Incommensurability in Economics?

Highlighting the lack of mutual understanding in particular approaches to reality makes up a crucial constituent in Kuhn’s (1970) commentaries on paradigm shifts. Theories are separated logical and conceptual schemes between which the transitions during paradigm shifts are not smooth but rather saltatory. Differences between accepted theoretical frameworks appear even at the level of experiences, so it is not an overstatement to say that researchers working within different traditions observe different worlds. This is particularly true of the equilibrium–disequilibrium approaches in economics to socio-economic reality. Incompatible theoretical frameworks are incommensurable: scientists scrutinizing the one and only reality in different ways are not talking of the same thing. Even if there is an intersection of the phenomena recognized as problems, scientists within individual approaches make efforts to solve the puzzles while following their own particular methodological guidelines. For example, the Lucas-critique can be regarded as the mainstream solution to the problem of macro-social changes. Kuhn (1987: 83) describes paradigm shifts during which there are changes in the way how terms attach to reality—and, moreover, there are changes in the set of entities and phenomena to which such terms attach. On this showing, the ongoing controversy between institutionalism and mainstream economics is the still effective aftermath of a non-fulfilled paradigm shift. Both systems have advantages, their own problems to investigate and even norms. However, on account of selectivity and their complementary character of fundamental importance, none of them can solve the problems to which the rivalling approaches can effectively elaborate answers, respectively. Genuine albeit different ways of turning to reality preserve both approaches within the realist tradition, offering a marvellous example for the circumstances accentuated by Lewens (2005: 569). Approaches to reality are not only shaped by reality itself but also the conventions and the theoretical concepts any scientist shares with his fellow researchers indoctrinated in the same paradigm. The result is a set of theories which are mutually incompatible while true[1] at the same time.

The approach set in the crossfire of the institutionalist critique has not been extinct since the newly emerged theory cannot provide answers to the problems the old one can successfully analyse—and vice versa. What is more, none of them can realise the problems of their counterparts. Due to selectivity, a “crowding out” effect can hardly be a plausible scenario, since right because of the selectivity none of the approaches can outrival their counterparts. This is one of the peculiarities of the history of the economic thought. Each incompatible theoretical system has its own language, so a change in the scientific dictionary must facilitate the occurrence of new observational accounts and their interpretations set on rough-hewn paths. Languages themselves that interconnect the members of each distinctive tradition are the primary causes of locking up in one’s own doctrines. In the case of economics, recognizing this demarcation occurring even at the level of languages may help us to interpret why our debates have stagnated.

References

Kuhn, T. (1970): The Structure of Scientific Revolutions. Chicago: The University of Chicago Press.

Kuhn, T. (1987): What Are Scientific Revolutions? In: Patton, L. (ed.) (2014): Philosophy, Science, and History. A Guide and Reader. London: Routledge. pp. 71–88.

Lewens, T. (2005): Realism and the Strong Program. British Journal for the Philosophy of Science, 56(3): 559–577.

[1] Here, of course, true refers to approximate truth interpreted according to ones’ own epistemological guidelines.

Pictorial: Thomas Kuhn (via alchetron.com)

Thomas Kuhn

If It’s August, This Must Be Spain

Finally the organisers sent us the first information e-mail with regard to INEM’s 2017 conference. I could hardly wait for these instructions. This is going to be an exciting event and I am eager for August to come. The registration is now open – everything is carried out on-line. This is very modern, I must say. According to the Preliminary Programme, we have lots thought-provoking lectures and interesting panelists – lots of the faces familiar from Rotterdam. We are going to have a very heavy schedule: all the days start early in the morning and last until the evening. Yes, even 10-hour-long, busy workdays. 5930761917_233493219c_b

The conference is held at the beautiful Palacio Miramar, a palace built for the Spanish Royal Family at the end of the 19th century. We have the opportunity to continue the discussions even during the lunches, as the conference lunches are served right at the palace. This is not the only option, as there is a refectory in the building itself and there are a couple of restaurants within walking distance – however, I will opt for the official conference lunches in order to spend lunchtime in a good company. Moreover, my temporary residence is also within walking distance from the Palace. I think I will fly Iberia through Madrid. This is going to be a nice journey and an exciting intellectual adventure, of course.

