By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil. Cross posted from Fixing the Economists
One peculiar aspect of modern marginalist economics is its obsession with equilibrium. I was recently re-listening to an excellent lecture given by Joan Robinson in Stanford in 1974 entitled ‘What is Wrong With Neoclassical Economics?‘. The entire lecture is about the inability of marginalist economics, which is obsessed with equilibrium positions, to deal with historical time. I would add to this that even a dynamical economics that used differential equations would also be unable to incorporate historical time — the simple fact is that mathematics cannot be used to do history and economics done correctly and with any relevance to the real world is basically an applied historical methodology.
Now, what really struck me was the Q&A section at the end of the lecture. The sheer amount of hostility — outrage even — directed at what Robinson had just said was astonishing. Her complaints seemed to strike a chord with a lot of the economists in the room. “But you can’t fault the logical consistency of the models!” said one, with an obvious tone of distress in his voice (around the 21 minute mark of the second half of the lecture).
It was the question of another that really hit home for me though. “How is it possible,” he asks around 22.30 minute mark in the second half of the lecture, “that a decentralised system in which individual decision-makers communicate only through the market and only through price signals, how might it be possible for such a system to produce a coherent result?”
What a strange question, I thought to myself. Robinson just spent over an hour telling them that such an approach — an approach that sought an equilibrium result in material that was historical by nature — was completely inadequate to the material that economics deals with. Also from what Robinson had just said surely the person asking this question would understand that she was saying that such a framework — where “individual decision-makers communicate only through the market and only through price signals” — is a completely inadequate way to understand an historical process like the actual formation of exchange relationships at any given moment in time.
No one in the audience could really refute what Robinson was saying either — or at least no one tried. (This is something I often encounter when criticising marginalist methodology, by the way; supporters don’t really engage; they either accept what you’re saying and then pretend you never said it or they babble incoherently about how there is no alternative framework). So, what thought process could lead someone to simply ignore what she had said and continue to pose the naive question of equilibrium? And then it struck me: the question that the interlocutor was asking was not logically based, rather it was emotionally based.
You see, the notion of equilibrium — of a “coherent result”, of an answer, a solution, a True State of the Universe — is a well-recognised mythic construct among anthropologists and social historians. They have noted how, in many different contexts, human beings try to form narratives about the universe with which to guide their lives which give them such results. To take one of the most interesting examples consider the following quote from Roy Porter’s fantastic history of medicine The Greatest Benefit to Mankind: A Medical History of Humanity from Antiquity to Present,
In traditional medicine, as I have said, health is a state of precarious balance — being threatened, toppled and restored — between the body, the universe and society. More important than curing is the aim of preventing imbalance from occurring in the first place. Equilibrium is to be achieved by avoiding excess and pursuing moderation. Prevention lies in living in accord with nature, in harmony with the seasons and elements and the supernatural powers that haunt the landscape: purge the body in spring to clean it of its corrupt humors, in summer avoid activities or foods that are too heating. (p39)
One also finds slightly more advanced articulations of such concepts in early Hippocratic medicine as well as in elite medieval medicine. But, as Porter notes, the same concepts could be found in extremely primitive folk medicine — among tribes-people and in early villages. Thus we can only conclude that such ideas arise from some deep, unconscious strata of the human mind.
What significance does this idea of equilibrium have? Why is it a concept which we so readily wish to apply to those things that we identify with — whether the human body or society at large? It seems to me that it provides a sort of emotional comfort. Robinson’s interlocutor wanted a “solution”. He was clearly disorientated by the chaos of the economic world as he saw it and wanted a solution on a blackboard that would bring order to this chaos. Nothing could be more of an affront to how he conceived the world than to be told that his methodology could not even begin grasp the material he was trying to digest.
Equilibrium in economics, as in folk medicine, is a fantasy construction — and a rather primitive one at that. It is the mark of a mind that cannot process anything complex and relatively disordered. But if the Q&A section of Robinson’s lecture shows anything it is that the vast majority of the time people with the temperament needed to become mathematical marginalist economists actually do not have the capacity to do real economic work. That is a very sad state of affairs. But it also puts us in that strange position where we must recognise that the very form that economics took after World War II is leading the discipline to interminable ruin.
