Tackling the language problem

Your life as a Fulbrighter is far from easy. Setting your feet on US soil may shock you in cultural terms – especially those not accustomed to a native English-speaking environment. And I am not. So I need to be courageous and dive into unpredictable small talks, chats to exchange pleasantries or conversations on serious topics. Admittedly, I am more familiar with such situations. Thus, when I have the opportunity to start a ‘speech’ on inflation, unemployment or even the methodology of modern business-cycle theories, I can really enjoy myself… and I do my best to prevent others cutting in. As long as I am talking, that is not a conversation, so no problems understanding the other may arise. There are as many dialects of English as speakers of English, aren’t there? So I am particularly grateful to those speking a clear and well-articulated version – which must be tiresome, I know.

But communication problems belong to our everyday life. Now I’d just like to know which of the figures in the video I am…

 

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Department of Economics Records, the University of Chicago, Special Collections

I love working in the archives. This box contains some stuff from the last years of T.W. Schultz as the chairman of the Department of Economics and the first few years of Robert Lucas as a graduate student – departmental minutes, personal notes and letters. I love working in the archives, because you never know what you will find. For instance, b browsing these papers I could identify the mysterious Donald Bear whom Lucas mentions in his Nobel-bio. This was really exciting, as in the official Announcements of the Department I could not find his name however hard I trieed. However, as Robert Lucas suggests, Dr. Bear tought an exciting course in econometrics. Finally in a note I could find who he is, what his subject was and how he became affiliated at the Department.

Fulbright chronicle #5

After a long period of quiet it is about time for me to come back. In the following paragraphs I am summarizing my current research project.

The Friedman-Lucas transition in macroeconomics

A structuralist approach

An overview

Background

Both the methodology of economics and the history of economic thought are very critical of the microfoundations project. This attitude questions the reducibility of macro to micro and hence the relevance of micro-founded models. This situation is quite unique in science, since there is a large gap between ‘cutting edge’ theorists and the broader scientific community. My project is aimed to serve as a bridge: I show why establishing firm microfoundations is the only viable option if one wants to understand how individual choices constitute macro-level patterns.

Personal drive

I am dissatisfied with some recent commentaries on the history of modern macroeconomics. These works tell the story of modern macro in the context of instrumentalism, where predictive performance is supposed to be the only concern; and the fact that theories and assumptions are unrealistic is assessed as if sound causal understanding play no role in theorizing. I firmly believe this assessment has its root in a naïve idea that causally relevant assumptions and theories must bear close resemblance to reality in descriptive terms. I tell a different story where unrealistic assumptions can be still relevant in causal understanding. In a broader context, I show how economic methodology and general philosophy of science aid in writing a history of economics.

Framework

Some recent structuralist tendencies in the philosophy of science clarify how properties of entities (objects like economic agents), structures and causality are related. These studies highlight that relations stand between the properties of entities—and at the end of the day it is these relations that constitute structures. In this framework causality is conceived to work along structures where structures are determined by dispositions, conferred by properties. These properties are regarded as causally active or causally efficacious. Thus, structures so conceived are causal structures. Objects in virtue of their causal properties (the properties they possess, instantiate, exemplify, etc.) behave in particular ways in a structure and it is the set of properties that determine the roles objects play in a structure. Properties govern the interactions of the objects: these properties and their relations produce causal activity of objects.

These results set strict limits on the way causal mechanisms ought to be represented. A structure (e.g. a society) can be represented via representing the relata of the structure. In a discipline with an object-based ontology such as economics structural and causal understanding cannot be separated from the understanding of individual behaviour. Thus, understanding social action (when agents respond to changes in the behaviour of their fellows and in the environment) requires us to understand individual behaviour.

Theses and points to make

I argue that descriptive accuracy and causal adequacy are two separate aspects of assumptions and hence theories. I highlight that it is possible to set up assumptions that are minimalist and highly inaccurate in descriptive terms whilst they are still causally adequate for they are designed to capture exactly those properties of agents that carry a causal mechanism under scrutiny. In other words: it is possible to carry out sound causal analyses with some core properties of agents. Causally relevant assumptions or theories do not need to perform well in descriptive terms. I introduce the Lucasian microfoundations project and the island models in particular as an endeavour of portraying agents in such a minimalist way, where the preserved properties were exactly those necessary for causally understand how individual choice contribute to the emergence of large-scale fluctuations. In the interpretation I provide Lucasian microfoundations constitute a case of descriptive inaccuracy and causal adequacy, which is far beyond mere predictive performance.

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Introduction to quantitative macroeconomics using Julia

Elsevier’s Academic Press has recently published Petre Caraiani’s textbook under the title mentioned above. Actually I had been waiting for a long time before the confirmation arrived: the book was in press. I was really excited about this publication. Not only for this book is related to my field (macroeconomics – even though I am not an econometer), but for I was involved in the publishing process in more than one role. Firstly, I had the privilege of being an anonymous reviewer of the forthcoming book in its embrionic stage – and secondly, I had the privilege of writing a short endorsment on the back cover. What a great company, isn’t it?