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Structural Realism vs. Entity Realism

In the literature there can be found a widely applied distinction between entity realism and structural realism. On its face value, structural realism does not involve entity realism—the only problem is whether there is a minimum requirement as for the construction of the theoretical entities through assumptions in our theories. In other words, is it possible to complete a structurally realist program through models built up in an instrumentalist way? Can our assumptions be simply cooked-up?

I got the most important impulse for scrutinizing this problem from Kevin Hoover’s Milton Friedman’s Stance: The Methodology of Causal Realism (2009). On this present occasion it is not possible to look into the alleged instrumentalism of Friedman, so here I can only drop a hint to my surmise. According to this, the most problematic part of F53 is the long paragraph where Friedman writes about the assumption of leaves rationally maximizing their utility. For Hoover, the way the assumptions regarding entities are constructed is subordinated to the purpose of causal realism. The assumptions underlying a model must be designed in order that the resulting theory could be capable of highlighting the relevant causal mechanisms. Elsewhere (in Galbács 2017, forthcoming in Acta Oeconomica, 67(2)) I called attention to the fact that presumptions generally sorted under the label of “unrealistic assumptions” may actually come from two distinct strategies, from which the one is purely instrumentalist and the other is the type that Max Weber assigned to neoclassicals. The latter are those ideal-types that are instrumental in highlighting some lines of the real causal structure and that bring to the fore those causal mechanisms the analysis of which is traditionally covered by the neoclassical orthodoxy. However, it is doubtful whether both are compatible with the idea of causal/structural realism, or successful causal realism needs a certain degree of entity realism as a prerequisite. Richard Boyd in his On the Current Status of Scientific Realism supports a naturalistic theory of reference in a similar vein. Its primary purpose is to underlie our strategies of building assumptions as to entities. Accordingly, the contents of our concepts are to reflect the real features of actual entities—which is still not the case of direct descriptive relevance. Even though one may set as a prerequisite the idea that our concepts must refer to the actual attributes of real-world entities, this is not an argument for entity realism involved by structural realism. Is it possible to map the real causal structure even by neglecting the real attributes of the related entities?

The intuitive answer to the question is negative. Distinguishing entity realism and structural realism as a first step and arguing that structural realism requires entity realism as a second step is a remarkable way of highlighting Friedman’s instrumentalism and Lucas’ realism. Doing so, Lucas can be introduced as a structural realist, interested in revealing the causal structure underlying macro-economic phenomena. Dropping adaptive expectations hypothesis and using rational expectations hypothesis instead, Lucas, this is my surmise, opted for entity-realism-based structural realism, since structural realism does not seem to be achievable by an instrumentalist strategy as for entities.

INEM 2017 Conference at San Sebastian

“Dear Peter,

On behalf of the INEM executive board, we are pleased to let you know that your abstract has been accepted for presentation at INEM 2017 in San Sebastián, from August 28-30, 2017.”

International Network for Economic Method (INEM) is the leading international organisation and platform for economic methodologists. It has a bi-annual conference (the next event of this series is exactly the San Sebastian conference in August), a quarterly journal (Journal of Economic Methodology) and a book series (Routledge INEM Advances in Economic Methodology). These are the facts. INEM was called into existence by some leading US and European methodologists (some of them are closely tied to the Erasmus Institute at Rotterdam), so the collaboration between the European and overseas colleagues is extremely strong, vivid and fruitful here. This is the reason why INEM is so outstanding.

I am over the initial registration process as I confirmed my taking part. Now I have no detailed information about the venue, so I have no idea about either the sessions or the panelists. My lecture “Lucas on Method” is in the making. To be perfectly honest, I can hardly wait to arrive at San Sebastian, to attend as many lectures as possible and to write a detailed diary on a daily basis whit photos and short summaries. I hope I can meet some of my colleagues there again.  It is going to be a great fun.

spain-san-sebastian-old-town

New Draft for Comments

My latest draft “Some methodological aspects of the controversy between mainstream economics and institutionalism” is ready for comments. It is available here.

