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John Kay on why rioters should have read Rousseau – a must read August 24, 2011

Posted by larry (Hobbes) in nature of science.
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This is an immensely fascinating and original post.  I would regard it as a must read.

http://www.johnkay.com/2011/08/17/why-the-rioters-should-be-reading-rousseau

There is also a deeper analysis of Smith’s division of labor in a pin factory than you will usually find in the standard accounts.  It undermines, as it should, any neoliberal idea that Smith was a precursor of such ideas.

Osborne made a monkey out of himself; Krugman likewise August 12, 2011

Posted by larry (Hobbes) in nature of science.
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I neglected to add to my summary of Osborne’s statement that in a response to a question from a Tory backbencher querying whether it might not now be the time to go back on the gold standard in order to restore some sense of stability, Osborne, incredibly, ducked the question.  He failed to reject the suggestion outright, which would have been the best response, but contended that this option was not presently on the table nor was it part of the coalition’s current thinking.  To imply that such a suggestion might in the future be a consideration shows a disregard or ignorance of the economic history of the past 100 years.  Perhaps the backbencher was conflating the gold standard with the recent platinum seignorage issue.  If so, that is unfortunate as they are not at all comparable.

Reference on the gold standard: Eichengreen, Gold Fetters.

Even more absurd was Osborne’s reliance on what the rating agencies say.  Not only do such ratings not apply to sovereign governments with sovereign control over their own currency, the ratings of these agencies are suspect in and of themselves.  Peter Tasker has a nice, short piece in the Financial Times showing this sort of thing to be the absurdity it is – http://www.ft.com/cms/s/0/b8d489a8-c363-11e0-b163-00144feabdc0.html.

Krugman has also made a bit of a monkey out of himself once again by showing that he is not prepared to understand the essential characteristics of what has become known as Modern Monetary Theory, which is a descendant of Keynes-Kalecki, Kaldor, Minsky and others (with a little Marx thrown in).  He repeatedly misrepresents their views. Perhaps he is desperately trying to avoid being characterized as a lefty, which might lead certain people to think he is a kind of nut job, and wishes to be seen as a moderate.  If so, then this just shows how right-wing the US has become.  By any other comparison, Krugman stands only a little left of center. Krugman should take this on board and deal with it head on rather than attempting to deflect such obviously outrageous characterizations of the positions of people like himself.

Krugman’s recent MMT post: Franc Thoughts on Long Run Fiscal Issues

Critiques:
To challenge something you have to represent it correctly – Bill Mitchell

Krugman #FAIL: Wrong on MMT, again – Lambert Strether (also note some of the comments)

Hypotheses and Corroboration and Data Variation I May 4, 2011

Posted by larry (Hobbes) in data, Duesenberry, economics, interpretation, Lakatos, Logic, nature of science, Statistics, Suppes.
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Duesenberry has an excellent discussion about the relationship between a theory or hypothesis and a test of that theory or hypothesis.  He correctly notes that one can never prove a hypothesis or theory but fails to give a reason why this should be so.  He also does not mention the Duhem-Quine problem in the testing of hypotheses.

To simplify the discussion, I will consider the testing of a single hypothesis, but what I say applies to theories as well.  The reason that a given hypothesis, H, can not be proved, or verified, is for logical reasons.  Most scientific hypotheses are in the form of universal generalizations.  For instance, for all x, Ax implies Bx.   Now, in order to prove or verify that all As are Bs, one would have to be able to inspect, in principle, every thing that is an A and/or a B, past, present and future.  This is impossible.  Hence, general laws that are in the form of universal generalizations can never be verified.  But they can be falsified.  Again, for logical reasons.  All you need to falsify the hypothesis that for all x, Ax implies Bx, that is, that all As are Bs, is to find an A that is not a B.  A simple example of this is the eponymous generalization that was once believed, that all swans are white, that is, that for all x, if x is a swan, then x is white.  To falsify this, you need to find one black swan, that is, one thing x that is a swan and is not white.  Not only is this possible in principle, such swans were discovered in Australia.  The major difference between a hypothesis H and a theory T is this – that a theory can be seen as a conjunction of related hypotheses.  Therefore, a hypothesis H can be viewed as a smallest theory.

There is, therefore, an asymmetry between verification and falsification – universal scientific generalizations (scientific laws) can not be verified though they can be falsified.  On the other hand, existential generalizations, of the form there is an x such that Ax, i.e., there is at least one swan, can be verified but not falsified.  It is possible to show that there is a swan by finding one, but impossible, for logical reasons similar to those above, to prove or verify that there are none on the basis that one has yet to be found.  The situation is even more complicated than I have described, involving other factors, but that is for another time. (But it is recommended that the works of Imre Lakatos, such as the methodology of scientific research programs, be consulted.  His conceptual scheme is non-trivial and more than just interesting.  And Patrick Suppes’ article on models of data (http://suppes-corpus.stanford.edu/articles/mpm/41.pdf).)  The important lesson to take away from this is that for a hypothesis to be scientific, it must be falsifiable in principle, although adhering to this requirement involves considerable complexity and is not without its difficulties.

