The visible hand in economics

Taking a look in the mirror

Posted on: February 25, 2008

Over at NZQuest, Oliver Woods claims that economics

…works around perfect conditions and universal application of models and theories developed many years ago to any economic problem, believing history, society and all sorts of other factors undermine the ‘homo economicus’, or the supposedly rational profit-driven man who thinks entirely in his own self-interest and only helps others when they can help him.

As Matt has previously addressed there is a huge difference between positive statements and normative judgments. Woods is confusing the judgments he attributes to economists with positive statements of economics. To quote my blog-of-the-moment, Positive Economist (which has TONNES of excellent posts relevant to this topic),

I can only plead that we recognize that whatever economists do or are perceived to do, their method of modeling people can explain anything, and I mean that as both a criticism and a compliment. Our method is neutral, our method is empty. Attack the normative interpretation of our conclusions. Attack the assumptions we make. Don’t attack the method: you’re shooting at thin air.

Perhaps Woods is attacking the assumptions that economists make but, if so, he’s attacking a straw-man. Economists do not assume people are profit driven, that they act entirely in their own self-interest (at least in the way I believe Woods means it), or that they do not wish to help others. It may surprise many to learn that most academic economists, in the US at least, are actually liberals who vote Democrat and support regulation, taxation and whatnot.

However, I don’t mean to criticise Woods himself: while I think he’s misinformed about economics, he seems to truly want the subject to move forwards. What bothers me more is that his mistaken view of economics is likely to be widely held. He is clearly not an ignorant person and cares about the subject. That he should hold such inaccurate views about what economics represents speaks very poorly for the teaching of economics, and for the way the profession represents itself to the public. Perhaps, rather than reflexively dismissing the criticisms of intelligent, but misinformed, people we should ask ourselves what WE are doing to correct peoples’ misconceptions about our subject.

18 Responses to "Taking a look in the mirror"

“Our method is neutral, our method is empty. Attack the normative interpretation of our conclusions. Attack the assumptions we make. Don’t attack the method: you’re shooting at thin air.”

Wow, that is an incredibly good line!

Also good post rauparaha, as always 🙂

Good response. I think the main reason for that perception is that people making right-wing arguments are more likely to use economic rationalizations. I don’t know if there is anything wrong with the teaching of economics (in my personal experience I felt like a range of political views were represented). However the simplifications required for the introductory courses may put some people off before they realize there is more depth to the subject.

Arguments from authority are bad, but is it really the responsibility of economists to convince the public our method is sound? Shouldn’t everyone, as a general rule, put a lot of faith in the consensus of experts? I would be curious what Oliver’s opinion on an issue like global warming would be, given that the majority opinion is formed based on theory and mathematical and statistical modeling, but there is a small but significant dissenting group.

Perhaps non-economists lack an appreciation for how much of economics is empirically based, with the models just a way of formalizing idea you’re testing. If pressed for detail on why economists believe A causes B, its usually because a substantial body of work exists showing a correlation between A and B, some of which hopefully is constructed in a way that allows us to infer causality. So serious criticisms of economics should normally be based in the empirical evidence or lack thereof. Concession: a lot of the big ideas (the big macroeconomic arguments) sometimes associated with economics (e.g. lower taxes increase growth) are the ones that are the hardest to test.

“we should ask ourselves what WE are doing to correct peoples’ misconceptions about our subject”

We are writing this blog aren’t we rauparaha 😉

“That he should hold such inaccurate views about what economics represents speaks very poorly for the teaching of economics”

If you knew the guy and his level of talent you’d realise you’re being unduly harsh on economics teachers.

Hi guys,

Interesting post, though perhaps taking it a bit too personally and invoking personal attacks on me rather than on what I am arguing. Read my other posts before you make judgements about my level of knowledge of economics, and the perspectives I am coming from.

To save you from doing this, let me make some points. Whether you label my blog as a ‘non-econ’ one or not, I am a heterodox economist. I am of a fan of the Post-Autistic Economics movement, the German, French and British Historical Schools of economics and the many approaches within the heterodox economics ‘movement’. I admire and draw inspiration from economists like Ha-Joon Chang, Friedrich List, Doctor William Sutch, Robert Muldoon, Karl Marx,

I do not believe at all economics is a flawed discipline, nor did I really target those comments toward economics as an entire field. I targeted those comments at the currently dominant (hegemonic is probably a better word if I need to prove that I’m not an idiot) strain of economic theory in academia.

Wikipedia in this instance acutally has quite a good piece on the Historical School of Economics that parralels my own views:

“The Historical school held that history was the key source of knowledge about human actions and economic matters, since economics was culture-specific, and hence not generalizable over space and time. The School rejected the universal validity of economic theorems. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The School also preferred reality, historical, political, and social as well as economic, to self-referential mathematical modelling. Most members of the school were also Kathedersozialisten, i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization.”

Hopefully that goes some way to demonstrating to you that, whether I disagree with your views or not, they’re still those of someone with a vague sense of education and perception.

(And I admire Bonzo for personally criticising me yet not having the courage to put their real name on-line – you win at e-life buddy).


Hi Oliver,

Thanks for taking the time to comment. I’m sorry if you found the post personal: I didn’t think that it took potshots at you at all. I’m sure you’re well-educated and knowledgeable about many things. However, I stand by my comment that you misrepresented the state of current economic thought. I don’t think you do so intentionally, which is the whole point of my post.