Abstract:

Mainstream economics has been running the gauntlet of adverse criticism for decades. These critiques claim as a message of central importance that mainstream economics has lost its relevance as for understanding reality. By making a brief comparison between the methodological strategies of the main stream and institutional economics I suggest that the firm demarcation between the streams stems from the difference between their methodologies. Its peculiar interest directed mainstream economics to take a unique methodological path and consequently the adherents have not been able to be on the lookout for certain facets of socio-economic reality. However, the chosen path, the axiomatic-deductive strategy proved to be an appropriate method for identifying economic laws. This claim is justified even by some recent efforts of new institutional economics. In order to support the conversation between the schools I highlight some causes that currently make it impossible to start a rational discourse.

Keywords: mainstream economics, institutional economics, methodology of economics, isolation, homo oeconomicus

JEL codes: B13, B15, B41, C12

Any comments are warmly welcome.

discussion

Stand up for CEU

An open letter from Albert-Laszlo Barabasi.

Dear Friends,

I wish to thank all of you who have reached out to celebrate my 50th birthday yesterday. If you really wish to honor my half a century, help me speak up for higher education, and share it with your friends!

I returned in Budapest six years ago to help build a network science program at Central European University. We succeeded beyond our dreams–we have just enrolled the third cohort of network science PhD students; the university hired a number of fantastic faculty and is about to make one more hire, and the vibrant program on networks has affected the life of hundreds of students and researchers from all over Hungary. With that CEU became the center of network science in Europe, and Budapest Europe’s Network Capital!

All of this at risk right now, as the Hungarian Government has just moved a law in front of the parliament that, if passed, would revoke the mandate of CEU as an educational institution. A nation that rightly prides itself for its achievements in scholarship, is at risk of destroying the engine that trains its next generation of scientists.

Most of you know me for my research, which was only possible thanks to strong and proud educational institutions– from the Marton Aron Gimnazium in Transylvania, to the University of Bucharest, Eotvos University in Budapest, Boston University, University of Notre Dame, Northeastern University, Harvard University, Technical University of Budapest, and Central European University. Without these beacons of intellectual freedom, we would not have science, scholarship and I could not have helped develop network science!

So honor me today by speaking up for Central European University at every forum you have at your disposal! It does not matter where you are politically– speak, like I do, for research and scholarship!

Share this, and let the world know that you care! And sign the petition that will be delivered to the Parliament soon: goo.gl/WLxvjv

If you can influence decision makers, either in Hungary or in the US, at this moment when they need to hear your voice!

Albert-László Barabási
www.barabasi.com
@barabasi”

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EIPE 20 Anniversary Conference, Day 3

Some of you might cry of shame because today I skipped the plenary session. However, in the last few days I’ve had so heavy a schedule that I needed to make some time for taking some photos of the city (at least the neighbouring parts) and the campus. Success, I managed to take all the pictures I wanted.

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Then I joined the parallel sessions. I could catch some interesting pieces. For example, Melissa Vergara Fernández devoted her speech the problem of what are philosophical theories of models good for. A lively debate was triggered by the speech, even Marcel Boumans gave his thoughts, but for me personally the most interesting point was this figure, below:

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It clearly reveals how the structure of economic research has changed during the last few decades. This dynamics can really underpin the point that the balance between “theory and measurement” is radically moved towards the position of measurement without theories. I am afraid, the era of grand theories is over. Once and for all…?

Ahmet Dincer Cevik’s talk also triggered serious debates, even though his fundamental thought was right. Economic laws hold for a while, but later some laws may cease to exist, at least in a particular spatio-temporal environment. The conclusion he drew also seemed to be grounded: such a failure doesn’t corrupt the initial validity. But this is simple. This is how social world works. Physical reality is one and timeless-at least in human terms. But our social environment keeps changing, so it is not surprising if a law-like tendency happens to break down.

Lukasz Hardt noted an interesting feuture of scientific explanation. Sometimes even simple algebra proves to be useful in explaining social phenomena. For example, the fact that 33 cannot be devided by 2 with no remainder can explain the event that a mother is not able to divide 33 cherries between her two daughters without cutting. Cutting a cherry, of course.

