Discussion 5: Models and Laws

Discussion 5: Models and Laws


(regal orchestral music) – But I’ve got one one quick quotation from
a very interesting book. By the columnist. She’s Elizabeth Durbin. And she writes, “The focus on particular problems “the choice between
different economic means, “and even the use of one economic
model rather than another, “may also be affected by the
values of the economic adviser “and by the policy process itself.” So, she’s really saying,
and I agree with this, that they’re not value free. The idea of a value free science is is, is simply invalid. There’s always, and when you when you talk about models or them not being value free, you are what set of values are you referring to? That contaminate them, so to speak. Well, ideology is probably the generic name for a a non free, non value free exercise. You say it’s ideological. You want to contrast it with something that is scientific almost that we can all accept. Because ideology is a view from somewhere. Whereas what we aim for in
science is a view from nowhere. And we we don’t get that, I think, ever, in in economics. – There is a (clears throat) a book by a famous Italian economist, who is called, who was
called Paolo Sylos Labini. He wrote this book about that was Italian social class. – Social classes. – Social classes. And it’s a really good essay, but I am the preface, or the
introduction, I don’t remember, it’s really impressive. Because it’s basically a short, 3-D on I would say epistemology. So he’s listing different disciplines. So he’s saying biologies looks at you know, the animal world, and looks at the animal
world from the outside. so it’s not involved in the process of (clicks tongue) analysis and so on. Therefore, this is my I’m going to reveal you my point of view. My own ideology. I’m a university professor,
I’m a progressive progressive from a
political point of view. I have a progressive point of view. Social, I’m a social reformist, therefore my theoretical
analysis is conditioned by my point of view. – Right. – So that you while you read my essay, you
should take this into account. So I’m, in a way I’m being honest by by telling you this.
– Okay. – I mean, one one might not agree with this standpoint, but I find it interesting, too. – In other words, put your put your biases and prejudice up front. Write your textbook, and say, “Look, I’m a member of
the communist party, or, “I’m a member of the fascist party, “and my textbook will reflect “my particular “bias, “and you have to read everything I say, “all my equations, and everything else, “take them with a huge pinch of salt, “because they “they symbolize things that
only I regard as important.” Or something like that.
(inhales) I mean, yes or no? – Well, I don’t think he he went to that extreme
point of relativism. It’s just a way of saying that although you might, and you must be rigorous
in your economic analysis, but the thing that you say
about selecting (mumbles) that’s that’s where, you know,
or selecting assumptions, that’s where I your ideological, your vision of the
world, comes in to play. – Comes in, yeah. And, of course, even in it can come in your econometric testing. What is what are the relevant things. I could give you my bias straightaway. It’s not a particularly political bias, but it’s, it’s a bias that comes from my first degree being in history. And so I my bias is to see economic doctrines as contextual and not as universal. And my historical knowledge leads me to see that different periods produce
different types of economics. I’m, then, always fascinated by the way in which certain ideas
persist over all the epochs. Or certain, both ideas
and less techniques, but the certain ideas, you
know, have persistence. They don’t change. There are things that change, there are bits of economic
that are historically variable. And there seem to be bits of economics that are historically invariable. And I’m really interested in
the relation between those two. But that’s my particular bias. And that makes me more
interested than usual, perhaps, in the methodology and
the history of ideas. So, do you have any biases? Are you all do you come to a subject with the biases you recognize? – I come from a much
more social background. Because I, you know, I started off doing international relations
in my undergraduate degree, focusing on political science
and a little bit of sociology. And so I’ve kind of always
been an enemy, if you will, of econometrics and mathematical modeling. Because I feel like it’s, as you’ve pointed out over
the course of this lecture, really eliminated a lot of elements that I think have a major role in the way economies function. But I think what that, this whole, all gets at is the lack of real teaching about
methodology, and epistemology, and ontology, and the fundamentals of the way we think and kind
of the theory of knowledge, and you know, I don’t think
there’s one right, correct, methodology or epistemology, but I do think that it’s
important to be familiar with all of them, and understand when
they’re being deployed, because that can change so much of what you’re engaging with. And I don’t think that’s