“Thus we can only conclude that such ideas arise from some deep, unconscious strata of the human mind.”
Why must this be deemed “emotional”? The qualities you ascribe to or associate with “equilibrium” are often held as related to beauty/aesthetics or order, or peace, or other ideas/ideals. Why, being unconscious, would that make them of necessity false? Why not, rather, clues to something we sense and we believe we in some way know, just like any other sort of “insight”? Tagging this fellow with “emotional” could be accurate, or not. But to suggest it as a mechanism to account for any continued adherence to an opposing viewpoint by someone who has received the privileged “truth” of another is not good math, psychology or history. Especially the history of ideas, wherein so many sides to so many questions have so often held so strongly to their POV.
Simples – observer bias magnified by belief – belief being the anchor point to an individuals *perception of reality.
skippy… I hear JPM is selling some recycled *POR CDOs, interested?
I’m not really sure that I follow what you’re saying. The argument above runs as such:
1) Economic systems are irreducibly complex, as is history.
2) Marginalists avoid this by assuming a harmony dubbed equilibrium which is a fantasy construction.
3) I compare this to the fantasy construction in traditional medicine wherein health is viewed as a harmony between the body, the stars and nature.
Why is this bad history of thought?
“Why is this bad history of thought?”
Why drag folk medicine into it? A shaman with a bone through his nose is worth more than a boardroom full of economists.
Philip: (Sorry if this is posted twice.)
Taking your 3 points.
“1) Economic systems are irreducibly complex, as is history.” – I agree
“2) Marginalists avoid this by assuming a harmony dubbed equilibrium which is a fantasy construction.” – I also agree
“3) I compare this to the fantasy construction in traditional medicine wherein health is viewed as a harmony between the body, the stars and nature.”
– Leaving the stars out; what Fiver is saying, and I agree, is that one must not “only conclude that such ideas arise from some deep, unconscious strata of the human mind”, but can also conclude that such ideas arise from human observation and hypothesizing, over our 2-6 million year history, about the relationship between the health of the body and how we interact with nature. (It is a fallacy to believe that only modern humans have “scientific” powers of observation and hypothesizing, but that ancient humans did not.) Since the body is emergent upon chemistry and physics, there are substances in nature which we can ingest and activities we can engage in which will increase or decrease our health. The ingestion of and engagement in can quite ‘unemotionally’ be interpreted as being in/out of harmony with nature. The theorized mechanism of “harmony” may be “fantastic” (supernatural powers and humors and all that), but the empirical basis for this need not be. In fact, folk medicines around the world are not identical, as I would expect them to be if they “arise from some deep, unconscious strata of the human mind.” Instead, they are ecologically situational; ex. the idea that one should “in summer avoid activities or foods that are too heating”, only arises as a prescription in geography where summer is hot.
As I see, it the problem arises when we bring our “insights” (equilibrium) into natural phenomena (the chemistry and physics of the body’s health) to our explanations of social phenomena (the physics of economy’s health). It is this tendency to naturalize the social, while reductively ignoring its emergent complexity, that can be deemed “emotional” – “[arising] from some deep, unconscious strata of the human mind”. It provides a “short-cut” method of explanation that calms our feelings of discomfort at being “uncertain”. John Dewey called this “the quest for certainty”.
“Tiger got to hunt, bird got to fly;
Man got to sit and wonder ‘why, why, why?’
Tiger got to sleep, bird got to land;
Man got to tell himself he understand.”
― Kurt Vonnegut, Cat’s Cradle
Phillip – here is another example of the kind of daft logic neoliberal economists use to support their system. Some quick comments.
1. This paper is best understood after watching Monty Pythons and the Holy Grail – witch weighing the same as a duck scene.
2. Probably reflecting Sassywood and the economic situation in Liberia where neoliberalism presumably is dominant their department of education last year flunked the entire university entrance candidate list.