The Duhem-Quine problem is more complicated. This is known as the method of saving the hypothesis.  According to the Duhem-Quine principle, it is always possible to save a hypothesis from falsification or refutation.  This is due to the logical nature of the testing process.  To show this, a little technical detail is required.  When a hypothesis is tested, the conditions in which the test is conducted such as the experimental or field conditions, the assumptions of the influence of the observer, and the like are also under test.  The experimental apparatus may be wrong, or the investigator may be unconsciously influencing the experiment or observation, or the test apparatus may be faulty.  This list can be extended ad infnitum, but for all practical purposes it is inevitably finite and small.  The logic of the situation is this.  Suppose you have a hypothesis H and from it you can deduce a proposition concerning an event E.  In the testing scenario illustrated above, you assume H to be true and look to see whether E is true or not.  If you find E, while you have not proved or verified that H is the case, you have, as Popper would have said, corroborated E.  That is, you have made the truth of E appear more likely.

Now, let us suppose that on the assumption that H is the case, you fail to observe E.  One can infer from this that H or something else being assumed is not the case.  The assumptions consist of H & C &B & Q, where C denotes the experimental or observational conditions, B the influence or bias of the observer, and Q any additional factors that might be influencing the outcome of the test.  So, if E is not observed, instead of falsifying H, you can save the hypothesis by rejecting C or B or Q.  You can then claim that E really does follow from H;  it is just that this test failed to substantiate this particular outcome because it was flawed.

As Duesenberry discusses, there is another factor involved in the testing of a hypothesis.  And this is that even should you succeed in corroborating H, all you have shown is that for the data at hand and under the conditions of the test, H seems to explain the data better than a set of alternatives, not that it is true simpliciter.  This state of affairs can, however, change and another hypothesis can take the place of H as the favored one.  This process of replacement can be highly contentious.

As Duesenberry himself notes, the data available to economists is often not very good.  Not only that but the variation inherent in such data remains unanalyzed more often than not.  Economists often present data in the absence of error coefficients and the like.  They also do not conduct statistical hypothesis tests of data even when it is not obvious, from ‘eye-balling’ the data, that H0 explains the data better than some alternative from a set of alternative hypotheses, H1, …, Hn, under the conditions of such an informal test scenario.  They appear to assume that the data ‘speak for themselves’, which they do not.  Data, to make sense, must be interpreted and that means placing the data in an interpretive context, that is, a theoretical context.  Otherwise,  there is no difference between a set of data and a list of numbers or names in a phone book.  In saying this, I am not arguing that statistical hypothesis testing is essential, only that it is not carried out even when it would appear to be helpful.  Irrespective of this, data should never be presented in the absence of error coefficients, unless the data differences obviously swamp any inevitable errors the data set may contain.  But how often is this going to be the case?

I must mention that this is not always the case in the present nor in the past.  Duesenberry (1949) himself cites references with statistical content – notably Keynes’ ‘A Statistical Testing of Business Cycle Theories’ (1939), Trygve Haavelmo’s’ The Probability Approach in Econometrics’ (1944), and G. Udny Yules’ ‘Why Do We Sometimes Get Nonsense Correlations’ (1926), along with eminent social psychologists such as Abram Kardner and Leon Festinger, the latter of whom’s Theory of Cognitive Dissonance has influenced Akerlof, the psychoanalyst Karen Horney (The Neurotic Personality of Our Time, 1937), and the social scientist Thorsten Veblen (Theory of the Leisure Class, 1934).  There is no reference to Talcott Parsons, who was probably one of the most famous Harvard sociologists (in the Department of Social Relations) with an economic background at the time of the publication of Duesenberry’s Income, Saving and the Theory of Consumer Behavior (1949).  It may be that, although both were at Harvard at this time, Duesenberry felt that Parsons’ approach, which was rather idiosyncratic, was rather tangential to his own.  I will come back to this issue regarding the different and possibly not easily reconcilable approaches of sociologists, anthropologists and economists to the fields of economics and political economy.

