Paradigms in Economics

I am fascinated by the fact that economists do not seem fazed by the failure of their almost unanimous policy recommendations of deregulation and tax cuts, as I discuss here and here. Almost in unison, they chanted for decades that reducing taxes and regulation would spur growth for the benefit of all of us. The Great Crash didn’t faze them, as these posts show. So why not?

One plausible explanation is that these people are acting in bad faith in the sense Sartre uses this term. They are free to change their minds about their theories, but they are not willing act on, or even to face, that freedom because it might cost them something. This explanation seems to be behind several of Paul Krugman’s recent columns and blog posts, asking how people can have a claim to expertise when they give the same advice no matter the circumstances, and when the evidence and even the structure of their explanations contradict their advice. I think there are plenty of intellectually dishonest economists, but surely there are plenty of intellectually honest economists too.

After my previous posts a correspondent suggested I take a look at Thomas Kuhn’s The Structure of Scientific Revolutions. In the wake of Kuhn’s book, a number of scholars attempted to apply the theory to economics. I think it’s helpful to look at the failures of economics through this lens.

Kuhn starts by describing what he calls normal science: the day to day practice of scientists. Their work is based on an infrastructure consisting of theories of various strengths, instruments, and techniques that together make up a paradigm. This paradigm organizes their thinking so that they have an idea of what they are doing when they do physical and thought experiments. Kuhn says that normal science uses the paradigm to solve puzzles. The puzzles themselves are set up by the paradigm, and the scientist expects to be able to solve them using the rules and equipment of the paradigm.

Here’s an example. One of my brothers was a scientist with a deep interest in the transmission of pain through the nervous system to the brain, and in analgesics, pain-killers. In the 80s, he began to wonder about the pain-killing effect of marijuana. Here’s a reasonably comprehensible paper he co-wrote in 2001, discussing the state of work on cannabinoids.

In the paper he talks about single-cell studies. We talked about this a couple of times while he was doing this work. He told me that his lab had worked out a technique for inserting a tiny filament into a brain cell of an anesthetized rat and counting how many times and how often it fired, and some other things about it. He explained how he thought that happened, and what it meant physically. He described the instruments he used in general terms, and some of the interesting ways he was using computer chips to monitor the results. I asked why. I thought it might be useful, he said.

For him, neurotransmission of pain was a huge puzzle. He wormed away at it most of his adult life. Each little step he took seemed likely to advance a detailed understanding of the puzzle, or create an instrument that might help him and his colleagues take another step. A giant puzzle. A game. The same things were going on in other labs, as the footnotes show. One of the researchers he cites wondered if the body generates substances like cannabinoids. That guy found an endocannabinoid, a naturally occurring cannabinoid, which he named anandamide, from the Sanskrit word for internal bliss. Not only a puzzle, but an opportunity for cool puns.

Kuhn’s examples are older, and from physics and chemistry, but they exhibit the same pattern. In both cases, normal science depends on a collegial understanding of the instruments, the things being measured and a shared general understanding of the way the thing being studied works.

Kuhn offers three foci of normal science: learning about the facts that the paradigm suggests are most revealing about the nature of things; facts that can be used to check the paradigm; and empirical work to articulate the paradigm in the greatest possible detail, clearing up ambiguities and reaching for further problems suggested by the paradigm.

How does economics fit into this picture? What is the paradigm? What are the problems economists are trying to solve? What is “normal economics”?

Here’s one explanation from David Andolfatto of the St. Louis Fed:

But seriously, the delivery of precise time-dated forecasts of events is a mug’s game. If this is your goal, then you probably can’t beat theory-free statistical forecasting techniques. But this is not what economics is about. The goal, instead, is to develop theories that can be used to organize our thinking about various aspects of the way an economy functions. Most of these theories are “partial” in nature, designed to address a specific set of phenomena (there is no “grand unifying theory” so many theories coexist). These theories can also be used to make conditional forecasts: IF a set of circumstances hold, THEN a number of events are likely to follow. The models based on these theories can be used as laboratories to test and measure the effect, and desirability, of alternative hypothetical policy interventions (something not possible with purely statistical forecasting models).

In previous posts I note that recommendations arising from models that do not and cannot predict crashes is worse than useless, it’s downright dangerous. Another kind of problem is that there are big disagreements about the models: whether the assumptions are correct, what they actually model, how they do it, why and whether they work and under what circumstances. Further, there are a number of schools of economics each with its own models and its own set of assumptions, overt and covert. In fact, it isn’t quite clear what the economics paradigm is, or are. These and other issues are for another day.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

10 replies
  1. Eric Zuesse says:

    If Ed Walker might be interested in reviewing my new book that replaces the axioms in microeconomic theory, with ones that are confirmed by empirical economic studies instead of (like the current ones) disconfirmed by those studies, then I shall be pleased to email to him the .pdf of it for his review. He may see the book’s description at http://www.worldeconomicsassociation.org/downloads/feudalism-fascism-libertarianism-and-economics/ and then at cettel [at] shoreham.net he may contact me. Please pass this message along to him, for him to consider. Sincerely, Eric Zuesse

  2. person1597 says:

    Models… loose morals… they fit. (Hi Synoia!)

