did nothold this view.… 

So, what Keynes actually did argue in General Theory, was that the classical proposition that lowering wages would lower unemployment and ultimately take economies out of depressions, was ill-founded and basically wrong. 

To Keynes, flexible wages would only make things worse by leading to erratic price-fluctuations. The basic explanation for unemployment is insufficient aggregate demand, and that is mostly determined outside the labor market.… 

People calling themselves ‘New Keynesians’ ought to be rather embarrassed by the fact that the kind of microfounded dynamic stochastic general equilibrium models they use, cannot incorporate such a basic fact of reality as involuntary unemployment!.... 

The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic modelbuilding is little more than “hand waving” that give us rather little warrant for making inductive inferences from models to real world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around. 

To Keynes this was self-evident. But obviously not so to haiku-rule-following ‘New Keynesians’.

Lars P. Syll’s Blog
‘New Keynesian’ haiku economicsLars P. Syll | Professor, Malmo University

Philip Pilkington — The Great Unwinding: Some Thoughts on the Incoherence of Mainstream Economics

Today, I believe, mainstream economics is completely incoherent. What do I mean by that? Well, basically if you are in the mainstream you can pretty much believe in whatever you want these days. 

Mainstream economics today can be made to say anything. But in being able to do this it says nothing. All the new gimmicks that have been introduced into the mainstream — from asymmetric information to rational expectations — have rendered it a total free-for-all. So, some of the mainstream will tell you that fiscal stimulus will have zero effect on the economy (Ricardian equivalence) while others will tell you that it is the key to future prosperity. Many will fall somewhere in the middle, unable to articulate their actual beliefs in any concrete manner. 

In my experience the mainstream has become so incoherent that most of the time these economists will formulate their policy stance completely arbitrarily. Their opinions on the real economy are formed very much so the way the man in the street formulates his: either by assimilation of whatever is in vogue or by engaging in largely arbitrary construction (usually in line with the political predilections of the person in question). 

How did this occur? I would argue that there were two key moments in the history of mainstream economics that led to this Great Unwinding.…

Fixing the Economists
The Great Unwinding: Some Thoughts on the Incoherence of Mainstream Economics
Philip Pilkington

This is why I strongly support the pluralist movement among students. I believe that if all the options are put on the table the students will likely gravitate toward Post-Keynesian economics for the simple reason that it is the most comprehensive and coherent body of theory available. I am perfectly willing to let students make this decision on their own. It seems that it is the mainstream who insist that only their approach is taught. Their insistence on monopoly is, I believe, a sign of enormous insecurity.

Dow, Omerod on teaching economics

Sheila Dow and Paul Omerod's papers on reforming the economics curriculum to make learning more representationally realistic and practically useful, especially in policy formulation. Both take a systems approach that recognizes the place of formalism but put it in the context of the whole instead of either making it an end it itself or using advanced math as tour de force to mask ideological assumptions. Both articles are short.

Teaching Open-system Economics
Dow, Sheila

Notes on a Real World Economics Curriculum
Paul Omerod

See also Michael Hudson's The use and abuse of mathematical economics.

Lars P. Syll — Mainstream macroeconomics — a massive intellectual mistake [GIGO]

...the root of our problem goes much deeper. It ultimately goes back to how we look upon the data we are handling. In “modern” macroeconomics – dynamic stochastic general equilibrium, new synthesis, new-classical and new-Keynesian – variables are treated as if drawn from a known “data-generating process” that unfolds over time and on which we therefore have access to heaps of historical time-series. If we do not assume that we know the “data-generating process” – if we do not have the “true” model – the whole edifice collapses. And of course it has to. I mean, who really honestly believes that we should have access to this mythical Holy Grail, the data-generating process?...

...as Keynes convincingly argued in his monumental Treatise on Probability (1921), this is not always possible. Often we simply do not know. We cannot always put exact numbers on the assessments we make. There are no given probability distributions we can appeal to.

In the end this is what it all boils down to. We all know that many activities, relations, processes and events are genuinely uncertain. The data do not unequivocally single out one decision as the only “rational” one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.

GIGO.

This is a key problem with formalism. According to the scientific method, an explanation is true if and only if it fits all the facts it purports to explain. In magical thinking, an explanation is presumed true if it fits selected facts that are chosen based on methodological convenience or ideological assumptions. That is to say, the assumptions serve to prove the explanation, which is the fallacy of circular reasoning.

Mainstream macroeconomics — a massive intellectual mistake
Lars P. Syll | Professor of Civics, Faculty of Education and Society, Malmö University