The Case for a Meta-economics 7: Knowledge, Truth-Seeking, and Science in Economics

One of the much-overlooked and little-examined values and assumptions in contemporary political discourse is the commitment or lack thereof to truth-seeking and truth-telling.  For instance, the public discourse on deficits is largely dominated by a position which is, according to a number of economists who make a well-reasoned and fairly well-substantiated case for their opposing position, relatively unmoored from much of the relevant data about the effect of deficits and deficit spending in a deep recession.  The responses from those advising deficit cutting do not address the main concerns of their critics and reveal a certain obliviousness to the need to respond to these often distinguished critical economists. Without widely-held methods of determining truthful representation whether through data verification and/or commitment to clarification of differences through argumentation, economic discourse and public discourse more generally eventually falls in on itself or becomes merely another form of hollow entertainment without content.  If there is a not a common commitment to truth-seeking on both sides or to a method that examines truth-claims, we have a major epistemological problem.

In parallel, we have a general political culture, often undergirded by folk economic theories, in which truth-telling is claimed by each to be their own virtue but is assumed by many to be a virtue of very few.  It may be that one side of the political argument is more detached from something like an objective truth (“reality has a well known liberal bias”) but this assertion by those on the left of the political spectrum will need to be explained and investigated more deeply before it can be established as having merit and truth in itself.  Critical characteristics of some highly influential folk economic and professional economic theories may play a role in this culture of diminished truth-telling, which will be dealt with in subsequent posts.

There are debates about whether the social sciences and in particular economics can be held to standards of truth at all, as some claim that economics is a creative or practical discipline that co-creates the reality which it analyzes.  In the 1950’s the distinction between positive economics (positivistic notions of economics describing a real world outside us) and normative economics (value judgments about the economy) was a matter of some discussion between Samuelson and Friedman, though contemporary economics has developed with often the unquestioned assumption that one’s own work is of the “positive” type and therefore describes an objective world.  Since then, almost entirely outside the economics discipline, a thirty year flirtation with post-modernism has called into question the positivist ideal of truth that was previously considered commonsensical.  As above, economists (and other social scientists) still draw authority from the notion that they are not creating, interfering with or influencing the object of their study: they are presenting a picture of the reality “outside in the world” that can be found.  Even if we assume that economists are completely enmeshed in the economy they describe, the notion that economics is itself reflexive or performative of economic reality does not necessarily mean that there can be no standards or constraints on its creativity.  Economics then becomes a practice which may be subject to ethical rules as are other practices such as medicine, that also claims to be science-based.

To adhere to the position that there is no objective truth in economics or other social sciences means giving up a great deal in the way of usefulness of the discourse as well as places a great deal of strain on consumers of economic knowledge.  If truth claims must be always put into context of an individual’s perspective, more work is required of non-economists and the claims of any authority at all for the discipline come into question.

Truth-telling and Science

Conventional objective truth-seeking and truth-telling, implicit values of scientific endeavor, are extremely well enforced in the natural sciences by the process of data collection using electromechanical instruments, hypothesis testing, continuous development of progressively more unified or more explanatory theory, and peer-review. The generally accepted model for hypothesis testing, falsificationism is applicable to many though not all natural scientific statements, i.e. a statement must be falsifiable to be scientific.  While Thomas Kuhn questioned the notion of linear progress within the sciences with his notion of scientific paradigms, chemistry and physics, at least have benefited from progressively more granular understanding of their object of study, even with varying shifts in experimental or theoretical paradigms. Natural scientists are not necessarily more virtuous people but they operate within a community and culture within which there are mechanisms to determine whether writings and presentations reliably correspond to the universe outside themselves.   While throughout the 20th Century philosophers of science like Kuhn have disagreed about the exact nature of natural scientific endeavor, positivism is still a reasonable approximation of how natural science knowledge is consumed by technologists and viewed from the outside.

Outside the realm of the natural sciences, because of epistemological uncertainties as well as significant political and perspectival aspects, the values of truth-telling in the social sciences are not well enforced or perhaps not even completely enforceable.  The fragmentation of each of the social sciences into two or more paradigms or schools, enables isolated, parallel developments within these disciplines with the personal preferences of analysts and readers determining which theory “succeeds” for a time.  These successes, in turn, rarely lead to a progressive enhancement of knowledge within often fragile or transitory sub-disciplinary knowledge frameworks.  This leads to the temptation and propensity of individual analysts to create their own personal version of truth or to tailor their utterances and writings to the opinions of a peer group or a patron.