3. I did wonder if it was a spoof but it doesn’t appear so.
Leeson, Peter T., and Coyne, Christopher J.—Sassywood This paper analyzes trial by poison ingestion, or ‘‘sassywood,’’ as an institution of criminal justice in contemporary Liberia. We argue that effective criminal justice institutions must satisfy three conditions: they must be accessible to citizens, incentivize judicial administrators to pursue justice instead of private ends, and generate useful information about accused criminals’ guilt or innocence. Liberia’s formal criminal justice institutions fail to satisfy these conditions. Sassywood does a better job of fulfilling them. Sassywood is more accessible than Liberia’s formal criminal justice institutions. It provides judicial administrators
stronger incentives to pursue justice. And, unexpectedly, it is capable of generating
useful information about criminal defendants’ guilt or innocence where Liberia’s formal
criminal justice institutions didn’t. The theory this paper provides offers a plausible explanation of why sassywood is a sensible institutional substitute for formal Liberian criminal justice. Journal of Comparative Economics 40 (4) (2012) 608–620. George Mason University,
Here’s the way I look at it: Every economist giving an explanation of anything employs a model (or some models). Some models are informal and some are formal. Mathematical formalizations or regimentations of informal models are useful for bringing forward tacit or hidden assumptions in those models, assumptions that can then be subjected to critical empirical or theoretical examination.
Some processes remain relatively stable through time and others are unstable. Mathematical models of systems in equilibrium are useful for providing models that offer potential explanations of processes that remain stable through time. Similarly, mathematical models of systems that diverge from equilibrium states in various ways (whether cyclically, chaotically or randomly) are useful for providing models that offer potential explanations of processes that exhibit instability over time – including financial instability, employment instability, income instability, etc. The empirical assumptions employed in building the models can then be critically examined against real world data and real-world institutional constraints.
Dynamic systems theory is a branch of mathematics. Understanding chaotic systems require mathematics. Understanding the distinction between ergodic and non-ergodic systems – and the different degrees of ergodicity – requires mathematics. Understanding complex systems requires mathematics. Understanding path-dependency in more than a crude way is assisted by mathematics.
Steve Keen’s Minsky models of financial systems and financial instability are mathematical models. There are Marxian models of capital accumulation, exploitation and capitalist crisis that have also been developed in mathematical form. There are also important branches of game theory that have been used to study forms of cooperation and sociality, and to study varieties of deviation from perfect rationality, and also failures of the efficient markets hypothesis. We need to avoid falling into the assumption that mathematical techniques are only useful for general equilibrium analysis – or for studying “neoclassical” models of an economy, or models employing marginalist assumptions.
Progressives should look at mathematical techniques, historical studies and institutional studies as complementary and mutually assisting methods of developing a sounder grasp of a complex social world.
I cannot point out often enough how false your first sentence is. I just finished debating a DSGE guy on that very mainstream and misleading view…
The issue isn’t whether we all walk around with models of the economy “in our heads”, but whether an economists is always relying on a model whenever they offer an explanation of something. For instance, an explanation of some economic phenomenon that relies on irreducible uncertainty and the prevalence of “animal spirits” or irrational exuberance or the presence of ponzi financial structures is itself a model of that phenomenon.
No its not. They’re just concepts. Saying that they’re components of a ‘model’ is like saying that Kant’s ‘ding an such’ is part of his ‘model’. That’s just nonsense. It’s a concept in a conceptual schema. Same with the concepts you just mentioned.
And that should have read ‘ding an sich’… stupid autocorrect.
Stupid AI :)
Concepts in themselves don’t offer explanations. Concepts are only a part of the apparatus for building explanations. The explanations always seek to identify different parts of the economy and make claims about how they causally interact with one another. Also the very intelligibility of some concepts themselves might depend on simplifying empirical assumptions.
For example, the notion that there is such an economic phenomenon as the “aggregate demand schedule” is a piece of theory that simplifies and abstracts from complex underlying phenomena. The same is true of the “schedule of return on investment.” Making further claims about how changes in the aggregate demand schedule are related to changes in the schedule of expected return on investment, the price level and the rate of employment requires a model.
Another way of putting it is that since the real world economic world is so complex, as you say, then there is no way of offering explanations, predictions and policy prescriptions for it without relying on a model.
That’s funny. Because I do lots of applied work and I never use models. Indeed the applied work I did using models was such obvious nonsense that I refused to put my name on it.
I recall when I went for an interview with a macro hedge fund and asked if they used models the guy just laughed at me and asked did I think that’s how this stuff works.
