Home > Economics - General > The socialisation of economists (crosspost from Crooked Timber)

The socialisation of economists (crosspost from Crooked Timber)

December 10th, 2014

I’m following up Henry Farrell’s post on the superiority or otherwise of economists, and Krugman’s piece, also bouncing off Fourcade et al, with a few observations of my own, that don’t amount to anything systematic. My perspective is a bit unusual, at least for the profession as it exists today. I didn’t go to graduate school, and I started out in an Australian civil service job in the low-status[^1] field of agricultural economics.

So, I have long experience as an outsider to the US-dominated global profession. But, largely due to one big piece of good luck early on (as well as the obligatory hard work and general ability), I’ve done pretty well and am now, in most respects, an insider, at least in the Australian context.

I’ve also followed an approach, strongly deprecated in US academia, of writing lots of papers on many different topics. has exposed me to a lot of different subfields of economics, each with their own status hierarchy and criteria for what counts as good work.

My conclusion from this experience is that the obvious problems of academic macroeconomics aren’t unique to that field (in fact, as Krugman points out, the sharp divisions within the field make it unusually open in some ways). In many parts of economics, the status rankings and evaluation criteria are driven much more by internal and aesthetic factors than by empirical validity or policy relevance.

There’s a big arbitrary element to all this. If the seminal (sic) paper by the recognised smartest guy (sic) in the field formulated the core problem in a particular way, his (sic) grad students will learn and propagate that way of doing things, and will vigorously resist any alternative approach, even a purely technical reformulation. They have, after all, a lot invested in the idea that they have learned something valuable that no one else really understands.

If you want to see the mentality at first hand, and have a strong stomach, take a dive into the cesspool that is Economics Job Market Rumors. I should mention that my distaste for EJMR is fully reciprocated. The idea that an understanding of economics combined with attention to actual events is more useful than mastery of a highly specialised bag of tricks is totally antithetical to the ethos of the site (unsurprisingly, they hate Krugman even more than they hate me). In a less extreme form, that’s true of the econ profession in general, as the Fourcade et al piece shows.

[^1]: At least in the international profession, dominated by US norms and values. Until recently in Australia, a large proportion of policy-oriented economists got their start in this field, and policy work, in turn has a status it lacks in the US.

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  1. Ikonoclast
    December 10th, 2014 at 07:27 | #1

    There are those who produce value, those who manipulate value and those who study value. Economists as a class straddle all three activities. This probably accounts for our inability to decide what we really think of economists.

  2. Robert Merkel
    December 10th, 2014 at 08:22 | #2

    Different field entirely, but we have similar problems in my own.

    In practice (and of course, I’m generalizing fairly grossly) the most useful techniques for improving the quality of software are, in order:

    1) manual inspections.
    2) manually-devised tests, possibly scripted.
    3) computer-generated tests.
    4) formal proofs of correctness.

    The same topics, ordered by number of papers published in the academic literature:

    1) formal proofs of correctness.
    2) computer-generated tests
    3) Manually generated tests.
    4) manual inspections.

  3. Ernestine Gross
    December 10th, 2014 at 08:27 | #3

    The (short) book, by G. Debreu (1959), titled Theory of Value, doesn’t include the category “economists” at all. (Psychologists, sociologists, accountants, lawyers, medical doctors, physicists, marketing, historians, politicians, ……also don’t get a mention.)

  4. Ikonoclast
    December 10th, 2014 at 09:09 | #4

    @Ernestine Gross

    That’s irony right?

  5. kevin1
    December 10th, 2014 at 09:11 | #5

    “They hate Krugman even more than me.”

    Is this in jest? Interested to follow sucb a debate. I recall K defending you from some US demolition job coupla years ago.

  6. Ikonoclast
    December 10th, 2014 at 09:29 | #6

    @Robert Merkel

    I take your point about software. However, you have left out an important list point. (Easy enough to do when blogging quickly).

    I think a very interesting phase arrives when end users are let loose on a complex system. They find both stupid and clever ways to inadvertantly or deliberately break, circumvent or exploit bits (or all) of a system. I suppose that is why we have beta tests.

    Clearly a real world test is more comprehensive than any testing phase and designed tests. End users add both unanticipated stupidity and unanticipated cleverness and inventiveness into the mix. End or total world conditions add more complexity also.

    I reckon economic theory and practice must suffer from the same thing. The real world is always more complex than any model. The most complex varaiable of all seems to be the independent intelligence, animal spirits and volitional agency of real world users of a system be it a computer system or an economic system. It’s also the case that a theory of an economic system which gets any exposure enters into the system and changes the system; not just by simple addition but very possibly by unleashing new emergent phenomena.

    You second list kind of implies (and I agree) that easy or unmessy or pure problems get studied more than difficult, messy applied problems. The reasons are clear enough.

  7. Newtownian
    December 10th, 2014 at 10:33 | #7

    Thanks for the short biography John. Makes sense. I’ve met a few other natural resource economists and they also seemed well grounded in reality even if the supply demand models they presented looked dodgy.

    Regarding the EJMR, it feels not so much indigestible as just weird/vaccuous especially when you compare it a more traditional academic blog like ‘The Conversation’. But then I don’t understand selfies and facebook either, take my understanding of Big Brother from Orwell rather than Channel 9, and I dislike the idea of writing off large slabs of the younger generations as gormless as students I’ve had are anything but.

    You are right about other academic disciplines being similarly siloed, arguably to the point that many practitioners see their discipline is all that matters in the world. This is probably helped by the need to sell your soul these stays just to stay in the academic game and to do that well self belief verging on self-delusion may help a bit.

    So economics being a siloed is hardly unique and a criticism per se.

    However I cant say I’ve come across anything as strange as EMJR, which does strongly suggest that there is a toxic culture dominating US Economics as you indicate (and possibly its siblings Finance and Business Management – university reorganization may be a good indicator here) and on this count is different/special to other academic disciplines.

    The Foucade extracts I’ve read suggest Economics is indeed different to other social sciences. So I suspect this difference in self perception reflects badly on economics but I’m still not sure how objective my impression is?

    Afterall psychology which would also claim preeminence of a sort has analogous divisions (Freud, behaviourists, etc. who seem to be also somewhat at war with one another and their psychiatrist cousins). And Psych has also had some very dark sides to it – e.g. soviet era creeping schizophrenia, eugenics and IQ. So maybe its just a phase Economics is going through.

    As to one discipline being superior there is a possible precedent Though I am a biologist firstly I would not dispute physics/maths as being the preeminent disciplines for describing the universe with the rest of hard science being derivative to varying degrees.

    Still the article is another piece to add to growing literature supporting the gut feeling that outsiders especially have that there is something very wrong with modern economics, we really cant trust its practitioners particularly finance and investment advisors and need to think seriously about finding the best way to finance our retirements.

  8. Nevil Kingston-Brown
    December 10th, 2014 at 10:35 | #8

    I took a look at EJMR when Elinor Ostrom won the pseudo-Nobel. It was… informative.

  9. bjb
    December 10th, 2014 at 11:23 | #9

    Newtownian :
    You are right about other academic disciplines being similarly siloed, arguably to the point that many practitioners see their discipline is all that matters in the world

    Which reminds me of Sir Ernest Rutherford’s famous quote: “All science is either physics or stamp collecting.”

    I think the “problem” with many academic economists is physics envy. Hence they construct very elaborate, and in many case elegant, mathematics, which unfortunately are usually predicated on some not easily testable hypothesis. As Piketty said in the first few pages of “Capital”, most economists should worry more about sociology and less about mathematics.

  10. December 10th, 2014 at 11:44 | #10

    Tools developed and/or promulgated by economists with their “superior stats” that I know of that are flawed:

    – Tobit regression (no model-checking abilities, no extension beyond gaussian data)
    – Incremental cost effectiveness ratios (a non-1-to-1, non-monotonic multivariate function with a discontinuity at the key point of inspection, that has infected health economics even though no uncertainty calculation or statistical comparison can be done)

    Ideas still popular with economists that the rest of the academic world has given up on or that are obviously patent bullshit, but commonly popular with politicans:

    – global warming denialism
    – IQ
    – analyzing fiat currency as if it were a gold standard (which gives politicians the lie “money doesn’t grow on trees”)
    – debt/gdp ratios

    dsquared turns up on the Farrell thread to give a really good example of what I consider to be the problem with economists’ so-called statistical advantage. He informs some poor dilettante that statistics all boils down to analyzing residuals. This is patently untrue: modern statistics all boils down to analyzing likelihoods, and in a single restricted (classical) case this process can be done more efficiently and intuitively through residuals. This has been a well known fact since McCullagh and Nelder in 1984 (1973?) and is the basis of all of modern epidemiology, the insurance industry, educational research, and pharmaceutical science since, well, Kaplan and Meier, I would guess. But economists still work in a normally distributed, Gaussian framework (try explaining survival analysis to an economist – even a health economist – and watch their brain boil). Yet economists are still talking about residuals …

    The foundations of claims to economists’ success through merit (their much-vaunted “quant”) are based on a very shallow understanding of the depth and breadth of modern statistics, and the ways in which it is used outside of economics or, indeed, outside of academia. It shows how insular and inward-thinking economics is.