something that’s really taught to economists. And I think that’s a failing. I mean, in my degree, I’m
doing a research degree, and we have two separate
courses on methodology alone. And it’s been very illuminating. Because we talk about economics, and we also talk about
the various other fields that relate to international development, and having that strong grounding now, I bring it back to economics when I’m trying to bring other elements into my economic analysis,
and I think that makes it stronger and it also makes it easier
for people to understand. I mean, a bit about my biases, and then to be able to evaluate
from there, how they feel. And I think that’s impartiality in economics, I
don’t think is ever feasible. That’s, I guess, one
of my other biases. So. – Yeah, but can you you know, the historian is often I told, “Look, you’re never going
to get a value free account “of the origins of the first World War.” Let’s say. But, there is the correct and incorrect use of evidence. They will try and set up a model
rather like, in a way, an ideal court of law. In which you examine all the evidence and you come to a verdict of some kind. And it’s never going
to be unchallengeable. But it’s what you ought to try to do. And therefore it is bad technique to ignore evidence that most people might think
you should consider relevant to the topic. It’s bad technique to falsify evidence. And so so there is something, isn’t there, in the idea of striving for something being value free, even though you know it’s not going to be. – I think maybe one of the key aims of economists who make these models, should be to be transparent
about what those values are. For example, you might you can have a socialist
model of the economy, a more neoclassical model of the economy. And because they don’t get
down to the underlying values that are determining what
kind of model they choose, then the discussion and
disagreement is between them, and quite superficial and shallow. And I think they’d be
much more informative if as well as, perhaps, aiming
to reduce their values and their choice models, they’re also aiming to
be completely transparent about the values that are determining the kind of assumptions
they’re making in their models. – But I don’t they try to be? – It doesn’t even necessarily
need to be, you know, “Well, I am a critical realist, “and that’s why I’m looking
at this macro-economic issue in this way,” before every single paper. It could just be a peer
discussion of these very philosophical issues. In general, ongoing. And economic just tries I feel like it often tries to go out of it’s way to avoid it. And this, I suppose,
also brings us back to is economics a hard science
or a social science. And, you know, if you are
having these discussions about the theory of knowledge and the way it’s perceived
in your discipline I feel like a lot of people think that automatically precludes
you from being a hard science, and precludes you from getting
the sort of respect they want and therefore whether correctly or not– – That’s what Paul
Samuelson said, of course. And I quoted him right at
the beginning of the course. “If you, “if you can, you do science. “If you can’t, you babble
about methodology.” And (laughs) we’re
babbling about methodology. But we’re babbling about methodology because we are no longer
nearly as sure as we once were that we were doing science. – Would it be possible to
do both economic theory and economic analysis without the device of models? I mean, would it be possible
to do economic theory by just, you know, put forward a list, a coherent list of
sentences and statements. And to do economic analysis by interpreting and describing data that come from whatever source. Of course need to be assessed, and need to be collected rigorously, but I mean, would that be, you
know, possible to do that, and perhaps more, a more
rigorous approach to the to the study of economic world? – I feel that’s, and sort of what was done through the classical
economics point of view. However, when you do it though
a non modeling perspective, then you’re very open to interpretation. – Yeah. – So those people who hadn’t models, say in this way that we do
now in the mathematical realm, like Marx, Ricardo. Their models that they built that weren’t based on mathematics are still being interpreted to today. So, therefore, the
structure of the modeling, as we use it now, allows
a very clear mechanism, which can be debated in itself. – Yeah. – If Marx had tried to model his theory, would anybody be interested in it today? See, I mean, in a way, the
fact that it was a narrative, and, therefore, highly suggestive in all ways beyond you know, the sentences
themselves, means that it survives. Is I wonder where the, I thought that was where you
were heading in your remark, but, perhaps you weren’t. – I was more going the direction that providing the clarity of a
model, instead of a narrative, and moves further towards falsification. So if Marx laid down the a basic model, no one would be interested
now if it was wrong. Or more falsifiable that it is. – But also, in the selection on of a certain aspects, and all