But if you think that economics requires models that’s your business. I’m not going to start using them. Nor are many applied economists.
Do you think Keynes employs a model of the macr-economy in the General Theory.
No. It was a conceptual schema. He criticises modelling throughout the book and advises the reader to skip over the Z-N model in chapter 20 as he saw it as inconsequential.
Then you are using the term “model” in a very restrictive way. Here’s the Wikipedia definition, which I think is fairly standard:
a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified framework designed to illustrate complex processes, often but not always using mathematical techniques.
I don’t think Keynes saw the modeling in Section I of Chapter 20 as inconsequential. What he was saying is that some of the consequences of the causal relationships that were expressed algebraically in the first section of the Chapter were expressed less formally, and in non-mathematical English, so the reader who omitted the first section wouldn’t lose much.
But more importantly, they entire “general theory” developed in the book is a model of the economy.
That definition looks fine to me. Look, believe what you want Dan. I’m not going to get into silly degenerative semmantic debates. Go build a model and apply it. See how I goes.
How do macro hedge fund guys operate? Do they all have their own personal “conceptual schema” of the world/market, and they try to anticipate what it’s about to do next? And then re-adjust their schema according to what actually happens?
Saying that they’re components of a ‘model’ is like saying that Kant’s ‘ding an sich’ is part of his ‘model’. Well, that’s one way of looking at what the later German Idealists following Kant said. They saw his ding-an-sich, which Kant wanted to be somehow outside of his “model”,
as inside it, and just another word for the very basic concept “nothing”.
Absolute idealism, such as Hegel’s system, his attempt to do away with the ding-an-sich, is finally, as Kierkegaard said, comical. If it were merely a thought experiment, it would be sublime; as an assertion of reality, it is comical.
Human reason is finite. Conceptualization is i) simplification, and ii) partially falsification. This is why the attempt to do away with with the ding-an-sich is hubristic, and ultimately ridiculous, as SK said. The post-modernists, mostly notably the later Wittgenstein, but also his epigones like Derrida, ‘absolutely’ agree with this intuition.
In other words: Kant was right about the ding-an-sich. The universe is larger and more complicated than our models or concepts of it.
*end unsolicited philosophical disquisition*
Well, I’m on the other end of the comedy act – & think Fichte, Schelling, Hegel, Marx; Lenin & Marcuse to add somewhat more recent dudes, were right. The ding-an-sich is the joke, all it means is “nothing”.
When people say things like “Human reason is finite. Conceptualization is i) simplification, and ii) partially falsification” they always have an unspoken idea of infinite & reason and something more complex, real and true outside human reason, that they are uhh, reasoning about. To me, a comical thought, that just forgets what philosophy is about – speaking these unspokens, so simple that they repel the mind.
The universe is larger and more complicated than our models or concepts of it. It’s also smaller and simpler. It’s always the simplest ideas that are the hardest to understand. Guys like Fichte and Hegel never claimed they were the last word. Hegel incessantly said that his philosophy just tried to understand what was known at the time. But they did & we do KNOW, absolutely know, something. It’s not all a pile of random sweepings with everything true and real in the dings-an-sich.
Thanks for the comment.
Oh, I didn’t mean to imply at all that we don’t know *anything*; only that we don’t know, and can’t know, the phenomenal world *absolutely*, which is, to my mind, what the “an-sich” means.
BTW, IMO, the universe need not be infinite in order for our finite knowing not to be able to comprehend it absolutely; just very much larger (and smaller), and more complicated (and simpler — as you say). I have never found an epistemological way around Wittgenstein, and his extremely lucid American epigone, Rorty — who was, to my knowledge, no believer in infinites. Of course, that doesn’t mean that such a way does not exist.
Well, to quote Hegel: ” “Absolute truth”? As if there were any other kind!” He would say our knowing isn’t finite (at least once you have read his books. :-) )
If one means by ding an sich that we don’t know as much today as we will tomorrow (as long as we remember not to forget what we have learned), I agree, but I don’t think that is what people usually have in mind.
