Solow and Damon Runyon’s law

26 May, 2016 at 20:41 | Posted in Economics | 5 Comments

The eminently quotable Robert Solow — as always — says it all:

To get right down to it, I suspect that the attempt to construct economics as an axiomatically based hard science is doomed to fail. There are many partially overlapping reasons for believing this …

soloA modern economy is a very complicated system. Since we cannot conduct controlled on its smaller parts, or even observe them in isolation, the classical hard- science devices for discriminating between competing hypotheses are closed to us. The main alternative device is the statistical analysis of historical time-series. But then another difficulty arises. The competing hypotheses are themselves complex and subtle. We know before we start that all of them, or at least many of them, are capable of fitting the data in a gross sort of way. Then, in order to make more refined distinctions, we need long time-series observed under stationary conditions.

Unfortunately, however, economics is a social science. It is subject to Damon Runyon’s Law that nothing between human beings is more than three to one. To express the point more formally, much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high. Under these circumstances, a little cleverness and persistence can get you almost any result you want. I think that is why so few econometricians have ever been forced by the facts to abandon a firmly held belief …

Robert Solow

5 Comments

  1. The main alternative device is the statistical analysis of historical time-series.

    Why?

    Comment by Bruce Wilder— 27 May, 2016 #

    • Why? Because you cannot understand the present if you misunderstand the past.

      Bruce, what alternative devices do you rely on?

      Comment by The Arthurian— 29 May, 2016 #

      • The Arthurian
        .
        You say: “Because you cannot understand the present if you misunderstand the past.”
        .
        This assertion holds perhaps for politics but certainly not for science: “The next scheme, the new discovery, is going to be made in a completely different way. So history does not help much.” (Feynman)
        .
        Could it be that you have not yet grasped the difference between storytelling and theory? The history of falling apples is one thing and the Law of Falling Bodies is quite another thing.
        .
        Science is about general and invariant features of reality (= deep structure), history/evolution is about unique event configurations on the surface which never repeat themselves. This is known since Heraclitus and “That is why Descartes said that history was not a science — because there were no general laws which could be applied to history.” (Berlin)
        .
        Economics is about the underlying structural laws of the economic system. If you do not understand these (e.g. the Profit Law) you neither understand the present nor the past.
        .
        Egmont Kakarot-Handtke

        Comment by Egmont Kakarot-Handtke— 29 May, 2016 #

  2. When substandard thinkers dabble in science it is called economics
    Comment on Lars Syll on ‘Solow and Damon Runyon’s Law’
    .
    Tell an economist that economics is a failed science and he will come up with a barrage of excuses: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)
    .
    So, there are no behavioral laws in economics? No, but there is a law that there is no law: “Unfortunately, however, economics is a social science. It is subject to Damon Runyon’s Law that nothing between human beings is more than three to one. To express the point more formally, much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity.” (See intro)
    .
    This raises two questions. (i) Why are obviously false propositions like “agents individually optimize subject to constraints; agents have full relevant knowledge; observable outcomes … must be discussed with reference to equilibrium states” given the status of axioms? (Weintraub, 1985, p. 147). And (ii), why do members of a “strange sort of discipline” insist on the term “Economic Sciences” in the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”?
    .
    The ontological error of economics lies in this sentence: “Unfortunately, however, economics is a social science.” Not at all, economics is a system science. Yet, most economists have not realized that economics is NOT a science of human nature/behavior/action — not of individual behavior, not of social behavior, not of rational behavior, not of irrational behavior, not of sincerity, not of corruption. All these issues belong entirely to the realms of psychology, sociology, anthropology, political science, history, criminology, philosophy, etcetera.
    .
    So let us replace Damon Runyon’s Law by the Ontological Impossibility Law: NO way leads from the explanation of individual/social human behavior to the explanation of how the monetary economy works. In other words, the microfoundations approach has already been dead in the cradle.
    .
    There is no such thing as a behavioral/social/historical law but there are systemic laws (2014). Economists are digging since Jevons/Walras/Menger in the wrong place. Neither Orthodoxy nor Heterodoxy has figured out until this day what profit is, that is, economists have no idea of the pivotal phenomenon of their subject matter since Adam Smith. Unfortunately, they have been too much occupied with making fools of themselves with folk psychology, folk sociology, and folk politics.
    .
    Egmont Kakarot-Handtke
    .
    References
    Kakarot-Handtke, E. (2014). The Synthesis of Economic Law, Evolution, and
    History. SSRN Working Paper Series, 2500696: 1–22. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2500696
    Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The
    Academic Scribblers. Princeton, NJ: Princeton University Press, 3rd edition.
    Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal.
    American Economic Review, Papers and Proceedings, 75(2): 146–149. URL
    http://www.jstor.org/stable/1805586.

    Comment by Egmont Kakarot-Handtke— 27 May, 2016 #

  3. Game theory is relevant here. A player that spots a regularity will often try to exploit it, thus tending to destroy it. So we should expect only temporary regularities, unless they are inevitable. Whitehead’s process theory also applies.

    Comment by Dave Marsay— 26 May, 2016 #


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