Perhaps the epistemology of the social sciences cannot and should not be measured against the yardstick of the natural sciences. If economics is not just an objective science but includes the subjectivity of the writer/analyst, then satisfying truth claims may necessarily involve some form of truthful SELF-representation not just the truth of a world outside the analyst.  Perhaps this necessary self-representation might involve disclosure of their own preferences in terms of what is the purpose of economic activity, theoretical frameworks, and funders for their work.   This meshes with the notion that economics is necessarily perspectival.  On the other hand, obscuring the object of study, economics, with talk of the studier, the economist, about him or herself is kind of a “bait and switch”.  Self-representation would need to be subordinated to the representation of the world outside the economist in order for non-economists to get value out of economic discourse.   Nevertheless, some transparency about the studier could increase the value of that discourse; perhaps this might be an area within which a meta-economics might have something to say.

Example:  Who was “Telling the Truth” about Housing?

An example will show how difficult it is to establish truth claims in contemporary economics.   The housing bubble and subsequent financial crash engendered a number of schools of thought that can be subdivided into two main groups: on the one hand were those who predicted or assumed continued asset growth and therefore inaction in the face of the bubble while on the other hand a collection of diverse economists emerged who predicted that a crash was coming.   Within each of these groups, particularly in the group who “got it right”, there was a range of approaches to the problem of housing prices that made each of the views of these economists seem personal and sui generis, though each may be describing an important aspect of a world “out there”.  Steve Keen, for instance, approached the bubble as early as December 2005 from the perspective of a systemic tendency towards private debt accumulation leading to financial crises that has its origins in the heterodox work of Hyman Minsky.  Others in the same eclectic group have praised Minsky, (Krugman), but are not nearly as committed to Minsky’s model and tools as Keen.  There is an “Austrian school” critique of bubble formation that suggests that speculative debt accumulation is either a government led phenomenon or an individual moral and management failing of economic actors which will be corrected by a downturn and bankruptcies of the most irresponsible debtors.   Ken Rogoff has ascribed the main failure in allowing the bubble to grow as one of arrogance and forgetting of the lessons of history. Robert Shiller who was an early predictor of the two major asset bubbles in the last 20 years ( and housing) has analyzed these bubbles as a disproportionate growth in the housing sector versus other economic sectors that was fueled in part by an overvaluation of the role of speculator in the world economy.  James Galbraith, in his 2004 assessment of the housing bubble, sees the inflation of that bubble by political leaders and central bankers as a stopgap measure to paper over an economy that was increasingly failing to generate sufficient aggregate demand and meet human needs.  Finally, and most importantly, the opinion among the most powerful economic functionaries, central bankers, first Alan Greenspan and then Ben Bernanke, was to let the bubble grow, often in the background assuming along with neoclassical economic orthodoxy that economic equilibrium and individual self-control are the determinative economic forces rather than potentially destabilizing economic swings.  However these bankers were in all probability not simply stating personal opinions or reflecting upon an objective economic reality but balancing an “out there” economic reality with the needs of political leadership for economic growth, low inflation, and the appearance of economic stability.

Given the diversity of these opinions (and there are more) as well as the efforts of officials to hide their views of these matters, it was difficult for consumers of economic knowledge to come to an understanding of what WAS going to happen with housing and ultimately the world financial system as a whole.  Is a composite of these views correct?  Is it all based on your own values and standpoint as an observer?

Complexity and Truth-Telling

One counter-claim to the demand that economists deliver an objective “truth” can be made by economists is that the economy itself is a complex system with multi-factorial determination of events, making complete and reliably reproducible accounts of what happens in the economy either impossible or meaningless.  There are so many factors and interactions that it might not be possible to document and trace each and every factor in a given account.  Alternatively, it may be possible to trace or classify all relevant interactions but to interpret all factors at once would be beyond the capability of our ability to derive any meaning from the tangle of interactions.

Contrary to these assumptions, I believe it should not be impossible to create a general map or taxonomy of economic factors that impact a particular type of event, such as a housing bubble or bank regulation, though impossible to predict their dynamics with complete accuracy.  To operate within this taxonomy would at least open the possibility for there to be a common basic language for most economists who addressed a particular issue.  At some point an overarching framework might then stabilize arguments around key programs of research or alternatively key philosophical differences that would be treated as such.  Such a taxonomy would need to be revised as events change, but it shouldn’t be too hard to compile a complete set of the relevant factors.

Still such a taxonomy and the resultant analyses would be terribly complex.  Addressing the problem of interpretability of overly complex datasets and models requires creativity in modeling the data and perhaps strategically but transparently choosing to emphasize one or the other factor.  Again, it would help if there were a discipline-wide consensus and taxonomy of factors and measurement instruments which could be called upon, so the selectivity of individual interpretations could be openly questioned after the fact.