the simplification of that of them, so actually reduce the
complexity by building a model, because you, of course, in order to transform
into a mathematical form, you have to make, to have to leave something out, okay? And you have to simplify something, to reduce it to, you know,
a valuable parameter. Which is, you know, something
that might be just beautiful. – I think there are bits of economics that aren’t really modeled. And I read Paul Collier,
and people like that. I don’t see models, I
see narratives, actually. And some critique of government. Which, you know, you could
have done in the 18th century, without any maths at all. So surely a lot of a lot of very, very valid economic analysis doesn’t actually require
the formalization of models. For what bits of economics
is model building useful? – I mean, I think the
example you just gave of, you know, a very specific (raps desk)
end goal. Like if you are putting together a theory and you want to illustrate
very rudimentary how it would function in practice, I think that can be useful. It could be very clarifying. But, I mean, I hesitate. Like you’ve mentioned a few times already, in terms of predictive abilities, I think, models kind of lose
something in translation, and become less coherent and functional. But I think in terms of trying to do a direct
illustration of something, very limited, I think, then, they can be useful. – Haynes really introduced modeling. And macro-modeling started
before micro-modeling. And macro-modeling was the modeling. Because you had to
calculate the difference between actual output
and potential output, and you had to have a model. You had to have models
which enable you to do that in order to know how much extra how much exorbitant demand you
have to put into the economy. So I think modeling the economy was really a byproduct of wanting
to get certain policy implemented. Am I right in that? Just as I– – So, in that sense, modeling is as a form of persuasion? – Well, it’s it was more it was intended to be more than that. It was intended to be a
basis for policy making. – I was actually about to just point out, because I think it comes
down to the question of what actually we want economics to do. And if economics is supposed
to really just inform policy, and really give insights in what policy and how policy should be conducted, and I think models seem
to be the way to go, and for me, actually. The reason, I mean, one of the reasons why we, today, are so preoccupied with models
in mainstream economics, is that we came to, as economists, serve policy rather than anything else, and I know when you were talking, Peter, about Marx and the Fidel, you know, when we do qualitative
analysis we come to the the analysis itself, by definition, will come to be open to interpretation. Which, on its own, might be
good, because we might get if other people with
different biases read it, and interpret, maybe
different kinds of insights. But then, when it comes to policy, and you have so many different insights, it’s just very different to
conduct any kind of policy with a qualitative analysis
of the whole society or the economy. Where, you know, different
kind of insights are available, but it is not really clear what what is foreign policy maker
to do, and what is, for him, actually, what policy they should choose. Which economics, maybe, to some extent, is supposed to help resolve. – Yes, so now I suppose there are the, I mean, firms model
their potential markets. I mean so as soon as you as soon, yeah, so that I’m just trying to establish
uses of models as opposed to really to answer your your question, Simon. – On your provocation about, you know, models being used for policy purposes, I have two, you know, historical
objections, if you want. (laughs) First one could be, you know,
the famous book of Keynes, “How to Pay for the War.” – Yeah. – So, if you look if you look at that, there are lots of tables, data, and so on. And there is really coherent
and clear proposal for, you know, how to tax rich people, to spend the money in certain, to to use it to deploy certain
resources in certain areas, and so on. It’s a very detailed, argued,
you know, piece of work. and the same thing about the Keynes plan, at the Bretton Woods Conference, it’s basically a piece of economic theory on how the international
monetary system works. But in both cases, we don’t have any economic and mathematical model, or an econometric model. – Well, there’s an implicit model in “How to Pay for the War,” which people, of course, very easy to, they could easily reduce it, which is that you your model, really, is
it’s income, output model. And you find that you, at full employment, you are need to withdraw
certain amounts of resources from ordinary
civilian consumption, and place them at the
disposal of the government, and you need a taxation system
that enables you to do that. And then there are variations on that. So, I mean, there would be no difficulty
in creating a model out of it. – Right
– And you you don’t, then, always have to read a
hundred and twenty pages of narrative in order
to get there. (laughs)

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