Read, learn and harness this great new textbook.

Storks and newborn babies

Finally someone ran the regression. Dr. Matthews from Aston University pointed out that there is a significant statistical correlation between stork populations and human birth rates. A well-known story both in statistics and economics has made its way into highbrow science.

Currently I am working on Arthur Fine’s ‘The natural ontological attitude’ in which Fine argues that realists regard such a confirmation as a strong point in favour of an approximately correct ontology. So according to Fine reading this paper a realist is expected to scream ‘Eureka! I have always known that storks bring the babies!’ I don’t think so. Realists do not regard all statistically confirmed theories as appropriate candidates for realist models. The faith or believe in the goals of realists science play a crucial role in the realist attitude. In other words, realists want to be a realist and they also believe they can be realists – thus confirmation can only be ground for ontological inferences where such a complementary belief is present. Realists endorse confirmed realist models only.

Matthews (2000)

New draft: Friedman’s instrumentalism in F53. A Weberian reading

In this paper I use Weber’s methodology of ideal types to argue for the instrumentalist interpretation of Friedman’s methodology of positive economics. I characterize Weber’s ideal types as a mix of descriptive inaccuracy and causal adequacy. Based on some recent structuralist results in the philosophy of science I show how intimately causal understanding and the properties of entities are related. The main contrast between Weber and Friedman lies in the emphases they placed on the causal properties of agents. It is argued that Friedman’s instrumentalism results from his neglect of properties for no causal understanding can be placed upon neglected properties. By identifying some possible channels through which methodological Weberianism could spread, the paper raises the possibility of actual Weberian tendencies in Friedman economic methodology.

I opened a session at Academia.edu. Any suggestions or comments are warmly welcome.

Some notes on Lucas and the reducibility/supervenience of macro

If we are ready to accept that macroeconomics contains genuine and irreducible macroeconomic entities, and that agents act in an environment that has a plethora of non-individualistic properties, in the micro-founded models there must be something over and above the agents. The two spheres are inseparably mixed and interrelated. Microeconomic universe also contains irreducible macroeconomic concepts. Consequently, as Hoover emphasized, a complete elimination is unfeasible. This is the reason why the critique against Lucasian economics can be turned into a positive argument. Criticizing Lucas for eliminating everything other than individuals and their properties is a misplaced attack. Recall that for Lucas a complete elimination was rather a vision or a mission statement than an accomplishment. What is more, the island models abound in such unreducible elements. So where is the problem? If macroeconomics rejects to be exclusively reduced to micro, then Lucas’ incomplete elimination is not a shortcoming – rather the completion of a plausible strategy. Admittedly, one can justifiably lay the blame on Lucas for envisioning complete eliminativism – but paying lip service to complete elimination on the one hand and completing that on the other hand are completely different stories. The critique against Lucas for his incompleteness results from an erroneously narrow concept of microeconomics where microeconomics is conceived to contain nothing but agents and their properties. By contrast, Lucasian microfoundations project can be assessed as a successful attempt for it contains only incomplete elimination. It is our duty to harness Hoover’s critique regarding the exact nature of the microeconomic universe and to construct a fair critique against the microfoundations project. If we are ready to properly understand the microfoundations project (what can and what cannot be done), we can separate Lucas’ accomplishments from his ambitions. Thus our question below regards whether Lucas so constructed his representative agent as to seize the relevant causal properties of real agents. In Chapter 4 of The Friedman-Lucas transition in macroeconomics I argue that his effort to construct his representative agent out of the properties of its real counterparts was an important step towards re-establishing the causal relevance in macroeconomics and turning away from Friedmanian non-causalist instrumentalism. I characterize this return to a sound causal analysis as the most important facet of the Friedman–Lucas transition in macroeconomics. Even though the Lucasian islander as an abstraction is very far from reality, it is still an abstraction, i.e. built from some isolated elements of reality. Similarly, even though Lucas’ society consists of only the replicas of the one and only representative agent, it is still a society where social relations can be studied in an extremely primitive form. For Lucas, such a simplification seemed unavoidable for modelling heterogenous agents is fraught with both computational and aggregation difficulties.

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Duke from on high

I have just come across this short drone movie on DukeTODAY, my opening page in my browser. This is Duke.

I cannot but be nostalgic for the weeks I spent there in 2016. As a Fulbrighter, I am going to visit a lot of great universities this year (and I can hardly wait to get there), but for me perosnally Duke will always remain something different. This was the town (Durham, NC) and this was the university where I set my foot on U.S. soil for the very first time… this is probably the reason why Duke and Durham will be the in the centre of my heart. I have some friends there, I have memories making me tied to the university once and for all. My plane lands on 1 November early in the afternoon. I will take a bus to Duke Chapel, settle down in a minute and take a walk to visit my lovely places again… and as soon as I can. The Bryan Center… the bookshop… the chapel… and the squirrels all over the trees. Lisa and Paige and the Interational House at Alexander Street. And Panera Bread in 9th Street, of course. I love Duke.