  11. Donald Oats
    December 10th, 2014 at 13:39 | #11

    Perhaps there is a perpetuation of a particular “kind” of economi(cs/st) by the MSM, in part because it fitted the MSM’s broader narrative of the wonders of a free market. Working backwards, a newbie economist would gain the attention of their more experienced peers (yeah, I know, that means they aren’t peers, precisely, but let me run with this) if they concentrate upon the sort of problems which the MSM find endlessly important to promote, the promoted solution being to leave it to the free market. It would explain a lot.

    This does happen in other fields, although it tends to run as a fad rather than a long term trend. Think of “Chaos Theory”, and “Fractals”, in the 1980’s, showing that even the quintessentially abstract field of dynamical systems could bubble up into the public consciousness, spurring the next generation to put some effort into this field. Then the fizz fizzed, the bubbles popped, and mathematics was geek-ness once more. Meanwhile, people continued to research chaos in dynamical systems, its value undiminished, if less understood by the public at large. Wavelets had a brief encounter with fame, too. Useful though they are in many fields, the public at large has little scope for appreciating that.

    Economics is a bit different. The business section of the newspapers, and the articles devoted to policy analysis and critique, guarantee that economics is always in the public eye, decade after decade. That makes economists important, in a way which other research specialists are not. The MSM have made a choice: they have essentially chosen the subset of economic theory which is most aligned to promulgation of the free market view of the world. Actual economics as an academic pursuit presumably has a much broader reach in terms of the kinds of models of the (economic) world it explores, and presumably there is some room in the academy for what the MSM would see as heretical.

    It is all a guess 🙂

  12. Jim Birch
    December 10th, 2014 at 13:55 | #12

    There’s nothing wrong with a bit of physics envy, provided it includes not only the concise mathematical specification part but also the subject to empirical refutation part.

    In physics, string theory, despite a pool of new maths, some new lingo and even a bunch of new invisible dimensions, has produced no new testable consequences and will be regarded leerily until it does produce and pass a few solid tests.

  13. Newtownian
    December 10th, 2014 at 14:46 | #13

    @bjb

    “As Piketty said in the first few pages of “Capital”, most economists should worry more about sociology and less about mathematics.”

    Interestingly the same charge of narrow minded analysis has also been levelled at Piketty himself.

    See http://yanisvaroufakis.eu/2014/12/03/discussing-thomas-pikettys-inequality-treatise-with-andrew-mazzone-video/

    The basic message is when you analyse his limited proposals (as distinct from documenting the problem of inequality) Piketty is still just a freshwater neoclassical.

  14. Tapen Sinha
    December 10th, 2014 at 14:56 | #14

    In economics academic market in the US, the hierarchy
    of universities in extremely rigid. Unless you come from
    a degree from a top ten schools, you are extremely unlikely
    to get a job there. Not so in hard sciences. And unlike hard
    sciences, that little prize from the Scandinavian Central
    Banks is extremely concentrated in the US.

    In Australia, on the other hand, England still rules. If you
    had a job in England, you are still a royalty in Australia.

    Tapen

  15. Newtownian
    December 10th, 2014 at 15:36 | #15

    @Jim Birch

    “In physics, string theory, despite a pool of new maths, some new lingo and even a bunch of new invisible dimensions, has produced no new testable consequences”

    Somewhat, but this ignores all the majority of very weird (commonsense wise though not mathematically) physics models that have proved testable. These have generated a lot of remarkable predictions for example the lifespan and size of stars and the age of the earth….which are consistent with other very different information sources like radioactive isotope ratios…and led to the semiconductor revolution.

    So to focus on the shortcomings/immaturity of one aspect of physics as a rationale for defending economics which feels flawed at its core feels a bit of a stretch to me.

    As to ‘physics envy’ my attitude to physics comes from having to apply Brownian motion (an Annus Mirabilis product) applied to a biological problem and learn how simplicity and stunning the explanatory model is.

    Thus I’d suggest a modification here. Economist trying to emulate how Physics is approached as a scientific method – I agree there is nothing wrong with that. But if Physics envy equates to claiming brilliant insight without having done the hard work of finding deeper unified concepts or creating an ersatz Nobel so you can share the limelight in Scandinavia? I’m afraid that is more akin to how D grade celebrities operate like the ‘famous for being famous’ Kardashians.

    Now of course the latter is hyperbolic/extreme and conversely I would be the first to agree that economics has developed many great empirical insights (e.g. discounting). Separately double entry book keeping has proved a brilliant tool which innumerable hard science disciplines have adapted to their own purposes reflecting the conservation of matter and energy e.g. environmental science use for nutrient and pollutant loading calculations.

    What bothers me still though is such things as the following:
    – the inability of the economics profession to reform in light of the near cataclysm of 2008
    – its lack of ability to conceptualize the human and financial economies as systems within a larger global scheme e.g. treatment of environmental disasters and nuisances, externalities or not at all.
    – its general inability to incorporate into its framework self evidently dysfunctional and destructive human behaviours and institutions which degrade society as identified by the old political economists.

    Aspiring to mimic the substance of physics is one thing, erecting a superstructure which is an ersatz copy is something else.

  16. Newtownian
    December 10th, 2014 at 15:39 | #16

    @Donald Oats
    Your thoughts look pretty good to me.

  17. Ernestine Gross
    December 10th, 2014 at 15:58 | #17

    @Donald Oats

    Your guess is pretty spot on.

  18. John Street
    December 10th, 2014 at 16:35 | #18

    Surely you mean “they hate Krugman even more than they hate me” ?
    Krugman is one of the few other bloggers worth reading.
    @kevin1

  19. December 10th, 2014 at 18:27 | #19

    Is that Econ job rumours website a website about ecnomics or some kind of PUA site? I read a few threads and it seems steeped in the language of the PUA scene (bros, alphas, etc).

    Which is interesting because the men’s rights movement (and especially the weirdo MGTOW subbranch) is founded on a theory of sexual politics called “hypergamy” that is straight out of Chicago School Eco (“it’s economics 101 dude, supply and demand”). What a coincidence! Not.

    Also check out this comment about Roubini by a jealous PUA over there:

    Not a real economist. See his CV (hint: It’s not in LaTeX).

    Hint: being able to write LaTeX doesn’t make you a real anything, though bragging about it makes you look kind of silly. Physics envy at its very finest.

  20. J-D
    December 10th, 2014 at 18:34 | #20

    kevin1 and John Street:

    ‘They hate Krugman even more than me’ should be read as an abbreviation of the sentence ‘They hate Krugman even more than they hate me’; the sentence ‘They hate Krugman even more than I hate Krugman’ (not what John Quiggin meant) should be abbreviated ‘They hate Krugman even more than I’ (or ‘They hate Krugman even more than I do’).

  21. kevin1
    December 10th, 2014 at 19:33 | #21

    @John Street

    OK, now I get it.

  22. TerjeP
    December 10th, 2014 at 21:29 | #22

    kevin1 :
    “They hate Krugman even more than me.”
    Is this in jest? Interested to follow sucb a debate. I recall K defending you from some US demolition job coupla years ago.

    This remark through me also. But then I figured it out. It has two possible meanings.

    1. They hate Krugman more than I hate Krugman.
    2. They hate Krugman more than they hate me.

    I assume that the second meaning is the intended one. But I found myself fixated on the first interpretation for a while. I was scratching my head.

  23. TerjeP
    December 10th, 2014 at 21:30 | #23

    Doh!

    threw not through

  24. December 10th, 2014 at 22:32 | #24

    Do you admire John Kenneth Galbraith? His books are my favourites on economics. He was of course also an agricultural economist. And I like his observation that the thing people hate to do most is actually think.

  25. John Quiggin
    December 10th, 2014 at 22:33 | #25

    @kevin1

    Sorry for the ambiguity on this. Of course I mean, “more than they hate me”

  26. John Quiggin
    December 11th, 2014 at 03:35 | #26

    @Tapen Sinha

    I think Anglophilia has just about died in econ departments, but it’s amazingly strong in university management.

  27. John Quiggin
    December 11th, 2014 at 04:16 | #27

    @faustusnotes

    As the OP shows, I’m happy to criticise my fellow economists, but some attention to facts is still necessary. The suggestion that climate denialism is popular among economists is wrong

    http://www.smh.com.au/federal-politics/political-news/tony-abbotts-new-direct-action-sceptics-20131027-2w9va.html#ixzz2j4Nc5im9

    http://johnquiggin.com/2010/07/19/economists-and-climate-change/

  28. James Wimberley
    December 11th, 2014 at 04:56 | #28

    Judges should spend a weekend in jail. What’s the equivalent for economists? Their experience of the non-academic economy is often limited to random summer jobs they took as students. So they may understand fast food, telemarketing, supermarket shelf-filling and beach lifeguarding better than mines, factories, farms and banks. In particular, they will not have been allowed anywhere near the decision-making of rent-seeking plutocrats.

  29. BilB
    December 11th, 2014 at 08:18 | #29

    The Fourcade piece is very interesting. I’ve only skimmed it but it but what I picked out is that economic deals with money and value management. People who deal in money usually make more money, excess money builds a sense of superiority, hence economists fell superior to the other social sciences not the least because their’s is a more quantitative field.

    ” Human life is messy, never to be grasped in its full complexity or shaped
    according to a plan: people act in unanticipated ways, politics makes its own demands,
    cultures (which economists do not understand well) resist”

    I argue that Economics separation from and sense of superiority to the broad field of social sciences is its primary failing. The assumption that social complexity cannot be quantified into the economic model is blatantly false and is an expression of academic laziness in consequence to the cloud of superiority that economists are enveloped.