The day and the conference was closed by an informal event when the founders of EIPE accompanied by some of their earlier students talked about the past, the present, and the future of EIPE.

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It was really a fascinating three-day intellectual adventure. The conference has brought some new acquaintances or even friends-time will tell. There was a heavy load on me to take in so many new insights… but in the end I am happy but tired. It is about time for me to leave Rotterdam for my home that I am missing so much now. Now only a few things remained. I need to pack my suitcase, set my alarm clock and then get to the airport early in the morning. But I am doing so in the hope of coming back here once.

EIPE20 Anniversary Conference, Day 2

It is a tough day, and it is not over at all. Today’s plenary session was presented by Johanna Thoma and Francois Claveau at the Pavilion of the university. This is an iconic place of the campus. Johanna talked about preference-based instrumental rationality. I have got some new insights on rational choice theory. The outlines have always been clear, but I was curious about the details… how economists use this framework in practical terms. Now I see what the problem is. This theory helps us to explain human decisions on the basis of preferences and the rationality postulate. There are some extraordinary patterns in human decisions and some extraordinary sets of preferences, so the task to complete is to give a rational account of them within this theoretical framework. How can this model be modified so that phenomena out of the ordinary can be explained or understood as well?

Francois gave a speech on an interesting topic: Central banks as experts. It is rather personal, but this guy moved and acted (and actually looked) on the stage like Mark Zuckerberg. Funny. He walked up and down in a really cool style… but for me… this is strange. It is not good or wrong… just strange. For me the great economists of the 70’s and the 80’s have always been the models. To step up the stage, to walk to the desk, to put on the glasses and to read the lecture. In a calm and elegant way. This new thing… is just a show. But admittedly, the world has really changed. If you are a scientist… you need to be a showman as well. All in all, Francois’ lecture was interesting. He talked about central bank communication in a context where central banks are surrounded by the public as an epistemic community. His theory is called applied social epistemology. His work seems to be interesting as for revealing the hidden structures of the communication between central banks and the public.

Let’s see some interesting lessons from today’s panel sessions. Michael Joffe expressed his strong interest in biology. He always turns to biology in order to find a discipline that is used for scrutinizing some complex, heterogeneous and open-ended processes of reality. For him biology is an empirically-based causal theory. This is the method of natural sciences. That is, such disciplines start from reality itself-and this is the big picture to which economics makes a difference. It was nice to hear that he referred to F53 as a meta-theory directed to highlighting false causal mechanisms… but I am still dissatisfied because Michael depicted economics (as such) as the enterprise of missing the point. Models should capture a causal mechanism-but is it serious that ALL of our models fail to capture actual-plausible mechaisms…? I don’t think so…

Actually, Michael’s account seems to be a further item in the institutionalist critique. For example, the theory of money creation should be based on real/actual behaviour of real/actual agents, according to him. But for me this is clear that we have more options than capturing all the mechanisms vs. capturing nothing. Modern economics is about highlighting only one mechanism-meaning… one at a time. So we can be realists by setting up extremely abstract models. Michael wanted to call attention to the fact that some mechanisms are left out of our models. But I think this has always been on purpose!

Virginia Ghiara talked about Process Tracing as a means of testing and creating hypotheses. Now I am under the slight impression that Process Tracing is the macro-version of experimental economics. In both cases we are interested in collecting data on elementary human actions-it is the volume that makes the only difference. But these are only impressions…

Then there came my lecture. I was shocked at the very beginning because in the first minutes of the session Mäki Uskali joined us in the room. He is the leading international figure of the realist interpretation of modern economics, so it was my great pleasure to see him in the audience. I talked about the Friedman-Lucas-RBC line, on which Lucas performed a realist break, while Friedman and RBC were instrumentalists. Actually, I could surprise the colleagues. To my shock, Lucas is often labelled as an instrumentalist or anti-realist, but this view seems to be ungrounded. It all is about the methodology of creating unrealistic assumptions in order to set a realist theory-a theory that is directed at revealing the consequences of some plausible causal mechanisms. I don’t need to be an anti-realist just because I use unrealistic assumptions. By using appropriate assumptions I can tie my models to reality, no matter how unrealistic they are, provided they are set up from real constituents of reality.