Haven’t been attracted to Wittgenstein, read a bit of Rorty, and think he was a sad case, he certainly had a good mind, but was seduced by bad, ultimately just lazy, beliefs about the impossibility of knowledge and the like. The later German Idealists were more skeptical than Kant (and almost all subsequent philosophy), not less. See Michael Foster’s Hegel and Skepticism
As a math guy, I can’t help but do a From Mexico here for one of my favorite quotes, by Gian-Carlo Rota Discrete Thoughts:
To end with an encomium of Kant — I can only say, hear hear!
Models in science are generally applied theory, at least, useful models are. Marginalism is clearly a bad hypothesis. Using the word model elides the distinction between theory and hypothesis. Every marginalist will call it a theory or model to imply correspondence with reality. We don’t hear of marginalists admitting to the ‘marginalist hypothesis‘; no one would take them seriously if they did.
As such, there a large element of fraud in marginalism. For most of them it may be the same kind of fraud as religious believers inflict on themselves. When you tell them you believe god is a myth, the believers will not hear what you said. At the centre of marginalism is their ‘theory of value’ which explains why the LTV is wrong. The marginalist hypothesis is a retrospectively constructed system created to disprove the LTV.
don’t youze guys get it yet? the models don’t describe the reality, they create the reality. think about it long enough and you’ll see it’s true.
there’s a lot of good wisdom in folk medicine! I wouldn’t dismiss all of it as a fantasy.
I agree. They distort peoples’ ability to reason correctly.
Yeah, I mean — what if Adam Smith had never put forward his concepts, or popularized the Invisible Hand, and the idea that individual selfishness could benefit society… And if the whole edifice built on Smith never happened. People would just be bumbling around in the “economy” with their own folk / common sense notions of how to behave. And political/economic leaders would just have to wing it, without reference to grand Keynsian theories, or Milton Friedman or anybody. Just sort of work it out on their own. Without any comforting fables to guide them.
“Folk medicine” was a poor choice of words. Religion or witchcraft was probably preferable as they tend to blame believers or non-believers for a lack of faith or god teaching a lesson. Folk medicine produces results even if the process isn’t understood including the placebo effect.
Quite right on ‘both’ counts, craazyman. Our folk theories like “physics” “witchcraft” “philosophy” “folk medicine” “MMT” “mathematics” constitute, rather than distort our small ability to reason.
TimR: Keynes and MMT note that “folk economics” is often (usually?) better than the beliefs of those who have had their “head[s] fuddled with nonsense for years and years”. That “what seems sensible is sensible, and what seems nonsense is nonsense.” But media in our Western, Educated, Industrialized, Rich, “Democratic” societies. have succeeded in fuddling millions, billions with the same old nonsense, far their reach in beyond Keynes’s day.
Well, I’d be fine with village/ folk wisdom for the most part (a few exceptions); but the “folk” I know vehemently disagree with MMT…
Great comments, and I’m excited to get a chance to listen to Robinson!
I wonder too if the idea of equilibrium also encodes a desire for justice. Equilibrium is a balancing of forces according to some universal condition, which we often call a “law” because it is understood to be unchanging, i.e., eternal. Since the only eternal entity we think of is God, then, we often find even scientists and mathematicians finding the divine in their work even though they may reject the idea of God’s existence entirely. The idea of economic equilibrium then is an expression of a desire for a just distribution of wealth, using the language of Newtonian physics to avoid theism.
One place where models are very valuable is in the market failure literature. If you can show how markets fail to generate optimal outcomes even in very simplified models of an economy, then the claim that the outcomes will continue to fall short of optimal as you scale up becomes very plausible. For example, once a person grasps the basic nature of a two-person prisoner’s dilemma, it is easy for them to understand how you can have a situation in which each member of a group can perform an action that is individually maximizing, but where the resultant outcome for the group does not maximize the group outcome.
What is called “folk medicine” is alive and well in Asia in systems like acupuncture that balance meridians in the body. Western allopathic medicine now depends on the highly profitable drug business and also profitable surgeries. When founded the AMA attacked homeopathy and got rid of it for the most part in the US while it remains the most widely-used, economic and often effective part of medicine in other parts of the world. So goes our economy it seems from this article. A recent 60 Minutes show featured a Chinese investor who bought the renewable energy companies like Solyndra that failed party because the Chinese government put money into solar making it fail in the US. According to the fossil fuels angle on 60 Minutes the Chinese are fools. The investor who got massive amounts of US tax-payer research and learning very cheap smiled and said he was planning “long-term”. Another Western failure.