    Economics and the Social Sciences are as separate as Cosmology was from Physics some years ago. It was not until the two sciences began to see similarities in their fields and began to actively mingle that they saw that their two fields were fully intertwined and resolution of unanswered questions could not be resolved without a full appreciation of each other’s scientific knowledge.

    So it is with Economics, which I have argued is flawed as is any algorithm will be where half of the parameters are missing. The economic models are routinely criticised for their exclusion of externalities as was Dr Steven Chu was at pains to demonstrate in his press club talk yesterday. it is said that air pollution issues can only ever be properly resolved by filtering the gas flow through the board room before expulsion. But there are many vital factors that economists fail to factor into the models.

    There are so many factors the feed into the performance strength of any community that may be recognised by economists, but not quantified in a manner that can be used to determine the true value of political decision making.

    Factors such as: quality of life; depth of philosophy; standard of education pertinence of the knowledge base; co-operative structure; connections; foresight; overall degree of automation; applied new technology; and quality of environment,…on one side of the ledger and age and health; standard of living; racial intolerance/ religious zeal; nature of government; defence/degree of insecurity; cost of crime; no of hierarchical tiers in organisations; age of technology cost of R&D; and environmental protection cost, on the other side.

    These and many more are all economic parameters that need to be quantified in a manor that allows them to factored into decision making in a manner other than in ideological or rhetorical form. Failure to complete the scientific mission by economists only serves the aspirations of those who seek to manipulate society for personal gain fully against the interests of the community. Economics will remain a divisive science as long as Economists feel superior, separate themselves from the full body of social knowledge.

  30. December 11th, 2014 at 08:35 | #30

    Following on from BillB’s comments, my major criticism of economics is a lack of reflectiveness – economics, as we see it in public discourse, is poorly defined (what is it? Where does it begin and end? How is economics distinguished from society or ecology?), and does not question its own assumptions.

    If John Quiggin or any other economist could point out to me a well known, orthodox economics text that problematises the relationship of economics and patriarchy, I would be prepared to rethink. Until then, I will continue to think that orthodox economics is a discipline dominated by wealthy white adult males (as Fourcade et al demonstrate), who project their unquestioned assumptions on to the rest of us.

  31. December 11th, 2014 at 09:19 | #31

    The economist magazine was blogging about “the pause” as a serious issue last year, john. That magazine itself is a late convert. The Wall Street Journal still disputes the science. The Cato institute, AEI and pretty much every other think tank connected with the Chicago school reject or minimize it. It’s telling don’t you think that the economics field can only escape this accusation by going “no true Scotsman” on these organizations? Even supposed experts like Tol are off the rails, withdrawing his name from a recent IPCC report publicly because it was too alarmist. I am sure I hardly need to tell you what comes up if I search for climate change at EJMR, which you seem to think reflects somehow on your profession as a whole.

    It is a serious embarrassment for the field that for so long its right wing representatives have been carrying water for those movements. The technical quality of the work done by economists on the topic is also pretty low, and I think this is because as a field economics has been unwilling to face up to conflicts in basic principles underlying much of the field. E.g, the dispute over discount rates after the release of the stern report… Surely you guys can come to an agreement about how to value saving for future generations? Apparently not…

  32. Newtownian
    December 11th, 2014 at 11:24 | #32

    @John Quiggin

    “The suggestion that climate denialism is popular among economists is wrong”

    Though I am unaware of any survey, I would also doubt the majority of economists at least in this country are climate change deniers in the sense of say the Koch Bros, Lundgren, the Tea Party, IPA and Maurice Newman. Conversely there are many who clearly take climate change seriously – Ross Garnaut, Ross Gittins, Steve Keen being local examples. Overseas Stern and friends and ‘Prosperity without Growth’ Tim Jackson. Separately are financier Jeremy Grantham and George Soros who put money where there public positions are. And conventional economists can be cooperative with ‘outsiders – a current example is exchanges between Canadian ecological economist Peter Victor and Tim Jackson.

    But there is I suggest a another problem that I have seen evidence for repeatedly – a softer but still crippling version ‘cognitive dissonance’.

    Its been plain to I’d guess 95% of environmental scientists since the 1972 Stockholm Environment conference (which led to UNEP) that our industrial economic system is not sustainable. I remember discussing with a colleague/friend/teacher in 1988 what would happen to CO2 emissions if China kept growing/going the way it was….well here we are.

    But economists in the majority still appear, as they did back then, to either directly oppose efforts to analyse the detail (limits to growth/resource constraints and sustainability, keep environmental issues in the externality box, or claim economics (instruments) is the ultimate solution to real risks (Climate change) while failing to consider the problem holistically given you cant separate climate change from economic growth from all the other ecology/sustainability issues.

    So in the real world you repeatedly get evidence of no substantive change. e.g.

    – In 2005 I remember listening to one Lord Robert May, physicist, ecologist and expat Aussie and retiring president of the Royal Society of London here warning us based on early Ecological Footprint analysis, that we had 10 years to change our society/economic system or reap the whirlwind. He was talking about both Climate Change and everything else. Now here we are in December 2014 – 5 minutes to midnight as it were – and all that is on the agenda is the Lima farce recycling Copenhagen 2009.

    – Tim Jackson’s book came out in the mid 2000s – an excellent deconstruction of the problem and recognition of the need to change the economic system – but where are we now? He had only vague recommendations for action – 35 years after Stockholm!!!!!! – and despite this good work his sponsor, UK Sustainable Development Authority has been wiped off the map a few years later.

    – In 2012 we had the farce of Rio20+. Unlike the original Rio 1992 which echoed Stockholm 1972 – what did we get? Growth growth growth growth under the oxymoronic banner ‘Green Growth’ – probably created by the same spinners that created ‘Climate Change Adaptation’ (we cant change the economic system because it is governed by immutable laws so we will just have to adapt to all the impacts).

    – A few months back we has a local conference on precisely the solution http://www.ies.unsw.edu.au/about-us/news-activities/2014/03/addicted-growth-how-move-steady-state-economy-australia. It was nice to be among fellow true believers, but there were bugger mainstream economists at would should have sold out the Acer Arena.

    The bottom line is this. Taking the above and similar experiences as indicators of change I have to conclude there has been great technical progress e.g. photovoltaics, but the evidence that the economics, finance and business communities is waking up in any statistically significant sense is still lacking. Sure there are token bits like the Guardian’s sustainable business section. But when you look at the two movements side by side there still appears to be this disconnect reflecting underneath an inability of even the progress economics community to adjust their world view or at least address the cognitive dissonance – let alone these weird Masters of the Universe type which rightly cause John so much grief.

    The only thing that would convince me otherwise would be resolutions at Economics Society conferences saying something to the effect of:

    “While the discipline of Economics is useful for many things it has failed miserably to address the real threats facing Australian and Global civilization and its natural life support system and in the last 30 years has actually made things worse. Therefore we economists are removing ourselves temporarily from the resources and environment debates which is in the end a political and philosophical, as we have little on balance to offer and our current concepts are too easily used to justify the unjustifiable.

    During our absence we will endeavour to reorganise our discipline, purge it of the lazy thinking, self interest and pandering to vested interest that currently characterizes it and work collectively to find a unified theory of sustainable economics which does not fatally wound the planetary biosphere.

    (Ha ha just kidding)”

  33. sunshine
    December 11th, 2014 at 12:09 | #33

    I’d like to think we only need economists if we are to continue with growth and consumption maximisation .From that base economists can help politicians convince people that resourses are scarce and then justify the politicians social engineering efforts .Economists and politicians are in a small power generation loop.

    Since we already know how to easily supply the basics of life to everyone on Earth ,and that beyond basics happiness is unrelated to wealth ,what we need more of in the big room are sociologists ,philosophers ,ethicists, anthropologists, etc, not economists. Then we may have a chance of getting on with the task eventually. As long as we keep pretending resources are scarce, everyone is selfish , and economics is amoral- the carnage wont abate.

  34. sunshine
    December 11th, 2014 at 12:18 | #34

    J.Q. – it is good to see you acknowledge the role of luck in your life .This is not often done but luck always plays a role. The fashion today is to put success in total down to determination and giftedness. In our entrepreneurial world we want to believe the myth that reward is always going to be proportional to effort/ability.

  35. December 11th, 2014 at 14:53 | #35

    The Heritage Foundation lists five experts on “energy and environment,” two of whom are economists, one claiming publications in major economics journals. The entire shebang is headed up by Stephen Moore, also an economist. Fifty percent of the Heritage Foundation’s spin doctors for anti-AGW myth are economists. The other three are a lawyer, an engineer and a journalist. If you do a search on “economics” at DeSmogBlog it’s remarkable how many right-wing anti-AGW institutions include the word “Economics” in their name. Hmm, I wonder why that might be?

  36. Ikonoclast
    December 12th, 2014 at 08:09 | #36

    @sunshine

    I also note that J.Q. mentioned effort, ability and luck. It is true in one sense that all of these play a role in success. However, when you look at it closely, ability endowment is luck too. If one has the genotype and thence the phenotype to be say an opera singer or a marathon runner or a mathematician then this is luck too. Looking further, effort comes from the ability to work hard. Where does this ability to work hard come from but a confluence of inherited ability and environmental facilitation? It is luck again.One hundred percemt of all achievements are therefore serendipity. The notion of merit and praise is meaningless in the moral sense. (Note 1.)