Mr. Friedman and Mr. Ronnie O’Sullivan

Out of his three examples in F53, Friedman’s billiard or snooker player is a special case. In his philosophy of science, Michael Polany draws attention to the tacit component in our scientific (and everyday) knowledge. Accordingly, our knowledge contains components, in our acts we rely on skills that we know only in an unconscious way. On these tacit or unaware components there is no focal awareness placed. Out of his many examples it is the cyclist that is relevant as far as F53’s snooker player is considered (Polanyi, 1958/2005, p. 51). There is a simple rule every cyclist obeys. When he starts falling to the right he turns the handlebars to the same direction, so that the path of his bike is deflected along a curve towards the right. This manoeuvre triggers off a centrifugal force pushing the cyclist to the left and thus offsets the gravitational force dragging him down to the right. This correction throws the cyclist off balance to the left, which he needs to counteract by turning the handlebars to the left. The cyclist can keep himself in balance by manoeuvring along a series of appropriate curves. The path the cyclist ought to follow can simply described in mathematical terms: for a given angle of unbalance the curvature of each winding is inversely proportional to the square of the speed at which the cyclist is proceeding. Consequently, a cyclist factually applies a physical rule, thus his behaviour can be well described with an appropriate formula. His awareness of the formula is subsidiary. Even if he is familiar with the physical background of his cycling, riding his bike is not supported by a constant calculation process. Moreover, if his focal awareness was directed at the physical rule and its constant application, this would inevitably result in his crashing into a tree. Thus, describing the behaviour of a snooker player by a mathematical formula is neither abstraction nor idealization. The feasibility of such an epistemological strategy of ours is underpinned by the structure of human knowledge we want to model.

References

Polanyi, M. (1958/2005). Personal knowledge. Towards a post-critical philosophy. London: Routledge.

 

Some notes on the commonsensibles in economics

Hoover (2001, pp. 229-230) calls attention that Mäki’s commonsensibles interpretation is not cogent for some concepts of economics than for others. For instance, everyday people of folk economics have problems understanding such concepts as the’real GDP’ or ’the general price level’. Hoover distinguishes natural aggregates and synthetic aggregates. For him, only natural aggregates can only be concieved as commonsensibles for these simple sums of averages as measures have the same dimensionality as their individual components. Total unemployment or the average rate of interest can easly be interpreted based on our everyday experience. However, synthetic aggregates consist of components in a way that modifies the dimensionality of the parts, thus no easy or analogous interpretation is available. Interesting, but Arrow (1974, pp. 253-254) talks about economic equilibrium in this vein. In the everyday, normal experience laymen can easily interpret a situation in which the quantity supplied and the quantity demanded are equal. However, this understanding is not so thorough as to cover the understanding how the interplay of underlying mechanisms (i.e. the reallocation of production inputs or interactions between shifts in technology and the allocation of the labour force) can lead to general economic equilibrium. As another example, Hands (2012) suggests contemporary revealed preference theory (CRPT) as a radical departure from this standard of commonsensibles. Thus for him we are not justified to say economics as such operates exclusively with commonsensibles. Some qualifications are needed. However, this has nothing to do with Mäki’s commonsense realism for this framework still works as a normative standard. In spite of the apparent problems, we do have commonsensibles in economics. Citing Lionel Robbins (1935/1984, pp. 75-79), Hands (2008) argues for the significance of introspection in economic theorizing. Over and above obvious empirical facts such as scarcity (which can also be conceived as a commonsensible), some economic concepts of fundamental imprtance (e.g. preferences) come not from experiments or observation but from self-knowledge. Any individual knows by self-observation or inner everyday experience that different things have different importance to him or her and in terms of importance things can be arranged in a certain order. Thus we all have clear mental pictures (which we can make even clearer by apt theorizing) of how economic agents think, decide or act. For the present argumentation it is enough to underline that there is no confusion in our ideas regarding the fundamental properties of economic agents. We can easily judge whether a theoretical description of a ’typical’ agent corresponds to our views on ourselves. Considering the success of abstraction by such an intuitive comparison is an undemanding easy job in most cases.

References

Arrow, K. J. (1974). General economic equilibrium. Purpose, analytic techniques, collective choice. Nobel lecture. The American Economic Review, 64(3), 253-272.

Hands, D. W. (2008). Introspection, revealed preference and neoclassical economics. A critical response to Don Ross on the Robbins-Samuelson argument pattern. Journal of the History of Economic Thought, 30(4), 453-478.

Hands, D. W. (2012). Realism, commonsensibles, and economics. In A. Lehtinen, J. Kuorikoski, & P. Ylikoski (Eds.), Economics for real. Uskali Mäki and the place of truth in economics (pp. 156-178). Oxford: Routledge.

Hoover, K. D. (2001). Is macroeconomics for real? In U. Mäki (Ed.), The economic world view. Studies in the ontology of economics (pp. 225-245). Cambridge: Cambridge University Press.

Robbins, L. (1935/1984). The nature and significance of economic science. London: Macmillan.

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