    Let’s figure all this out for good… and start by modeling astrophysical plasmas — at least they follow the laws of physics. Plus, they’re completely non-linear. Best of both worlds!

    Wouldn’t it be a hoot if it turned out that organic life was just a mini plasma-pancake, self-organized and chaotic, but able to accept, store, and utilize just enough energy to replicate. Fast forward to now, with society as a self-organized dark plasma… neutral on the outside, ionized within… Oh. politics!

    What people do — eat, work, travel — all takes energy which has to come from somewhere. How it’s acquired, stored and distributed is the economy. Without energy, there is no economy.

    Necessities are simple, providentially available in egalitarian modes and sustainable as long as the soil is befriended and replenished. What’s wrong with the classic agrarian model, time tested at the local level? Though it is good for butter, it isn’t the rationale or motive for guns. What was once a dark, albeit vibrant, petri dish experiment abundant in organics, now glows, radiating, but not fading away because the half life is several billion years.

    More energy, more distribution, more activity… and more chaos. Is this evidence for a thermodynamic principle as both creator and destroyer?

    No causality without entropy. No determinism without chaos. No energy without polarity. Wow, we could be a side effect of some pretty incredible cosmic coincidences implicating energy exchanges far beyond our capacity to replicate. Just getting Earth spun up and habitable might have taken about 10E56 Joules. Then, once cooled, it needed protection — shelter — like a magnetic field and an atmosphere. Where did all that come from? Amazon? NIbiru? Well, a little causal entropy might have helped. Just ask Mars what happened. Elon is right. Mars is a fixer-upper. Strange though it may seem, could we be the beneficiaries of an astonishing catastrophe visited upon our solar system in the distant past — where an extraordinary arc plasma reshaped the solar system and left little bits of itself to grow and renew the spread of energy onward and beyond the limits of the imagination.

    The future is not in plastics, it’s in electrodynamics. It’s all about the electrons — just ask any nucleus of any element. Got electrons?

    And money is not force. It’s fudge — like what happens when an observer makes a measurement — it fudges the system. Our system is really fudged up because of all those voyeristic loan officers — without whom there would be no Gaussian copulas to gouge the customers in covering the cost of the hedges… and then some.

    Look, behavior is a continuity equation. Everyone has their internal, physical universe right inside. That’s a miracle brothers and sisters. And we’re all entangled because why?

    Because Electrons.

    Because Impulse Response.

    Because everything is resonant Causa Sui.

    Just sayn…

  3. Denis says:

    ‘scuse me, and with all due respect, but I believe you do not have a good handle on Kuhn’s work or on the concepts of paradigm and paradigm shift, at least in science.

    First, what your bother was doing, however brilliant, was not an example of a paradigm or paradigm shift, from the way you explain it. Intracellular recordings in situ in rat, mice, pig and people brains were being done on a regular basis long before I entered the neurosciences in the 1970’s. Huxley was perfecting the technique in squid neurons in the early 1960’s. That’s not to say that many brilliant and important improvements weren’t made in the basic intracellular recording techniques, but improving a technique is not tantamount to shifting a paradigm.

    Second, the endo-cannabanoid discovery you note was also not a paradigm shift. There are a couple of reasons for saying this. The discovery of THC receptors (as opposed to the endogenous compound) was a paradigm shift because until then it was generally accepted that there were no such receptors — THC was thought to be too “greasy” to work via receptors.

    But once the receptors were actually discovered, it was assumed that an endogenous agent must exist. That type of thinking was a paradigm shift but it predates the THC work by many years. Back when people first discovered opiate receptors, some very bright people realized that must mean there were endogenous opioids. That was the shift. After that it was just monkey-see monkey-do to look for endogenous agonists every time a new receptor for an exogenous agent was found.

    A paradigm shift in economics? How about this one: Marxism. Or, if someone could develop a zero-growth economic theory based on capital investment and return — something the west badly needs before it destroys itself by the pillage and waste of traditional capitalism.

    These are the sorts of big ideas that paradigms are built on, not existing techniques or existing modes of thinking applied to new problems.

    • Ed Walker says:

      Please reread the post. I quite clearly state that my brother’s work was normal science. I certainly did not claim he was a shifter of paradigms, nor did he uncover any significant anomalies. He simply went to the lab every day and tried to solve a giant puzzle, while training generations of new scientists and technicians.