    It is possible for people to work hard and not benefit from the hard work. This happens even at a physical level. Research now shows different genes which govern how some people benefit from aerobic work and improve in fitness much more than others. No doubt similar issues exist at intellectual and psychological levels. Some people will benefit from the work more than others due to genotype and phenotype.

    Thus the moral rationale for giving rewards based on meritocracy is no stronger than the rationale for giving rewards based on aristocratic birth. However, there is a functional rationale for rewarding on a meritocratic basis rather than an aristocratic basis. Meritocratic promotion benefits society as a whole more than aristocratic promotion. The greatest good of the greatest number is achieved by promoting ability and competence.

    Note 1: All of this appears to question the notion of free will and the apportionment of moral praise or moral blame for “choices” made. I tend to come down on the side that free will is a fond illusion we have. There is really no free will. Whether the universe is deterministic or probabilistic it is easy to see that neither determinism nor probability give adequate grounds for assuming or deducing free will.

  37. Newtownian
    December 12th, 2014 at 10:05 | #37

    A postscript about the failure of economic instruments, and by implication economic theory, as the environmental management tool to stop climate change.

    20 years ago Carbon Trading a’la Kyoto was touted as the great saviour. The reality though is here shown yet again to be somewhat different.

    http://www.theguardian.com/environment/2014/dec/11/lima-climate-talks-fail-agreement-single-paragraph-deal

    20 years on and its looking like its worse …. though really what has emerged is the recognition that you cant have your cake and eat it too. And the rich and powerful just want to keep eating irrespective of the cost. Doh! The fact is you simply cant rip off finite planet ‘resources’ and expect things to magically equilibrate ot a happy Pareto mode according to some economics ersatz ‘Law’.

    I still pray I am proved wrong about Lima. But the evidence of Doha, Copenhagen, Durban, Rio20+, Bali etc. etc. says Paris next year will be another fizzer and the only source of possible change is the utopian hope of angry population mobilised against the politicians and other shysters who would destroy us for short term gain using economics as a theological construct for justifying inaction.

    Economic self interest appears in fact the greatest block to sustainability.

  38. BilB
    December 12th, 2014 at 11:00 | #38

    I would not be too pessimistic, Newtonian. It is tempting to predict the future by looking to the past, but I suggest that we should look around rather than back to see what will happen. If you saw the Dr Steven Chu talk you would have heard of just how much parallel action effort is underway. Underway to the extent that leaders are becoming followers.

    You are, however, right, I believe, in your comment on economics. But here again is immense opportunity. There is a staggering amount of scientific research and engineering innovation underway, unleashed by the expectation and the need for new technologies, and consequently the consumer demand for better new things in the energy and transport fields.

    So there is also an immense opportunity for innovation in the field of economics. The message…………………………economics GENIUS WANTED.

    It is time to shelve Marx, and Keynes, bin Kayek and Friedman. Economics desperately needs a UNIFIED model for the future, a model that properly quantifies and values our human efforts in relation to the real world with all of its advantages and limitations.

    There is the prospect here for an integrated University team of scientists, economists, social scientists and engineers, to develop the basis for properly managing our future world. The need is so great that if not a single institution steps up to the challenge then they should all be given a massive FAIL.

  39. Ikonoclast
    December 12th, 2014 at 11:28 | #39

    Current politics remind me of an old Milligan/Goons joke.

    “..and suddenly, nothing happened – but it happened suddenly, mind you.”

    Nothing has been suddenly happening for 20 or more years on carbon emissions amelioration. Nothing is still suddenly happening. The same goes for doing something about unemployment and under-employment. Nothing has also been suddenly happening for over twenty years on this issue.

    I expect nothing to keep happening suddenly until something starts happening suddenly. This something will be nothing good and nothing intended. But it will happen suddenly, mind you.

  40. Hermit
    December 12th, 2014 at 11:32 | #40

    Some believe emissions will peak by mid century with no abatement effort whatsoever. This is sometimes discussed on the Judith Curry blog. Oil and gas will be economically depleted by 2050 and it’s hard to see coal replacing them. A likely emissions trajectory is between ICPP scenarios RCP 2.6 and 4.5, not the extreme versions that have emissions increasing to 2100.
    http://naturedocumentaries.org/4546/21st-century-temperature-precipitation-scenarios/
    Therefore if the climate conferences achieve nothing all is not lost. The world will be hotter regardless but whether the global economy survives depend on whether we adapt. That’s the bit I’m more worried about.

  41. Newtownian
    December 12th, 2014 at 11:36 | #41

    @Ikonoclast

    “Note 1: All of this appears to question the notion of free will and the apportionment of moral praise or moral blame for “choices” made. I tend to come down on the side that free will is a fond illusion we have. There is really no free will. Whether the universe is deterministic or probabilistic it is easy to see that neither determinism nor probability give adequate grounds for assuming or deducing free will.”

    Exactly what ‘free will’ is has never been satisfactorily explained to me either. This has been frustrating. But then even the great Martin Gardiner, science journalist and commonsense skeptic par excellence once wrote he was convinced free will existed but he couldnt figure out what it was either. And Popper’s seems to have fudged the concept http://en.wikipedia.org/wiki/Karl_Popper#Free_will.

    However on the related matter of probability and causality some light may be emerging, and of interest.

    Recently for work I’ve been exploring the world of Bayesian Belief Networks in an effort to use them well and avoid abusing them (there is a great saying “With four parameters I can fit an elephant, and with five I can make him wiggle his trunk. Attributed to von Neumann by Enrico Fermi, as quoted by Freeman Dyson in “A meeting with Enrico Fermi” in Nature 427 (22 January 2004) p. 297. I wonder how often modeller economists who envy physicists overlook this piece of wisdom?)

    Anyway this BBN exploration has led me to the discovery of Judea Pearl’s website. http://bayes.cs.ucla.edu/jp_home.html . Pearl is known as the father of Bayesian Belief Nets but their origin appears less known. BBNs in fact emerge from a deeper level, Pearl’s philosophical quest to understand causality. Many of the academic writings on this is are unfortunately replete with difficult to understand algebra. But on his group’s site Pearl includes two ‘soft’ powerpoint presentations that explain the origin of idea on causality and method especially as they relate to statistics and science and where this has led – in plain English more or less if you are familiar with how Bayes stuff works. My reaction to this findings was WOW!!!!!!!

    Aside from explaining key questions about Bayes Nets his papers seem to explain the dispute between Bayesian and Frequentist schools of statistics. I still need some constructive discussion with some philosophically minded statistic expert but it looks provisionally like Pearl may have initiated the most important development in the scientific method since the roll out of Kuhn/Lakatos paradigms and Popper’s ideas on falsifiability.

    Pearl’s framework for understanding causality doesn’t directly explain free will. But the resolution of what causality is seems very likely part of the puzzle – as any fan of Hugo Weaving’s Mr Smith in the Matrix (as well as Ze Merovingian with his outrageous John Cleese like French accent) will know – inexorable cause and effect being the flip side to whatever free will is.

    How BBNs get past the old problem of us ‘feeling’ what free will is, is they provide a language which is partly algebraic but also partly symbolic to deal with and explore causality. The latter is centrally the net diagrams which are more that just any old flow chart.

    Writing this made me wonder if Pearl had commented on Free Will – and sure enough http://www.forbes.com/2009/06/18/computers-free-will-opinions-contributors-artificial-intelligence-09-judea-pearl.html . But amazingly there is not a single comment posted on his site on the matter….which seems to reflect an even more profound lack of interest in things fundamental than even John has experienced.

  42. Newtownian
    December 12th, 2014 at 12:45 | #42

    @BilB
    Sorry I am just a bit pissed after reading the Lima article and thinking about the clowns in our government especially the climate change traitor/ABC destroying/sell-out/blowing with the wind/ enemy of the people who would be treasurer – Malcolm Turnbull.

    But you are right one should look for better things and smell the roses. And indeed I do.

    Regarding your suggestion of ‘Genius Wanted’ that is possible as evidenced by Einstein’s and Newton’s Anni Mirabilis. However less well appreciated is that such people dont exist in isolation but as a community. Take Einstein’s as shown in the 5th Solvay conference photo http://en.wikipedia.org/wiki/Solvay_Conference

    The point here is it will take more than just a genius to solvay the challenge posed by economics in its current dominant form.

    I’ve mentioned a possible member of such a gathering above…Judea Pearl…causality not exactly being irrelevant to the point behind economic modelling and certainly he is interested in the issue http://www.mii.ucla.edu/causality/index.php?s=economics

    Enjoy.

  43. Ikonoclast
    December 12th, 2014 at 12:48 | #43

    This is the most perceptive essay I have read recently.

    http://philosophersforchange.org/2014/08/19/how-will-capitalism-end/

    I think the author, Wolfgang Streeck, is bang on the money.

    Most people are now increasingly giving up on analysis of broad fundamentals like “where is the whole system headed?” and are increasingly obsessing over minutiae, trivia, pop-economy and pop-sociology issues. Clearly, the central problem has become too hard, both intellectually and emotionally, for most people to grapple with. (1) There are still some like Wolfgang Streeck who will analyse in depth what is happening.

    Note 1: People giving up like this are existentially correct. Our predicament has become absurd and impossible. Thus absorbtion in a specialist professional pursuit or in a hobby interest to the exclusion of almost everything else is individually rational and healthy.