Time, Irreversibility, Uniqueness and Truth-telling

One of the criticisms leveled at neoclassical economics is that it often operates as if hermetically sealed off from the real world, in a world of reversible time and physical improbability.  The implication is that economic processes run in a timeless world and they can be reversed.  In the real world, physical and economic processes are irreversible, a function of the complexity of real complex physical systems, living beings, ecosystems and societies.  Each event is unique.

If one accepts the non-repeatable nature of the world as a total blanket assumption, the only type of economics that would be truthful would be a historical and institutional approach that chronicles what happens in the economy over time in all its multifarious nuance.  Yet this approach has less obvious means of highlighting trends, repeating dynamics and how people actually intervene and change that irreducibly complex reality.  Prior to the installation of neoclassical economics as economic orthodoxy, the previous orthodoxy was a form of institutionalism or historicism.  The success of neoclassical economics is in part that it suggests that there are “buttons to push” in reality which will change that reality, rather than economists providing endless historical minutiae that do not simplify the world for actors in the economy and political leaders.  Still, if these “buttons” are either unreal or the wrong buttons, then economics has not helped further economic understanding and overall social welfare.

This stand-off between historicism and timeless, though potentially erroneous, economic abstractions can be resolved in two ways:  either with new more reality-based abstractions or an iterative process of correcting existing theoretical abstractions with empirical data are needed to move economics to a closer correspondence to what actually happens in economies.

Intersubjective and Objective Dimensions

Another approach that may be unsatisfying to those who look for “monistic” (single-principle frameworks) explanations is that economics has two aspects, an objective and an intersubjective dimension, which is subtly different from the distinction “positive” vs. “normative” discussed in the 50’s.  (Intersubjective is a fancy but precise word for describing what happens in the interaction between conscious, knowing beings, i.e. philosophical “subjects”.) In the objective dimension, economists can be held to standards of objective truth by examining their inclusion of data about and consideration of real unavoidable factors of life, even if these factors may be too complex to represent in their entirety and are not amenable to controlled experimentation.  For one, the geophysical world is finite and in particular the finitude of the atmosphere and fossil energy sources are objective factors that impinge upon economics.  Beyond the obvious non-human physical world, there also might be some human invariants or dynamics which play a role in economic life.  To ignore these invariants or dynamics should be grounds to dismiss the credibility of a particular economic theory.

On the other hand, there is an intersubjective world which is both the object of study of and part of the economic profession: economics describes this social world and also economic theories and analyses shape the sometimes herd-like behavior of human beings. Economists themselves have subjective concerns related to their own personal interests and ideals, as well as the personal interests and ideals of the people whose interests they are either sensitive to or trying to represent.  Economists probably always have some sense of an “ideal” (normative) and “real” human community which they feel as though they belong to or would like to co-create, even if the ideal is simply an ideally “efficient” economy.   In expressing their subjectivity as well as ordering the data that interests them, economists almost unavoidably, without a standardized form of argumentation, use rhetoric or persuasive speech to move the opinions and thoughts of other “subjects”, i.e. people, to pay attention to their arguments and views.

The intersubjective dimension of economic life can probably be described much more precisely but more often that not, not meaningfully by falsifiable statements (like the natural sciences).  Also the action of economists as they attempt to build persuasive arguments in that intersubjective world can be better described by analyzing the rhetorical devises used rather than simply a presentation of “data” or modeling to make a point or a policy recommendation.

Conflicts of Interest and Truth-Telling

A lot is at stake in economics:  the difference between poverty and wealth, health and morbidity, community integrity and community disintegration, social status and social ignominy.  Powerful interest groups have a stake in shaping economics to either continue their power or to add to that power.  Some outside the profession feel that economics is entirely reducible to a play of these interests, that economics is simply a form of politics by other means.  It is not inconceivable that certain powerful interests may see it in their interest for economics NOT to be entirely effective or truthful, that the insufficiencies of economics are in this way benefits to them, if they don’t end up taking the discipline seriously themselves.  Alternatively they may see economics as just another weapon they have to retain their privileged position, the truth value of which is secondary to its usefulness as a political and economic weapon.

Thus the content of economics may necessarily show the signs of the war of forces that surround it.  To then judge the discipline from the perspective of truth-telling may be difficult: perhaps then the best economics is like the “sharpest stick” with which to further the interests of a social group not to describe a world “out there” as it would appear to everyone.  There are people for whom the world is such a competitive and conflictual place and therefore knowledge of any kind is just another cudgel to wield to win out over “the other guy”.  On the other hand, the project of a more refined and more effective human knowledge that is open to all who wish to learn, is also an ongoing transcendent value for many.  My personal preference is the latter approach but the perspective of the former view cannot be banished from all consideration.