  4. Alan says:

    I don’t think we should understate the conservatism of science, as articulated by Kuhn. Communities of scientists extend exemplars to make sense of the world. When they encounter anomalies it is not as if they roll over and say lets try something completely different because what we are doing isn’t working.  Like most communities they are deeply resistant to change of that sort. A lot of very fundamental changes happen in science because there is an over production of scientific labor and people from one discipline take on the problematics of other disciplines i.e. apply new techniques to another discipline’s problems and end up creating new or refashioning old disciplinary communities.  Think of the rise of molecular biology. Look at the origins and you’ll find it’s discipline created by chemists, physicists, mathematicians, cyberneticists, etc. It didn’t grow organically, as it were, out of biology and the sort of things biologists were doing on problems of inheritance etc. in the first half of the 20th C.
    *
    I also think the notion of paradigm is problematic as it is used in a number of different ways by Kuhn in The Structure of Scientific Revolutions. The notion of paradigm that is more useful is covered by another concept he uses, exemplar. An exemplar is a concrete problem solution. It’s a bundle of linguistic practices and skills possessed by a community of practitioners that are taught, developed and extended.

  5. Alan says:

    There is an interesting discussion of Kuhn and Foucault in the Dreyfus and Rabinow book on Foucault. See especially chapters 7 and 9.
    *
    They point out that there are interesting parallels and differences between normal science and notions of normalization. In normal science the goal is to assimilate anomalies. In the abnormal sciences, the sciences of deviance etc., the anomalies proliferate and that’s how knowledge/power gets a purchase on human life and extends itself. If you look at Foucault’s account of prisons, madness, sexuality, etc., problems arise that are addressed by ‘reform’ movements but the changes aren’t neutral and the ‘reforms’ spawn new problematics, new objects of analysis, and yet more ‘reforms’ (i.e. new forms of knowledge and techniques) and so on, that create more efficient and sophisticated systems of control. As he says somewhere power moves along and expands through lines of resistance.
    *
    Another difference is that the natural science disciplines  and the disciplines of the human science both depend on communities of practice but the natural sciences can legitimately bracket the social practices on which they depend. In the human sciences this is not desirable as the very practices that make the human sciences possible are internal to the object of study. Truth is never external to power. So the geneologist isn’t aiming to uncover the truth, to speak in the prophetic voice. The goal is really much more modest: to expose the piecemeal nature of things, to resist totalization without being co-opted into a new types of totalization (as one might argue happened to the critiques of Smith, Marx, etc.). It’s a never-ending critique and subversion of the dominant paradigm. It’s forever finding cracks and prying them open.
    *

    …if the genealogist listens to history, he finds that there is “something altogether different” behind things: not a timeless and essential secret, but the secret that they have no essence or that the essence was fabricated in a piecemeal fashion from alien forms. Examining the history of reason he learns that it was born in an altogether “reasonable” fashion–from chance; devotion to truth and the precision of scientific methods arose from the passion of scholars, their reciprocal hatred, their fanatical and unending discussions, and their spirit of competition–the personal conflicts that slowly formed the weapons of reason. Further, genealogical analysis shows that the concept of liberty is an “invention of the ruling classes” and not fundamental to man’s nature or at the root of his attachment to being and truth. What is found at the historical beginning of things is not the inviolable identity of their origin; it is the dissension of other things. It is disparity. (Foucault: Nietzsche, Genealogy, History)

    *
    Neoclassical economics fashions itself as a science akin to physics and, unlike practically every other social science, drops disciplinary history from its curriculum. This helps make neoliberalism, the extension of neoclassical notions of ‘the market’ to everything, possible. Enter a modern economics department and it is very unlikely that you’ll be required to read Smith, Marx, Ricardo, Mill, etc. or even quality histories of the discipline. What you will almost certainly get is a little textbook mythology about the grand history of the discipline. If you actually read these works or what authors in other disciplines (history, anthropology, philosophy, etc.) write about the history of economic liberalism, what you get is a history of political contingencies, discontinuities, ruptures, reversals, co-options, contradictions and violence (For Foucault’s account see The Birth of Biopolitics). It’s not some grand march of progress from Smith onwards.

  6. Rich says:

    Jesu cristo, economists are not immune to the authoritarian mindset. They are no more immune to the lure of money/currency in its lubricating effect on their objectivity, science, and rational behavior. To engage in a discussion of this topic as some sort of profound mystery reduces intellectuaization and rationalization down to rather ordinary if not primitive psychological coping mechanisms

  7. Alan says:

    Economics isn’t normal science. Neoclassical economics is an approach that has come to dominate in government, economics departments, etc. but in other disciplines, such as cultural anthropology, it’s not a broadly accepted explanatory approach to economic phenomena.

  8. earlofhuntingdon says:

    Yes, Viridiana, this description of “normal science” as the day to day practice of scientists comes from an avid student of Mirowski. :-)

    More seriously, economics isn’t science in the manner of physics or chemistry; it is social science in the manner of politics, from which it is also inseparable. It is less about immutable laws or physical relationships than about preferences and the politics of resource allocation.

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