  44. BilB
    December 12th, 2014 at 14:05 | #44

    That is an excellent essay, Ikonoclast. I am going to have to read it fully slowly later. My take away quote is

    “The idea that less could be more is not a principle a capitalist society could honour”, that and that capitalism will choke on a heavy dose of itself.

    One of the biggest problems that allows the situation to persist is the invisible nature of the problem. This is the solution territory of Hans Rosling’s “mind the gap software” which specialises in visually animating complex data and its transitions.

    My call for an economics genius is really a call for a “conductor”, in the orchestral sense but for economics. The internet would never have developed had there not been many conferences of very dedicated and clever engineers and “Robert Merkels” who set about creating interconnection standards for data, systems, software and electronics, and over many years.

    The economics dilemma is that there is a need for an unified data interconnection standard along with a system of parameters to allow a change in any one field to be reflected in every other field so that a model run will deliver a real conclusion, and which then can be view for its effects in the “mind the gap manner”. It is only when this is done that we will be able to spot the mechanisms of greed and bring to a halt before they distort the larger parts of the financial and commercial systems, and the environment as well. Truly effective and optimised taxation systems will never be possible until we have such clarity for the impacts of change.

    So where I mention a conductor, I am talking about someone with the clarity of vision to provoke the development of economics modules in every field of endeavour to be universally compatible so that data can flow throughout the entire system automatically to enable truly valid analysis of proposed policy changes.

    Th demonstrate I will use several controversial examples. Religious Zeal has an economic impact which can be quantified. Religion largely defines our “holidays” for instance. The number of times one stops to pray each day invokes a cost. But what is that cost. It cannot be measured simply in lost time. The is a human contentment factor which can enhance or detract from economic performance. There is a social cohesion factor. These and many other influences need to be part of the economic model if it is to be truly useful for policy development.

    Another example is that or defense. Consider Australia, North Korea, and the Maldives, and the economic impact that each country’s defense structure has on its economy. There is no doubt that all factors complexify to deliver a quantifiable economic impact, an impact that can be predicted and analysed………….GENIUS WANTED…..

  45. Ikonoclast
    December 12th, 2014 at 15:00 | #45

    @BilB

    I suspect we are at a point where neither a syncretist genius of the type required nor his/her work would be recognised except perhaps a century after the event. This is somewhat different from the intellectual situation of say the enlightenment to the 19th C. We are beyond the point where individual genius can achieve anything. The system has its own agency now and is well out of control. That’s just my own opinion though.

  46. BilB
    December 12th, 2014 at 16:04 | #46

    It,….has.., been a very long time since, present company aside, there was anyone to celebrate in the economics realm, but, heck, I’m a fool who thrives on hope, Ikonoclast.

    http://www.thefamouspeople.com/economists.php

    Mahammad Yunus was perhaps the most recent person to really shake the tree. Lots of contributors there but nothing truly profound. Call me a dreamer if you will but I am thinking that the potential collapse of civilisation at the very instant of its technological zenith, …..calls for…..profound.

    We need a new way of doin’……it.

  47. Donald Oats
    December 12th, 2014 at 22:23 | #47

    Could a couple of these socialised economists please explain to our treasurer why his latest (lazy) idea is smellier than twenty tonne of beached whale carcass after a couple of days in the sun?

    Treasurer Joe Hockey has rung the bell again, this time to double down and slasha the razor is out to cut you and you and youse—again—because you didn’t bleed enough the first time ’round.

    I want to say a very rude couple of words to Joe, but, alas, the first cut is the deepest, as they say, and my current mobile has died an ignomious and recent death, a replacement probably not in the Xmas budget, sadly. Besides, I might be needing a good reference from him to help with the job huntin’. Good on him though, for thinking of giving me some more competition in that sphere… 🙁

  48. Ikonoclast
    December 13th, 2014 at 08:05 | #48

    Nobel Laureate economist, William Vickery, maintains:

    “Economic theory proper, indeed, is nothing more than a system of logical relations between certain sets of assumptions and the conclusions derived from them. . . . The validity of a theory proper does not depend on the correspondence or lack of it between the assumptions of the theory or its conclusions and observations in the real world. . . . In any pure theory, all propositions are essentially tautological, in the sense that the results are implicit in the assumptions made.”

    Paul Samuelson, another Nobel Laureate in Economics, says in support;

    “In pointing out the consequences of a set of abstract assumptions, one need not be committed unduly as to the relation between reality and these assumptions.”

    In contrast, Professor Michael Hudson notes:

    “Such disdain for empirical verification is not found in the physical sciences. Its popularity in the social sciences is sponsored by vested interests. There is always self-interest behind methodological madness. That is because [professional] success requires heavy subsidies from special interests who benefit from an erroneous, misleading or deceptive economic logic. Why promote unrealistic abstractions, after all, if not to distract attention from reforms aimed at creating rules that oblige people actually to earn their income rather than simply extracting it from the rest of the economy?”

    If the first two were used car salesmen they would sell you a rustbucket with a new coat of paint and sawdust in the sump. Professor Michael Hudson would advise you to test drive it and have a certified mechanical inspection.

    The above quotes alone demonstrate that there is an enormous problem in neoclassical economics. Indeed, they show that neoclassical economics is nothing but one enormous problem.

  49. BilB
    December 13th, 2014 at 08:55 | #49

    Two republicans and a democrat. Saving the planet goes down two to one.

  50. Ron E Joggles
    December 13th, 2014 at 13:07 | #50

    @John Quiggin
    It was only ambiguous to those with poor grammar.

  51. Ivor
    December 13th, 2014 at 14:33 | #51

    @Ikonoclast

    Please, please, please, do not use the banner of Nobel Laureate when it comes to economics (or peace for that matter).

    This is just a self-serving publicity stunt by the ruling class.

  52. Ikonoclast
    December 13th, 2014 at 19:36 | #52

    @Ivor

    I wasn’t quoting those two Nobel Laureate prize winners in a laudatory fashion. In fact, I equated them to used car salesmen who sell rustbuckets with a new coat of paint and sawdust in the sump.

    My final quote was from another thinker who pointed out the completely unempirical position of the two said N L winners.

    You needed to read all I posted but I can see in retrospect how you could lose patience early and not see where I was headed.

  53. Ernestine Gross
    December 13th, 2014 at 19:43 | #53

    Newtonian @15 p 1

    The article by Fourcade, Ollion, Algan, “The Superiority of Economists” is published as a discussion paper by the Max Planck Sciences Po Center on Coping with Instability in Market Societies.

    After reading the article several times, I could not find even a tangential link to the purpose of the Center. I am happy to be educated in this regard.

    Consider the following premise in the said article: “First, the theory of action that comes with economists’ analytical style is hardly compatible with the basic premise of much of the human sciences, namely that social processes shape individual preferences (rather than the other way round). In economics, by contrast, “de gustibus non est disputandum” (Stigler/Becker 1977): the action begins mainly when preferences are set. [1]

    How is one to interact with the social scientists, represented by the authors of the said article, without having to learn a new language, which, to tease the mind unnecessarily, bears the same name as the old one, namely English, or, alternatively, pretend each individual’s only “action” is to influence others’ (undefined) preferences and to be influenced by others’ (undefined) preferences – 24 hrs a day, 365 days per year??

    Obviously, it would seem to me, the question how are preferences (over?) formed is a different question to how people act, given their preferences for alternative physical objects and state contingent future payoffs (a primaty research area in economics).

    One of their ‘findings’ is that economists are more insulated than any others in their sample. Interestingly, they ‘find’ that there is more interrelationship between Finance and other ‘disciplines’ than between Economics and other ‘disciplines’. Nothing makes sense to me. Firstly, how do we get from “economists” to “Economics”? Second, if the said authors would realise that Finance is a sub-field of Economics, then one of their conclusions evaporates.

    And so on.

    To the best of my knowledge, Max Planck is a big name in scientific research. I am not sure Max Planck would be pleased to have his name associated with the said article.

    The said paper relates to the U.S.A. [1] Lets look a little further, for example to the 2014 (Bank of Sweden) Nobel Prize winner in Economics, Professor Jean Tirole (France). I suggest the said author’s presumptions about ‘economists’ is inconsistent with the content of Prof Tirole’s CV, linked to below:
    http://idei.fr/doc/cv/tirole_en_2014.pdf

    [1] I do not accept that all academic economists in the USA or even the majority would fit into the said author’s model.

  54. Wylie Bradford
    December 15th, 2014 at 20:04 | #54

    But Ernestine, whether preferences are treated as endogenous, or not, is clearly potentially of great significance to welfare economics, without which economics loses much of its point.

  55. Ernestine Gross
    December 16th, 2014 at 17:01 | #55

    Wylie, presumably the potentially great significance of treating preferences (defined over?) as endogenous (instead of treating them as given at a point in time) depends on the philosophical foundation of ‘the economy’ to be considered.

  56. Wylie Bradford
    December 16th, 2014 at 19:59 | #56

    @Ernestine Gross
    How so? So long as you base policy choice on net welfare comparisons, and you define welfare gains at the individual level in terms of preference satisfaction (i.e. ‘better off’ means an enlargement of the feasible consumption set) – which is what economic theory does, after all – then the question of whether or not enactment of a given policy (i.e. the reallocation that it implies) will *alter* preferences is highly germane. Economic analyses tend to choose an arbitrary and restricted set of arguments for the objective function, and assume that the preferences that function represents are both given and independent of allocations. It is by no means clear that the Fundamental Theorems of Welfare Economics hold in general when preferences are endogenous. Theoretically speaking, that’s rather a big deal.