This has been the day so far. Soon I need to leave for the anniversary party at Hotel Bazar.

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EIPE20 Anniversary Conference, Day 1

This morning I had a very interesting conversation with Andrew Bryce from Sheffield University. We are staying at the same hotel, we are attending the same conference-so it was natural. Today’s topic was the economics of well-being, naturally expressed by the main plank of today’s sessions “The Good Economy”. Andrew is engaged in the economics of happiness and well-being (these are interrelated concepts as I realized today, but not interchangeable at all). There were loads of new things for me to learn today. Andrew explained that the economic man conceptualized as the homo oeconomicus in the neoclassical orthodoxy is not happy at all. Robinson spends his whole life consuming, he is lonely, and he is particularly unfamiliar with the the concept of altruism, for example. By the way, the concept of happiness and the measurement of that are extremely complicated, since the happiness we feel, our own, personal happiness depends on a lot of factors. Andrew’s current research is about the impact of weekend working on well-being. People who need to work at the weekends may work according to schedules very different from their family’s, relatives’ and friend’s timetable. This may raise personal problems. Another problematic area is measurement. For example, one needs to say how much happy he is on a scale from 1 to 10. If I happen to label my perceived momentary happiness as 7 while you give it a 6, is it sure that I am happier than you…?

Today’s plenary sessions was opened by Jan Peter Balkenende. He was the Prime Minister of the Netherlands from 2002 to 2010. A couple of years ago he retired from professional politics and became a partner at E&Y and a professor of Governance, Institutions and Internationalisation at the Erasmus University Rotterdam. Actually, he lost an election so he chose to quit. Very sympathetic.

His lecture was an interesting piece. He believes in freedom, not in chaos. So unbound capitalism is something to avoid. For him, social market economy is the best example, it should be the model for every nation. This is the reason why the German model is so appealing to him. But these are rather commonplaces. What is the point?

He excessively reacted to the very recent phenomenon of populism. This is an effect-the effect of nations’ not having concrete and positive visions of their future. The middle-classes failed to form such visions. Consequently, European societies cannot avoid facing the problem that nowadays Europe is mentioned rather in negative contexts. Instead, people need to restart talking about values. And this is related to European identity as well. What makes us European? What is the ultimate source of our European identity at all? The values are. Even private companies ask themselves from time to time: what and why they do? This is also a question of values. Of values, legacy and purpose. What is the conclusion? We need values and we need to talk about them.

There is an age-old manifesto in traditional money-making: the business of business is business. This manifesto is believed to be related to mainstream economics (it was Milton Friedman who kept repeating it for a while), so in some scientific circles the position of mainstream economics is not that favourable. We cannot defend mainstream economics till the end of time by saying that this is an abstract theory, so you cannot blame us for not having answers to particular questions we never ask. Yes, we don’t have answers to institutionalist issues on purpose. However, a lot of people are interested in problems which we are aware of at best, so if we cannot offer them answers, they are going to drop us. This is the reason why it is urgent to place mainstream economics in a context. In an institutionalist context.

In the afternoon Erik Angner opened the sessions with his talk on the phiosophy of happiness. Actually, his lecture can be easily put in a broader context. Why does science need philosophy…? And what does this need stand in at all? Those professionals having a sceptical attitude got a serious impression on the importance of getting involved in doing philosophy. I do believe that no professional can keep ignoring philosophy in the long-run. If he attempts, if he insists on doing no philosopy… he can only pay lip-service to his own ignorance, but at the same time he must do philosophy, even if implicitely. Not making philosophy an explicit background is a mistake, since doing so we can deprive ourselves of the possibility of addressing problems that require an explicit philosophical approach. Even my intellectual home country, the mainstream-institutionalism controversy is of philosophical character-no matter how strongly some try to deny this fact…

All in all, this is an outstanding, inspiring and thought-provoking event. And lots of interesting conversations during the coffee-breaks.

Tomorrow the program continues… and tomorrow is my day. From 13:30 I am giving my lecture on the problem of realism and instrumentalism in the context of modern macroeconomics.