Re-examining economic laws

24 September, 2018 at 11:25 | Posted in Economics | 2 Comments

In mainstream economics, there is a lot of talk about ‘economic laws.’ The crux of these laws that allegedly do exist in economics, is that they only hold ceteris paribus. That fundamentally means that these laws only hold when the right conditions are at hand for giving rise to them. Unfortunately, from an empirical point of view, those conditions are only at hand in artificially closed nomological models purposely designed to give rise to the kind of regular associations that economists want to explain. But — since these laws do not exist outside these socio-economic machines, what is the point in constructing thought experimental models showing these non-existent laws? When the almost endless list of narrow and specific assumptions necessary to allow the ‘rigorous’ deductions are known to be at odds with reality, what good do these models do?

Deducing laws in theoretical models is of no avail if you cannot show that the models — and the assumptions they build on — are realistic representations of what goes on in real life.

Conclusion? Instead of restricting our methodological endeavours at building ever more rigorous and precise deducible models, we ought to spend much more time improving our methods for choosing models!

julianThere 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 mathematical​ proof​: 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.



  1. Prof. Syll feels trapped by “socio-economic machines”. He seeks an escape through universally valid empirical truths in an imaginary “reality” far beyond the uncertainties of our miserable life.
    Sadly, even the Law of Gravity has limitations:
    “a person is born for trouble as surely as sparks fly up from a fire” (Job 5:7)
    “there are many phenomena that cannot be explained by secular gravity alone, including such mysteries as how angels fly, how Jesus ascended into Heaven, and how Satan fell when cast out of Paradise.”

  2. . . . what is the point in constructing thought experimental models showing these non-existent laws?
    I suppose the point of logical analysis of concepts is to find the logic of a system: identifying what are the necessary and sufficient elements in an abstract “ideal” system and the functional relation of those elements with one another.
    When we go to the world to observe, measure and interpret what goes on there — in reality — we take with us the presumption that the world we observe is fundamentally a logical place, constrained to the possible, however complex and confounding to the senses its phenomena may seem.
    Would-be scientists seem prone to one or the other of two kinds of epistemic error. Those inclined by temperament to theoretical analysis may fool themselves into thinking their a priori speculations are descriptive of the real world, though description requires careful observation as well as careful reasoning. Those impatient with the abstractions of theory may be eager to observe cause-and-effect in the rough, though no such relation, as Hume pointed out, can actually be seen.
    Challenging the “realism” of theoretical analysis on the basis that its speculations are not descriptive misses the mark, because theoretical analysis is never descriptive. It is not in its nature to be descriptive. To carefully observe and measure the world is a separate activity, one that may indeed involve building models, but those models are the models of control from feedback; we prod and probe and poke, as someone might fiddle with the knobs, pedals and steering wheel of an automobile to see if we can figure out how to control it. The test of an analytic theory is its logical consistency; the empiricist never tests a theory, he tests the world. He may ultimately find fault with the theory he uses to build a model of the world, with which to control the world he can measure and manipulate, but the goal is knowledge of the world with the presumption that the world must be logical as an article of faith.
    I think it is fairly easy to come to some understanding of the importance of distinguishing what Popper called “operational models” from more purely theoretical analysis, just by sticking to the easy examples of a successful theory and its applications: Euclidean geometry and its application to geodesy, or Little’s Queuing Theory and its application to the prosaic problems of waiting in line, or Euler’s analysis of the forces involved when a plane deflects the flow of a fluid and the problems of aerodynamics and airfoil design. No one mistakes Euclidean geometry as descriptive of any particular place or structure, nor is its usefulness in architecture or land surveys much doubted.
    Why are economists so confused?

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