  57. Ernestine Gross
    December 17th, 2014 at 11:24 | #57

    @Wylie Bradford

    It is not clear to me whether you are addressing social welfare functions or the first and second fundamental welfare theorems or both at the same time.

    My point was that at a theoretical level, economics is not independent of the philosophical base of ‘the economy’. For example, if you wish to have a theoretical model of a non-dictatorial society, then taking preferences as given is appropriate. Taking preferences as given does not mean individuals’ preferences are constant over time and it does not mean that the time profile of preference relations of each individual is not influenced by say new information, or at least partially interdependent. It just means the theoretician is not imposing prior restrictions on how these preference relations are formed on the individual level. Changing the set of feasible consumptions, say through a policy measure such as income redistribution, may well change the observable choices but not the preferences. Enlarging the set of feasible consumptions (technologically possible and budget feasible) may or may not have any effect on actual choices of any one or all individuals (eg if preferenes relations have a satiation point in the interior of the enlarged feasible consumption set(s).)

    In this context, I don’t understand your statement: “Economic analyses tend to choose an arbitrary and restricted set of arguments for the objective function, and assume that the preferences that function represents are both given and independent of allocations.”

    Now, suppose you wish to have a theoretical model of an economy where sociologists specify what preferences are (on, say the basis of consumer surveys, or whatever). (This would be a society where some people are allowed to impose their methodology of reaching conclusions on others). Call this endogneous (it is treated as part of the social norm). Obviously, the criterion for what consititutes a ‘welfare improvement’ would be different.

    Recently I’ve come across some work by neuro-scientists who study risk taking behaviour (an aspect of preferences) of individuals over their life span. Suppose, and this is really speculating as to what might come out of this, the output of this research program is then treated as endogenous to the society of interest. New theoretical research results might emerge (or not, given there very general notion of preferences). Would you not agree that following such a program presumes a society that accepts scientific methods on the philosophical level?

  58. Wylie Bradford
    December 17th, 2014 at 23:13 | #58

    @Ernestine Gross

    Ernestine,

    First of all I’m an economist, so the snide references to sociologists are otiose in my case 🙂

    Second, I rarely waste time talking about social welfare functions. After all, as economists we know that there has been a fairly robust argument to the effect that they are invalid constructions for 64 years now. Too bad that comparisons in those terms are at the heart of the theoretical basis of cost-benefit analysis, but, as we know, economists have a high tolerance level for incoherence.

    The link you attempt to draw between the assumption of given preferences and a non-dictatorial stance on the part of the theoretician is simply spurious. The assumption of given preferences, fixed with regard to the problem under consideration, just makes things easier. A change increases an agent’s welfare if it moves him/her to a more preferred combination. That is the definition of being ‘better off’. The comparison between the before and after in this case must obviously be made with regard to one set of preferences. If the preferences were to change in response to the alteration in the agent’s circumstances, then clearly the judgement as to whether welfare had improved would be greatly complicated. Hence my reference to the Fundamental Theorems. In the case of the Second, preferences must be independent of the lump-sum transfers if we are to be sure that the result will hold. Note I don’t say that it definitely won’t hold if preferences are endogenous (the correct interpretation of that term being that they change in response to other variables in the problem) but that we can’t be sure that it will. That’s a fair summary of much of the literature on preference endogeneity IMO. That’s a messy result, raising the possibility of economists not being able to evaluate and compare outcomes. Hence, they respond by maintaining an assumption of preference exogeneity in order to yield clear results, despite the fairly obvious fact that preferences of actual agents are not exogenous in this way. You can call that being scientific if you like, but last time I checked the scientific method wasn’t based on expediency.

    As for the question of arguments in objective functions, economists routinely assume, for example, that preferences are defined over commodities only, and not at all over the organisation of work. Once again, this is expediency. If agents are treated as caring how things are produced as well as production is distributed in allocations then efficient allocations cannot be defined in isolation from the organisation of the labour process. Messy. Assuming away preferences over work means that consumption and production can be treated independently and clear results can be obtained. Of course, people do care very much about the organisation of work, so the restriction on utility functions is both arbitrary and false. And, yes, I am aware of the Arrow & Hahn type dodge of having agents demand occupation-specific leisure hours e.g baker-leisure, butcher-leisure etc. Since ‘occupations’ are not defined in the theory that is just another case of ordinary-language sleight of hand being used to deal with theoretical limitations. It does nothing to address the fundamental point.

  59. Newtownian
    December 18th, 2014 at 17:16 | #59

    @Ernestine Gross
    Thanks for the comments.

    Apologies if my comments are to some extent stream of consciousness and I seem grumpy at economics/finance. 2008 has prejudiced me I think but I am still trying to put myself in the alternative shoes.

    On the matter of whether economics is a science of not I just stumbled on the following which may be of interest that relates to Bayes Nets where economists and scientists may find common ground.:

    CARTWRIGHT’S HUNTING CAUSES AND USING THEM CAUSAL PLURALISM AND THE LIMITS OF CAUSAL ANALYSIS$
    Kevin D. Hoover
    Review essay on Cartwright, N. (2007), Hunting Causes and Using Them:
    Approaches in Philosophy and Economics. Cambridge, UK: Cambridge
    University Press. xþ270pp. IBSN 978-0-521-86081-9 $85.

    I dont have Cartrights book but I do have some of her other papers and this review is consistent with the picture that emerges. It is fascinating here to see the subtleties here.

    Reading between the lines she is very respected philosopher of science and gives economists more credit that scientists might so is likely worth reading. But she also hates Bayes net related cause and effect development (I was looking for examples running counter to the Pearl narrative which seems to be better suited to hard science and engineering and medicine (human engineering?) where its adoption is going gangbusters.

  60. Ernestine Gross
    December 19th, 2014 at 12:21 | #60

    @Wylie Bradford

    Wylie,
    I assumed you are an economist currently at the MQ.

    Who made what snide reference to sociologist?

    “The link you attempt to draw between the assumption of given preferences and a non-dictatorial stance on the part of the theoretician is simply spurious.”

    Why? Please note, I did not talk about “the assumption of given preferences”. Furthermore, I didn’t talk about a non-dictatorial “stance on part of the theoretician”.

    “A change increases an agent’s welfare if it moves him/her to a more preferred combination.”
    A change in what? Combination of what?

    Your explanation as to why you refer to the 2 theorems, known as fundamental welfare theorems makes no sense to me. Would you please provide a reference of your source literature for the 2 fundamental welfare theorems as well as for ‘endogenous preferences’.

    No brownie points for stating that the theoretical models for which the 2 fundamental welfare theorems are characterisations of the solution exclude ‘the organisation of work’ or that they do not include the term ‘occupation’. Firstly, Debreu’s 1959 ‘Theory of Value’ contains the 1st and 2nd fundamental welfare theorems. Debreu explicitly states that the theoretical model in this book excludes ‘industrial organisation’ (and it does not deal with the formation of prices). Second, I’d be very careful if I were you in criticising Arrow and Hahn for not having used the term ‘occupation’, you may end up being surprised as to how general the concept of a commodity is in the said models. Lately, we don’t hear much about ‘occupation’. Instead we hear about ‘jobs’. (The everyday language does not always correspond to concepts defined by suitable choice of mathematical objects.)

    I am surprised you are not mentioning the difficulty in getting people to reveal their preferences (see mechanism design).

    Strange, isn’t it, that the generic Pareto inefficiency result for competitive private ownership economies with incomplete markets is not (as yet) labelled the 3rd fundamental welfare theorem.

    To return to my point. Why is there a need to restrict oneself to a philosophical beliefs underlying theoretical models of a competitive private ownership economy? Isn’t it the case that by you ignoring my sentence of considering an society where people classified as sociologist provide input into ‘how the economy should work’, the link to the topic of this thread is lost, IMHO.

  61. Ernestine Gross
    December 19th, 2014 at 12:26 | #61

    @Newtownian

    Thank you for the reference.

    I don’t know how large the subset of all economists is who are frustrated with the institutional changes that resulted in the 2008 event, but I am pretty sure it is a non-trivial set. Incidentally, the joint work I most enjoyed was with an acoustics engineer and someone with an IT background. Communication was easy.

  62. Wylie Bradford
    December 20th, 2014 at 17:35 | #62

    Ernestine Gross :
    @Wylie Bradford
    Wylie,
    I assumed you are an economist currently at the MQ.

    That would be me 🙂

    Who made what snide reference to sociologist?

    I guess I took the reference to ” a theoretical model of an economy where sociologists specify what preferences are” as snide, following on from your snippy attitude to the Planck Institute paper.

    “The link you attempt to draw between the assumption of given preferences and a non-dictatorial stance on the part of the theoretician is simply spurious.”
    Why? Please note, I did not talk about “the assumption of given preferences”. Furthermore, I didn’t talk about a non-dictatorial “stance on part of the theoretician”.

