Reddit reviews Economics Rules: The Rights and Wrongs of the Dismal Science
We found 4 Reddit comments about Economics Rules: The Rights and Wrongs of the Dismal Science. Here are the top ones, ranked by their Reddit score.
RI:
[If you don't want to read it all, I've marked my specific criticisms with bolded brackets below.]
This is bad methodology of econ, not bad econ per se. I hope this is allowed. I am posting this because the methodological debate this user is referencing is important to understand for young economists and laymen alike. I will first develop his argument and then attack it.
Disclaimer: I am not a professional economic methodologist. I have not taken fields exams in methodology (they don’t exist). I have only studied the topic beyond Friedman’s Essay on Positive Econ. Econ methodology is the study of the philosophical principles underlying economic reasoning. It is related to philosophy of science and philosophy of economics. See here for more info. I don’t claim to be a good philosopher. Criticism is welcome. Post me to /r/badphilosophy if you have to.
The linked user argues that mainstream economists compose economic “laws” which are not intended to hold throughout space and time, regardless of context, but rather are intended to hold only in specific time-space contexts (e.g., Stagflation in the 1970s U.S., industrialization in 19th century Japan). These “laws” (we would call them models) are only meant to describe the specific contexts for which they were developed, and so are not much use beyond that. Further, the user argues that mainstream economists base this view of contingency of economic “laws” on empirical evidence; it can be demonstrated with data that the critical assumptions of one model do not apply to contexts outside of the one for which the model was built.
The linked user contrasts this view with those of certain Austrian economists who believe in immutable econ laws which apply to all space-time contexts, and that empirical evidence can only illustrate, rather than support or contradict, these laws which are developed via some deductive framework. If the premises are true, and if the premises entail the conclusion, then the conclusion is also true. The conclusion need not approximate what we observe, only the assumptions. The fundamental axiom, “humans act,” is seen by this user and some other Austrian economists as undeniably true, and so conclusions derived from this and other minor premises must then also be undeniably true, regardless of empirical evidence to the contrary (I develop this argument with more nuance later). See Rothbard’s article in Southern Econ Journal for more on this view. By the user’s own admission, “This does indeed limit how much can be done and shown with Austrian Economics quite a bit, although nowhere as much as mainstream economists think.”
The user believes that the mainstream method produces models “which, by their own admission, will one day be false and useless.” He means, again, that mainstream models are meant for only the contexts for which they were originally built and are “useless” in other contexts.
***
Now that I’ve hopefully faithfully expounded the user’s argument, I can now criticize it.
First, let’s be clear about terminology. Mainstream economists are no longer interested (for the vast majority of cases) in constructing immutable economic laws. Gone are the days of Adam Smith and Karl Marx. Malthus was right about the pre-industrial era, but failed to recognize mechanisms through which his own “law” would become inapplicable to the industrial era. See Acemoglu and Robinson (2015) for more on the rise and fall of general laws in economics. Social behavior is contingent on context. We as economists must always be conscious of the external validity of our models.
Modern economists work with, speak in, and think through models, which are contingent on time and space, but which are not “useless” outside of the space-time contexts for which they are originally developed. [Criticism 1:] Models are, by definition, logical constructions and thus follow the same assumptions-conclusions structure as praxeological reasoning. Models are tautologies whose implications are dependent entirely on the assumptions. The user seems to believe that mainstream models are not deductive. This is just plain false. (I retouch on this criticism later, in case this is a bad portrayal of what the user meant.)
Rather, we develop deductive models and then test whether both the critical assumptions and the conclusions approximate reality. Critical assumptions are those which, if relaxed, would change the substantive results of the model. Friedman (1953) failed to consider these, which I explain in more detail here.
Dani Rodrik, IMO, captures the practice of modern modeling in his latest book, saying that economics is a library of models which apply to certain contexts based on how well their critical assumptions approximate reality. If a model is determined to apply appropriately to a certain context, and if its conclusions are shown to not match reality via empirical analysis (data, statistical analysis, qualitative methods, what-have-you), then the model is determined unable to explain reality in this particular context, and we’ll need a new model with appropriate critical assumptions but with a focus on different causal mechanisms. [Criticism 2:] A model is not “useless” in all contexts other than its original context; rather, it’s applicable to a certain type of context.
The user argues that mainstream models have no external validity. [Criticism 3:] Actually, the external validity of a model is limited by what its critical assumptions say about reality. Our library of models is a toolbox. If we have a nail, we need a hammer. If we have a screw, we need a screwdriver.
Further, Rodrik argues that economics progresses by expanding its library of models. The user admits that certain Austrian economists develop models which they believe apply to all contexts, and that this then limits the scope of their discipline. Thus, this variant of Austrian economics is actually practicing the same method as mainstream economists, but are limiting their library of models only to those with critical assumptions approximating all possible contextual realities (if such a thing is possible). The number of “praxeological models” or “economic laws,” as the user would describe them, is thus obviously very small, if not zero.
The user does not deny social contingency, but rather advocates a form of economics which only studies contexts which our model’s assumptions will approximate every time. [Criticism 4:] This has been determined by mainstream economists to not be a worthwhile endeavor, or even a possible one. Context matters. <-- This is a fundamental principle of several fields of economics, most famously institutional econ.
[Criticism 5:]**As for his criticism of econometrics, it’s clear he has no idea what quasi-experimental methods are. That is all.
Alternative R1:
> The reason economists use mathematics is typically misunderstood. It has little to do with sophistication, complexity, or a claim to higher truth. Math essentially plays two roles in economics, neither of which is cause for glory: clarity and consistency. First, math ensures that the elements of a model—the assumptions, behavioral mechanisms, and main results—are stated clearly and are transparent. Once a model is stated in mathematical form, what it says or does is obvious to all who can read it. This clarity is of great value and is not adequately appreciated. We still have endless debates today about what Karl Marx, John Maynard Keynes, or Joseph Schumpeter really meant. Even though all three are giants of the economics profession, they formulated their models largely (but not exclusively) in verbal form. By contrast, no ink has ever been spilled over what Paul Samuelson, Joe Stiglitz, or Ken Arrow had in mind when they developed the theories that won them their Nobel. Mathematical models require that all the t’s be crossed and the i’s be dotted. The second virtue of mathematics is that it ensures the internal consistency of a model—simply put, that the conclusions follow from the assumptions. This is a mundane but indispensable contribution. Some arguments are simple enough that they can be self-evident. Others require greater care, especially in light of cognitive biases that draw us toward results we want to see. Sometimes a result can be plainly wrong. More often, the argument turns out to be poorly specified, with critical assumptions left out. Here, math provides a useful check. Alfred Marshall, the towering economist of the pre-Keynesian era and author of the first real economics textbook, had a good rule: use math as a shorthand language, translate into English, and then burn the math! Or as I tell my students, economists use math not because they’re smart, but because they’re not smart enough.
https://www.amazon.com/Economics-Rules-Rights-Wrongs-Science/dp/0393246418
The criticism (pros and cons really) of modelling have been addressed here ad nauseam.
Econ news today that excited me:
(https://www.imf.org/external/pubs/ft/fandd/2016/06/pdf/people.pdf).
A better financial history type book is the Reinhart & Rogoff one.
As long as you are building a list, let me share my to-read list after I finish reading my current book:
You should also read Piketty's book and Bernanke's book but I didn't list them since I have read them and assume you have read them too.
I tend to only read and alternate between history and econ books for my pop/non-academic reading. I've only listed the pop-econ books since I assume that's what you are after.
Has anyone else read any of the books on my list? Are some terrible? If so let me know so I can avoid them.