Reflexivity and Performativity

Under the rubric intersubjectivity, a number of approaches have been suggested as applied to economics that suggests that economics is a creative force, a technology, rather than the representation of a world “out there”.  George Soros’s concept of reflexivity suggests that reality is changed by actions and assertions of economic actors, so that it is impossible to draw a clear line between subject (observer) and object (observed).  Rather than give up on economic knowledge, Soros has continued to write and fund initiatives (the Institute for New Economic Thinking) that attempt to make economic knowledge more useful and of greater social value.

A more extreme version of the blurring between observer and observed in economics comes from the French sociologist Michel Callon who believes that economics is “performative” meaning it actually creates the reality that it studies.  Callon uses the example of the Black-Scholes model studied by Donald MacKenzie which was an economic creation that also has been the basis for most of the risk models used by financial institutions.  The model had an impeccable academic pedigree in economics but its reading and/or misreading of financial risk enabled both substantial profits on the upside of bubbles but no means of accounting for the “fat tail” risk of the bubble bursting.  Callon suggests that economics is a simply a source of new “agencements” or composites of people, ideas and technologies that compose social and economic reality.  Using a distinction from linguistics and philosophy, Callon suggests that rather than being “constative” (descriptive), economics is performative and it cannot be subjected to evaluation of its truth claims.  While Callon suggests that economics doesn’t arbitrarily create its world, he has left outside of his own program of research what those constraints on its creativity are.

It would be fruitful in the context of a meta-economics or similar, to pursue what are the constraints on the reflexive or performative aspects of economics, even if economics itself provides a stream of technical innovation that constitutes and alters the world that it studies.

In the Interim:  Ethical Commitments to Truth and/or Best Practices

If a more durable framework for social science and economic knowledge cannot be discovered/created/implemented in time, a call for individual ethical commitment to truth telling, truth-seeking, and ethical practice has some chance of improving the quality of economic and other social science discourse.  The anti-positivist and post-modern turns in philosophy and the social sciences of the last 40 years have created some interesting ideas but have also encouraged a certain cynicism about the potential for truth or at least widespread collaboration on a large, common body of knowledge.

Self-conscious engagement with the knowledge frameworks that one works in and attempting to challenge the basis for one’s favored assumptions is beyond some but not beyond all social scientists. In order for economists to be able to argue across the multiple fragmented paradigms within economics, they must be able individually to recognize areas of common ground as well as differences in order to develop a body of knowledge that better approximates reality.  As with the summary above of views of the housing bubble, many frameworks offer a glimpse of something that is perhaps held in common but nevertheless individual economists often argue past each other.

A meta-economic framework might help in the pursuit of a more durable epistemological framework, the long-term project, as well as how one can work with existing tools to further knowledge, increase social benefits and mitigate harms related to the practice of economics.

About Michael Hoexter
I'm a clean energy marketing and policy strategist and consultant based in the San Francisco Bay Area.

3 Responses to The Case for a Meta-economics 7: Knowledge, Truth-Seeking, and Science in Economics

  1. Victor Marcucci says:

    I have never found a general equation of economics capable of extinguishing or dealing succssfully with debt or enhancing revenue. Physics has Newton’s gravity law and Einstein’s radiation law (MC2=e) which assist in predictability and analysis. Is economics in need of such simple general equations, or is one even possible given the subjective nature of complex economic systems? Would an overarching rule of thumb be possible to unify both micro and macreconomics in your estimation?

    Vic Marcucci
    waterloo Iowa

    • Vic,
      I would think that it a too much to ask at this point in time for a scientific equation that addresses an individual person’s or company’s specific debt or revenue needs (or at least not in the near term). I see economics as necessarily “perspectivist” or “perspectivalist” meaning that what is true from one perspective is not necessarily true from another. Each economic actor has subjective ideas about risk as well as a different economic situation to start from, etc. In natural science, or at least most of it that deals with our shared “objective” world, one’s perspective is not important at all, so we can rely on some pretty simple equations to describe gravity or relativity.

      However I do think that economics could do a much better job in describing both the micro- and macro- worlds that it deals with including using the best of both natural and social science tools in doing so. For instance, I am a fan of Steve Keen’s methodology, where he creates models and uses statistical tools like correlation and linear regression to compare those models with actual economic statistics. If you read through some of Steve’s pretty technical stuff, you get a sense that he is actually trying to match up his model-making with what goes on in the real world of business, government etc. With many neoclassical economists, it seems that the model-making, including its basic assumptions are never really tested or fundamentally questioned by real world data.

  2. Pingback: Making Sense of the S&P Downgrade: Semantic, Performative and Reflexive Views of the Economy « Meta-economics

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