    Leaving aside the fairly pointless diversionary squibbing about the precise words you used, you stated: “For example, if you wish to have a theoretical model of a non-dictatorial society, then taking preferences as given is appropriate”, and “the theoretician is not imposing prior restrictions on how these preference relations are formed on the individual level”. Furthermore, you characterised your ‘sociologists’ example as ” a society where some people are allowed to impose their methodology of reaching conclusions on others”. Putting all that together paints a pretty clear picture of a link being drawn between taking preferences as given and being (piously) non-dictatorial. As I said, a spurious link. An assumption that preferences are exogenous can be modified by treating them as a function of (or at least affected by) the other variables in the problem at hand. The alternative to assuming given preferences is not imposing a preference ordering from outside (i.e. abandoning a subjective theory of value). This is what you seem to be fixating on. Of course, economists do impose a lot from the outside. They have no idea what the preferences of actual agents are, and yet they assume functional forms for utility functions that imply properties for those underlying orderings. Naturally they do this, as with everything else, for tractability purposes.

    “A change increases an agent’s welfare if it moves him/her to a more preferred combination.”
    A change in what? Combination of what?

    I don’t know whether this is a stylistic trope of yours but I find it hard to believe that you don’t understand precisely what I mean. Imagine an agent with a utility function defined over whatever – a subset of commodities, all commodities, all commodities plus sundry other things – and the size of the feasible consumption set changes for some reason (e.g. a change in some prices). The agent is better off if after the change they are consuming a combination of whatever it is their utility function is defined over with a higher utility number than before the change. That is the definition of being ‘better off’. Clearly that requires comparison of combinations using the same utility function. Utility numbers from different functions being non-comparable, if then preferences change in response to whatever caused the change in the size of the consumption set, that particular definition of ‘better off’ is no longer applicable. That is why the issue of pereference endogeneity is important.

    Your explanation as to why you refer to the 2 theorems, known as fundamental welfare theorems makes no sense to me. Would you please provide a reference of your source literature for the 2 fundamental welfare theorems as well as for ‘endogenous preferences’.

    It follows pretty straightforwardly from the above. Try thinking about it using the way we teach this stuff to undergrads (e.g. 2 agents, 2 commodities, Edgeworth Box). If the indifference curves of the agents went wandering all over the place any time the endowment point was shifted it would complicate the demonstration of the point that any desired Pareto-efficient allocation can be supported as a price equilibrium (or quasi-eq) by making the appropriate transfers.

    No brownie points for stating that the theoretical models for which the 2 fundamental welfare theorems are characterisations of the solution exclude ‘the organisation of work’ or that they do not include the term ‘occupation’. Firstly, Debreu’s 1959 ‘Theory of Value’ contains the 1st and 2nd fundamental welfare theorems. Debreu explicitly states that the theoretical model in this book excludes ‘industrial organisation’ (and it does not deal with the formation of prices).

    Ah, the Debreu defence – ‘You can’t criticise Debreu for ignoring X – he explicitly leaves X out!’ It is a key contender for the most pointless work in the history of economics. Of course, even if he did include the organisation of work or industrial organisation (two different things btw) it would be beside the point given his explicit adherence to formalism as a mathematical philosophy means that Theory of Value isn’t *about* anything at all. It’s just a bunch of strings.

    Second, I’d be very careful if I were you in criticising Arrow and Hahn for not having used the term ‘occupation’, you may end up being surprised as to how general the concept of a commodity is in the said models. Lately, we don’t hear much about ‘occupation’. Instead we hear about ‘jobs’. (The everyday language does not always correspond to concepts defined by suitable choice of mathematical objects.)

    Again beside the point. Having agents demanding job-specific leisure does not address the question of the relationship between work organisation and welfare (and the implications for the meaning of ‘efficiency’).

    I am surprised you are not mentioning the difficulty in getting people to reveal their preferences (see mechanism design).

    Why? Such problems would only be compounded in the presence of preference endogeneity.

    Strange, isn’t it, that the generic Pareto inefficiency result for competitive private ownership economies with incomplete markets is not (as yet) labelled the 3rd fundamental welfare theorem.

    Outcomes like that are not popular with a lot of economists.

    To return to my point. Why is there a need to restrict oneself to a philosophical beliefs underlying theoretical models of a competitive private ownership economy? Isn’t it the case that by you ignoring my sentence of considering an society where people classified as sociologist provide input into ‘how the economy should work’, the link to the topic of this thread is lost, IMHO.

    You’re barking up the wrong tree. The question is not how do agents come to have the preferences that they do (which I agree is too hard), but what are the implications for economic analysis of preferences that *change* in response to changes in variables in economic problems (i.e. preferences that cease to be data).

  63. Wylie Bradford
    December 20th, 2014 at 17:36 | #63

    @Ernestine Gross
    Whoops! Messed up the quoting. Sorry 🙂

  64. Mr MIT
    December 21st, 2014 at 07:56 | #64

    Quiggin:

    Two words: Stephen Williamson

  65. Ernestine Gross
    December 21st, 2014 at 15:46 | #65

    @Wylie Bradford

    Wylie,

    1. Thank you for spelling out how you reached the conclusion of one of my statement being spurios. Your conclusion follows from your perceptions.

    2. You didn’t give a reference to the original source literature on which your understanding of the two so-called fundamental welfare theorems is based. Instead you refer to the Edgeworth-Box diagram. In your example, you confuse the case of two individuals being unable to make a decision at all (like the woman in the comedy Open All Hours) or they don’t know even for an stance of time their endowments (this is what you describe) with the case you are allegedly interested in, namely, when their preferences change as a consequence of the cause of a change in their feasible consumption set. (How about you consider a finite but multiperiod economy to at least clarify this issue.)

    3. I asked for a reference on endogenous preferences. This is a sincere request.

    4. I ignore your paragraph about Debreu.

    5. What exactly is your point – a movable goal post?

    6. EG: “I am surprised you are not mentioning the difficulty in getting people to reveal their preferences (see mechanism design).”

    WB: “Why? Such problems would only be compounded in the presence of preference endogeneity.”

    Yes it would. This is why I mentioned it. Since you have been so strong on criticising others for “expendiency”, it was surely interesting to get your answer to my question. And what do we get?

    7. EG: “Strange, isn’t it, that the generic Pareto inefficiency result for competitive private ownership economies with incomplete markets is not (as yet) labelled the 3rd fundamental welfare theorem.”

    WB: “Outcomes like that are not popular with a lot of economists.”

    The “outcome”, as you so appropriately label it, is the outcome of a research program which takes its origin in the theoretical work of Arrow-Debreu-Hahn-Radner- ………. …….. all of whom you have no time for. I assume you are providing your impression or perception on what other economists think of the said result rather than some data.

    8. Have you read the article by Fourcade et al to which I initially responded?

  66. Wylie Bradford
    December 21st, 2014 at 18:46 | #66

    Mr MIT :
    Quiggin:
    Two words: Stephen Williamson

    Looks like the forces of the Lollipop Guild are on the march…

  67. Wylie Bradford
    December 22nd, 2014 at 17:10 | #67

    @Ernestine Gross

    I think we’ve exhausted the seam here.

    1. No comment.

    2. Really, it’s verging on silly to characterise my remarks as confusion over whether agents know their preferences or their endowments. My point relates to my earlier comment (unremarked on by you), to wit: ” Imagine an agent with a utility function defined over whatever – a subset of commodities, all commodities, all commodities plus sundry other things – and the size of the feasible consumption set changes for some reason (e.g. a change in some prices). The agent is better off if after the change they are consuming a combination of whatever it is their utility function is defined over with a higher utility number than before the change. That is the definition of being ‘better off’. Clearly that requires comparison of combinations using the same utility function. Utility numbers from different functions being non-comparable, if then preferences change in response to whatever caused the change in the size of the consumption set, that particular definition of ‘better off’ is no longer applicable. That is why the issue of preference endogeneity is important.”

    Clearly such considerations are to the fore when considering lump-sum changes in endowments, as per the second fundamental theorem. Handwaving about the type of economy involved is beside the point as the issue at stake is what is to be meant by ‘better off’ when doing comparative statics – it is a definitional issue. Since the definition of Pareto efficiency is inextricably bound up with the notion of ‘better off’ the significance of the potential implications of preference endogeneity (properly understood) is, and should be obvious.

    3. I could dig some up, I suppose. It has been some time. Then again, there’s always ECONLIT 😉

    4. I’m not surprised. Kind of like the way the economics profession at large has effectively ignored Debreu. Sure he’s famous and all, but what exactly would be different about economics in general today (and what substantive gains would have been lost) if the development of the Walrasian program petered out with Wald? I know the answers that GE devotees give – the GE literature wouldn’t exist. In their minds that’s all that counts. In reality though (and especially for applied work) the demonstration that certain axioms and certain string manipulation rules produce certain strings (theorems) is about as relevant as doing sudoku. Especially when these strings aren’t about anything.

    5. No. Just reiterating that the choice of arguments in objective functions by economists is typically arbitrary and leaves out some things that are evidently of great importance to actual agents. You effectively acknowledged that in invoking what I called the ‘Debreu defence’.

    6. I don’t get your point here. It wasn’t necessary for me to mention it. In any situation in which welfare gains/losses are defined in relation to preference satisfaction, and the evaluation of policy alternatives based on the consideration of such welfare changes (e.g. as in economics), the question of preference revelation arises and is potentially problematic. It doesn’t matter whether those preferences are regarded as exogenous and fixed or endogenous and variable. The latter case may be more complicated (given the existence of two interfering factors) but the issues are not directly linked.

