Validity is NOT enough

8 Sep, 2015 at 09:15 | Posted in Economics | 1 Comment

Mainstream economics today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modeling activity is considered useful and essential. Since fully-fledged experiments on a societal scale as a rule are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies.

Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality. As Julian Reiss writes:

errorineconomicsThere is a difference between having evidence for some hypothesis and having evidence for the hypothesis relevant for a given purpose. The difference is important because scientific methods tend to be good at addressing hypotheses of a certain kind and not others: scientific methods come with particular applications built into them … The advantage of mathematical modelling is that its method of deriving a result is that of mathemtical prof: the conclusion is guaranteed to hold given the assumptions. However, the evidence generated in this way is valid only in abstract model worlds while we would like to evaluate hypotheses about what happens in economies in the real world … The upshot is that valid evidence does not seem to be enough. What we also need is to evaluate the relevance of the evidence in the context of a given purpose.

Mainstream economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on axiomatic-deductivist modeling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability. To have valid evidence is not enough. What economics needs is sound evidence.

1 Comment

  1. Trapped in false alternatives
    Comment on ‘Validity is NOT enough’
    It is not such a big mystery why economics is a failed science. The IT-crowd aptly sloganized the explanation with garbage-in-garbage-out, that is to say in more general terms, if the premises are false the result will be false even if the reasoning between premises and conclusions is impeccable. It is pretty obvious that standard economics is based on nonenties (utility, expected utility, rationality, equilibrium, constrained optimization, well-behaved production functions, etcetera). Nothing of scientific value will ever follow from these premises.
    In order to make progress the nonentities have to be replaced with something that has a correspondence in the real world. There is no choice between valid evidence and sound evidence and there is no trade-off between empiricism and deductivism. Both are needed, and both have been thoroughly misunderstood throughout history.
    One of the best examples of idiotic empiricism has been given by Bacon: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” (Popper, 1994, p. 84)
    On the other hand, one of the best examples of idiotic deductivism is to be found in economics and has been delivered by Debreu’s General Equilibrium Theory.
    The pitfalls of methodological argument are twofold:
    (i) Sound empiricism, e.g. Tycho Brahe, has been played against idiotic deductivism.
    (ii) Genial deductivism, e.g. Euler, Newton, Einstein, has been played against idiotic empiricism.
    Unfortunately, traditional Heterodoxy has not manged to get out of this quagmire of false alternatives.
    What should be evident by now to every economist is that science is not defined by either/or but by the synthesis of sound empiricism and genial deductivism. The hallmark of economics is that it lacks both.
    Egmont Kakarot-Handtke
    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and
    Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111.
    London, New York, NY: Routledge.

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