Is economics scientific? June 21, 2010

Posted by larry (Hobbes) in economics, nature of science, Osborne, social policy, Vince Cable.
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The answer depends on what is meant by ‘science’.  It is certainly not scientific in the sense of physics or even evolutionary biology.  It is not even scientific, strictly speaking, in ecological terms.  There are many problems with the field of theoretical economics.  One is that it is riddled with untested, and even untestable, ideological presumptions that remain implicit, unrecognized.  Another is that, along with other fields but with worse consequences, there is a logical disjunction between theoretical pronouncement and social policy.  The problem is not that there is such a disjuncture, but that it is either underplayed or dismissed as irrelevant or ignored by policy makers and some economists replaced by an ideological agenda that they do not wish to compare in a systematic manner with empirical reality.

One current example of the latter is the recent statement by George Osborne, Chancellor of the Exchequer, that unless the UK goes down the road of savage spending cuts, the country is on the road to ruin.  He provides no evidence for this doomsday scenario and indeed there isn’t any.  If anything, the evidence is in the other direction – his cuts could themselves take the country down the road to ruin.  Similar cuts did played their role in the industrial decline of the 1980s.

Osborne is supported by people like Mark Littlewood, who contends that libraries serve no real social purpose, social welfare should be trimmed back dramatically, the arts and cultural pursuits should be self-financing, and the like.  Before his public disgrace, Laws, in front of an audience of Whitehall workers largely in their 20s and 30s, asserted that his savage proposals would send shockwaves through Whitehall.  Did he think that these relatively young government administrators were somehow responsible for the country’s financial plight and that they ought therefore to somehow pull their socks up?  This is an outrageous implication.

The view that has taken hold is that it is public spending that is at the core of the country’s roubles, not the fact that the public purse bailed out the banks and got nothing in return.  At the core of this attitude is a kind of Puritanical philistinism undergirded by the intention to avoid the redistribution of economic and political power at all costs.  In other words, to retain and indeed to reinforce the economic and political status quo.  Even the more liberal Lib-Dems (though some Lib-Dems are Tories in disguise, like Laws) seem to have been suborned to this “nasty” ideological position.  And, unless he is playing some kind of long game, Vince Cable appears to be one of them. That the general public did not vote for the cuts that are being implemented and do not want them yet have them implemented nevertheless on dubious grounds is not a good omen for what is supposed to be a functioning democracy.

We are experiencing a right-wing backlash against the welfare state.  The irony is that it was right-wing ideology that failed the country in the first place.  The deficit is being used a smoke-screen to do what even Thatcher could not do – roll back the state and  further financially entrench those who already have more than any normal person actually needs.  Deficit economics is not a science-based policy.  It is an ideology of power and privilege.

The mainstream media, with notable individual exceptions, have missed this.  For example, the Institute for Fiscal Studies is lauded by Channel 4 news as great in every respect.  What the channel misses is that every data analysis proceeds on the basis of certain assumptions, many of which are left unstated – such analysis is not and can not be neutral.  But this is not the most egregious error on the part of Channel 4 news.  It is their lack of appreciation of the disjuncture between data analysis and policy prescriptions or proscriptions that are either claimed to follow from the analysis or are so implied.  Even assuming that the analysis of the data provided by the IFS is as neutral as it is possible to get, it does not follow that the social policies that they sometimes advocate are an inevitable, direct consequence of their analysis.  Channel 4 news has bought into the prevailing deficit propaganda.  The fact that school meals were on the cutting agenda, even though only for a short time, is an indication of how biased this deficit agenda is.  It is not neutral.  It will not be evenly distributed.  It is not even necessary.  And you do not have to be a Keynesian to appreciate this.

Economics is a social science where there are still competing schools.  There is no overall consensus such as is found in physics or parts of biology.  And value judgments form an ineluctable part of any social scientific endeavor.   But this does not mean that “anything goes”.  All economic principles can be assessed in respect of the evidence that is available.  That there may be no single answer to a given problem does not mean that all answers are equally viable.  Some are clearly better than others.  The deficit cutting agenda, so beloved by right-wing European politicians and their relatively well-off supporters, is not one of the better ones.  The fact that what evidence there is hardly ever transparently employed with respect to what are considered to be its policy implications shows more clearly than anything else that applied physics is not the appropriate “model” for economics.  It is even further ideologically removed from its policy implications than is applied ecology.

Underlying all this is a confusion/conflation of two things.  One is that of the status of a person qua social role and that of the status of a person qua human being.  While it is undoubtedly true that some social roles are more important than others, no human being qua human being is more important than another.  For example, a physicist is more important at CERN than an economist.  It does not follow from this that one sort of person is more important than another.   It is this distinction that is being conflated, if not confused, in discussions of the deficit by certain advocates.  Of course, if pointed out, such a conflation would be denied.  And put baldly like this, we would all feel impelled to deny it.  But for some of the economic proposals being put forward by the coalition, it seems to be inescapable that this consideration is an essential part of the package, whatever gloss is placed on it.

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