    7. I wasn’t dissing the outcome, I was alluding to those economists who reflexively reject any suggestion whatever that calls into question the optimality of competition. Unfortunately, there’s quite a lot of them out there. That’s data BTW, based on observation of people and literature . over a number of years. I’m aware of the literature and it isn’t true that I have no time for anyone involved. I’m a big fan of Arrow, and I spruik him to students at every opportunity (undergrads today having no idea who he is, sadly. Samuelson either).

    8. Yes. I found it an interesting piece, actually. I think your criticisms were well wide of the mark, frankly.

    Anyway, enjoy Christmas and have a happy New Year.

  68. Ernestine Gross
    December 22nd, 2014 at 21:05 | #68

    @Wylie Bradford

    The seam (your term) was exhausted with your first post to me, although I couldn’t be sure until 2 rounds later. Repetition does not constitute an argument and certainly not a proof. I shall now focus on the crucial points only.

    a) The so called second fundamental welfare theorem has nothing to do with comparative static or with cost/benefit analysis. (At best, the latter are dealing only with a projection on a sub-space of the space on which preferences and technolgies are defined.)

    b) My point about your description of the problem, using the 2-dimensional Edgworth Box diagram stands. It should be obvious that you cannot treat what you allude to , namely a change in preferences as a function of a change in some parameter value somewhere in the decision problem, because you need more than two dimensions (see definition of a commodity in Arrow or Debreu or both).

    c). The first and second fundamental welfare theorems are more than 50 years old. They are still useful. For example, the current policy proposal of setting the unemployment benefit for young people (age range is defined in the policy proposal) to zero without offering government employment and given empirical evidence that there is excess supply in the so-called ‘labour market’, strongly violates the minimum wealth condition of the theoretical models of so-called ‘market economies’. All those whose parents cannot make a private wealth transfer are ‘moved to’ (to use your hand-waving language) to a no-survival point. Their set of ‘feasible consumptions’ is a zero (for all dimensions). No cost/benefit analysis is required to reach this conclusion and no comparative static is required. The policy proposal is fundamentally inconsistent with the philosophical base of the theoretical model for which the said welfare theorems constitute a property of the solution to the model.

    d) Whether or not the question of how work is organised is a separate one from ‘Industrial Organisation’ or merely one question which belongs to I.O. is moot. I don’t care one way or the other. But, I agree that the question of how work is organised (‘managed’) is of importance to people. (If you teach management students, you could set an assignment asking how they would apply the notion of Pareto efficiency when allocating tasks in their particular area. From experience, such an assignment throws light on who manages for the sake of excercising power and who is interested in achieving ‘productivity’ which is, as far as possible, consistent with the preferences of ‘labour’.)

    d) Now you talk about empirical relevance. Fine. It should be obvious that if you want to empirically investigate whether preferences change in response to a change in a parameter value somewhere in the ‘system’, then you first have to tackle the problem of eliciting the true preferences of the subjects in question regarding their next period preferences (ie after, say a policy change). Things have moved on during the past 50 years. No wonder you couldn’t find a reference to substantiate your assertions or allusions or whatever.

    Anyway, your provocations provided a nice diversion from the Christmas preparations.

    With best wishes for the holiday season and the New Year.

  69. Collin Street
    December 22nd, 2014 at 21:36 | #69

    The first and second fundamental welfare theorems are more than 50 years old. They are still useful. For example, the current policy proposal of setting the unemployment benefit for young people […] Their set of ‘feasible consumptions’ is a zero (for all dimensions). No cost/benefit analysis is required to reach this conclusion and no comparative static is required.

    I’m not certain you need the first and second fundamental welfare theorems to come to this conclusion; I mean, I don’t really have the faintest clue what these theorems say and I still managed to come to this conclusion fairly quickly; I don’t think that this is unusual.

    If they are useful, what do you use them for?

  70. Wylie Bradford
    December 23rd, 2014 at 09:47 | #70

    @Ernestine Gross
    Well, may be one more. Ignoring points made doesn’t make an argument either. If you can show that the notion of ‘better off’ used in welfare economics doesn’t require constancy of preferences (not forever, but certainly in the context of the change in the agent’s environment that is being contemplated) then feel fee to do so. I have no interests in proofs, per se, as they have zero empirical content so far as economics is concerned.

    a) I didn’t say that the second fundamental theorem is related to cost-benefit analysis. I said that cost-benefit analysis is ultimately based, theoretically, on social welfare functions (which are invalid constructions).

    b) Fine. Let it be more than 2 dimensions. What stands is that the definition of Pareto efficiency depends on the notion of ‘better off’ which in turn is defined with reference to constant preferences. Although, it isn’t immediately clear why agents need to be aware that they have preferences, or what they are. We assume that agents’ choice behaviour conforms to a certain pattern, which is consistent with stability of preferences. Kagel, Battalio and Green (1995) claimed to show that rats behaved in a manner consistent with consumer choice theory in an experimental setting. Presumably we can agree that rats don’t have awareness of their preferences.

    c) This is really the corker. The minimum wealth conditions (whether they be expressed as assumptions of interiority, desirable commodities/productive labour, irreducibility, resource-relatedness etc) are there to support the proof of existence of a competitive equilibrium i.e. that certain strings are derivable from certain axioms using certain manipulation rules. They, like your beloved A-D framework, have no empirical content. To argue against a policy proposal on the grounds that it is inconsistent with these conditions is bizarre. Firstly, it is question-begging on a cosmic scale – what argument do you have to back up the implicit premise here that the A-D framework is empirically descriptive? I can’t see much evidence that Debreu thought it was (given his explicit commitment to Formalism). Replace ‘price’ throughout Theory of Value with ‘bunyip’ and ‘commodity’ with ‘jabberwocky’ and all the strings are still derivable and no more meaningful. If it has no empirical content, why should we care at all whether existence proofs are jeopardised? Have we been in a competitive equilibrium up until now, and this policy will mean that one will no longer exist? So what? If we haven’t been in a competitive equilibrium up until now, then who cares? You can see the effect on unbiased observers of this conflation of purely logical exercises with empirical policy assessment in Collin’s reaction. His closing question is certainly to the point.

    As for the idea that the minimum wealth conditions represent a philosophical base of the model (i.e. that equality of some kind is fundamentally important), that brings to mind J.B. Clark’s justly derided ethical interpretation of marginal productivity theory. The conditions are there purely for technical reasons, they are not a political manifesto. Koopmans, in his Three Essays, discusses the starvation problem, and reports a conversation with Debreu in which the latter pointed out that the life plan formed by Arrow-Debreu consumers in response to the price system includes a specification of longevity based on resource holdings and the ability to work. Thus, survival need only be guaranteed into the first period. Subsequently, in Koopmans’s words, “the amount and initial distribution of resources and skills in the population [will] determine the pace and extent, if any, of starvation” (p63). So, yeah, all those assumptions are there because they really care about people.

    d) You agree that work organisation is important to actual agents. You pointed out that Debreu explicitly excludes such considerations. So where does that leave the welfare conclusions, and how do you accommodate this obvious lacuna in your beloved framework?

    e) Now you’re just conflating the determination of whether preferences have actually changed in a given instance with the issue of whether they should be *assumed* to be constant for theoretical purposes.

  71. Ernestine Gross
    December 23rd, 2014 at 11:33 | #71

    @Collin Street

    1. You reaching the same conclusion, without knowledge of the theoretical models to which the first and second fundamental welfare theorems are characterisations of the solution to the model, as I have, using this knowledge, is, I suggest akin to a relative of a deceased having reached the same conclusion as that of a medical practitioner, namely the person is dead, even though the said relative does not have knowledge of medicine.

    2. It would be a great worry if a theoretical model of an economy, modelled as economic aspects a social system, would lead to all implications making no sense to the people in the economy. Your comment clearly shows that this is not the case.

    3. Another example of usefulness is that those who argue for ‘freedom of choice’ and ignoring the minimum wealth constraint are people who either doen’t know what they are talking about or they want to pull the wool over others’ eyes.

    Best wishes for Christmas and the New Year.

  72. Wylie Bradford
    December 23rd, 2014 at 12:04 | #72

    @Ernestine Gross
    If, of course, what doctors did was scrabble together some axioms about the human body and then start generating theorems, all the while maintaining that, in Debreu’s words, “the theory is…logically entirely disconnected from its interpretations”.

    That you would invite comparison between a pretty effective inductive empirical discipline such as medicine and the otiose logical scribblings of the Neo-Walrasians is a pretty good example of the self-regarding faux superiority of economists which prompted this thread in the first place.

  73. Ernestine Gross
    December 23rd, 2014 at 16:53 | #73

    @Wylie Bradford

    You are so far the only self-declared “economist” among those who commend on this thread and you are doing an excellent job in portraying yourself as a self-regarding faux superior.

  74. Wylie Bradford
    December 23rd, 2014 at 18:33 | #74

    Lol. Yes, because I was the one taking MaxPo to task for besmirching their good name by deviating from the scientific method and publishing a paper by a sociologist commenting on economics. No, wait, that wasn’t me, was it? This thread concerned economists’ tendency to regard themselves as superior to other disciplines in the social sciences/humanities. I haven’t referred to any other disciplines at all, nor do I consider myself superior to anyone else on the basis of my educational background alone.

    I merely disagreed with you on some matters to do with economics. If that (and my mean comments about the Neo-Walrasian program) upsets you so, then perhaps you should invest in acquiring some coping skills.

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