I think Pilkington should have used “witchcraft” or “voodoo” not “folk medicine” because “folk medicine” works. There may not be a scientific understanding of the process and some might be wasted or applied in a half-assed way (aspirin historically would be an example; I think classical Ethiopians had developed a penicillin like treatment which they used for 400 years; the process wasn’t written down or perfectly understood). American-neo-liberal economists are clearly a 21st century priest-class as opposed to a rabbinical class (before anyone gets out of sorts, most parish priests fall into the latter category), and as you point out, the practitioners of folk medicine do produce quality results. When they fail, they try something else. They don’t blame a lack of faith or ritual performance.
I’ve been reading this thread, getting ever more disgusted with the rank bigotry.
If you want a bogey man, you can use your sister or your mother. If you can’t genuinely make one or the other into a bogey, then you don’t have a bogey. You do not need to make these comparisons.
Political cartoonists in the 19th cent. lampooned both homeopathy and allopathy. With the former, they said, it was such a mild treatment (dietary changes, herbal supplements, behavioral changes) that the disease would kill you. While, in the latter, the treatment is so aggressive (toxic drugs, drastic surgeries) that the cure would kill you.
Modern medicine seems to have a kind of blunt force, ultra-aggressive mentality. Crush that disease! Maybe it’s a kind of expression of some subconscious hostility of the doctors and nurses toward their patients? There is an “invader” in the body, and they will root it out, regardless of the side-effects.
Homeopathy seems more gentle and motherly — restore health, let the body recover and rid itself of the ailment naturally. Nurture and nourish the body and soul. Avoid suspect foods, take beneficial herbal remedies.
Maybe the ideal would be a synthesis that recognizes when one or the other is called for (and, probably, is much more critical of the over-stepping assumptions of the allopathic school. I.e., their antibiotics are a potent if risky tool, but their drug regimes that never “cure” the patient, and create new symptoms, are suspect.)
Many allopathic practitioners are very skilled and even trained in other health modalities they use for their families, but can not integrate at work. It will happen with time and as “modern medicine” moves away from protocols and profits toward health care that is best for the patient.
Modern medicine, like our two political parties, is mandated by law. State law, as it happens. If you want a wider range of choices, you can change the laws, or you can find a preacher who will claim the Christian Science exemption.
In Comfort to the Sick, written in 1912 by Brother Aloysius, there are not one, not two, not three or four, but twenty-two cures for cancer. The majority of them involving poultices, plasters, salves or ointments. These were made expressly illegal in the years after the Flexner Report of 1910, which prohibited non-scientific medicine on its face, without actual examination.
For treatment, Wiki’s page on Cancer gives -nothing- as the first method, surgery as the second, and chemotherapy for the third. Wiki notes that half of all cancer patients die either from the disease, or the treatment itself. Which says nothing about how the other half fared, only that they lived. If this is acceptable medicine to you, then keep the laws as they are. Cancer and various other “incurables” were commonly cured up to a century ago. There are many explicit texts, not just one or two. Scientific medicine had tried for 40 years prior to 1910 to impress patients but had failed. It was therefore imposed by law. It’s history, but you have to look very hard to find it.
Dave- You mentioned a mail order business, is it related to your interest in medicine? Would you mind plugging it so I can check it out, or suggest how I can find it in a search?
I think of the mathmatically minded, model wielding economists as enablers/useful idiots who provide justification for their neoliberal master’s looting and wealth redistribution.
Maybe I’m being too harsh, but I used to audit large financial sector clients back when my employer was one of the then Big Eight, and I know I would have a hard time keeping a clean conscience while being part of the control fraud that allows the banks to keep their manipulations unreported.
These days we see PricewaterhouseCoopers getting a pass for failing to detect the London Whale manipulations, not even having to testify before the senate subcommittee, while not long ago Arthur Andersen was destroyed for its role in Enron.
Here is a link to Grumpy Old Accountants post detailing the lack of transparency in large bank reporting:
So, worrying about climate equilibrium is not only incompetent but also an attavistic emotional obsession?
Hint: “But you can’t fault the logical consistency of the models!” is 100% true, but it is not what he was expressing.