I didn’t mean to accuse you off being non-heterodox, or claim that your views on political economy are incorrect. I merely said that you misrepresented economic theory. Do you disagree with me? It’s wholly unclear from your comment since you haven’t actually addressed any substantive point that I made. It’d be great if you could, perhaps, substantiate your characterisation of mainstream economics.

“invoking personal attacks on me rather than on what I am arguing”

Huh, there is no personal attacks on you in the post its completely on the issue. I think rauparaha was careful to make that clear in the post.

“Whether you label my blog as a ‘non-econ’ one or not, I am a heterodox economist”

Hi, thats fine I’ve shifted you to the heterodox section now. I generally just put NZ blogs in the NZ non-econ section unless they ask me to go somewhere else.

“I targeted those comments at the currently dominant … strain of economic theory in academia”

But the current dominant strain of academic economics is positivist economics. The purpose of this method is to frame issues, not give policy prescriptions. Your comments seem to be focused on the value judgments made by some economists – as a result you are attacking the normative musings of a bunch of economists, something I’m happy to do myself.

[…] economicus gets thrown around with gay abandon as a generic criticism of economics. Oliver Woods claimed that rationality means having perfect information and being entirely self-interested. At the other […]

Oliver can answer for himself obviously but reading that wikipedia piece he mentioned would suggest that is indeed attacking the methodology, specifically the use of models in economics, rather than the results (although I would still to like to hear what results he disagrees with). I’m not clear on what the rationale for rejecting models is, some kind of super-powered Lucas critique perhaps? But like rauparaha, I feel Oliver’s original post, and indeed much of the criticism of economics I read, doesn’t seem to have much familiarity with modern economics. This makes it very hard to respond to criticism when it is so unclear “where’s the beef”.

Hi guys,

Sorry if I did take it a bit personally – I was reading and responding in a rush and it did seem like I was being taken the piss out of and labelled as being not educated on economics simply because I don’t conform to within your own understandings of it (which the odd time before on the blog I have felt like – it may just be my hyper-sensitivity in debating economics off-line when I am used to being the only person in a room who doesn’t oppose neo-liberalism! 😛 ).

To clarify my own stance (one that could easily be gained my reading my own blog a few posts back): do I think I am mis-representing classical/neo-classical economic theory? No. Do I think that classical/neo-classical economic theory is hegemonic in debates on economic these days? Yes. Do I think that economics departments in New Zealand are dominated by neo-liberal approaches? Absolutely. Do I think that if we are to continue this discussion you guys should read a couple of short pieces about the post-autistic economics movement ( ) ? Yes.

Economics as a discipline, like any other social science or any science at all for that matter, is dominated by emotion, normative/value-assertive assumptions and politics (in the sense of the negative personal and group collective behaviour definition of the word). The thrust behind many of my criticisms of economics currently in general are built around the same criticisms that the Historical School had of their contemporary opponents in terms of their understanding of economic systems and the models they created to understand and rationalise how they functioned.

CPW, I profoundly apologise for not conforming to your view of ‘modern economics’. You’d do well to read the Cambridge Proposal for the Reform Economics – . It might make you realise that non-comformity to mainstream economics doesn’t make you an idiot, as you’d clearly like to think.

who DOES oppose neo-liberalism sorry * to correct my above post.

I’m big enough to accept your apology 🙂 I read that proposal, it’s painfully vague. It pretty much boils down to: “the mainstream approach is dominant”, which is just a tautology true of any subject. Is the mainstream in economics too dominant? Where’s the evidence? A lot of the PAE stuff seems to object to mainstream economics for being too mathematical (I sympathize) but presumably the alternative is for economics to be more empirical, and you don’t seem to like empirical models much either.

I don’t think that non-conformity makes you an idiot, plenty of orthodox economics started out as unorthodox (like any science). I do think that on average being unorthodox makes you far more likely to be wrong than right. There’s a reason that ideas become mainstream, it’s usually because they’ve been successfully tested. Again, this just strikes me as a truism for any subject.

This from Marginal Revolution was a good response to a article about heterodox economics in the NY times last year. It expands on the point rauparaha made initially about what economists actually believe. I’m dubious that NZ uni econ departments are hotbeds of neo-liberalism either.

Well, whether you criticise it or not, I wholeheartedly agree with their approach. Their alternative isn’t just one alternative: it’s encouraging pluralism and debate within economics. It’s vague because, like heterodox economics, it’s an alliance of very divergent beliefs who nevertheless share a common creed.

And regarding your statement about unorthodox means you’re more likely to be wrong, well, that’s the sort of thing that the PAE movement objects to. Labelling people as being wrong for having divergent viewpoints from your own, particularly on areas that are relevant to economic policy, and you will rightly be accused of talking shit :P.

I am sure that most economists don’t admire Milton Friedman, but quite frankly, saying that neo-liberalism is not the dominant ideology at economics departments in New Zealand, including Auckland, seems rather ‘misinformed’ to me. Have you ever read the works of Bruce Jesson or Brian Easton?

And by the way guys, thanks for my reallocation into heterodox :D.


“reading that wikipedia piece he mentioned would suggest that is indeed attacking the methodology”

I like Milton Friedman would have disagreed (with his methodology hat on), given that he laid out the current concept of empirical positivistsim (

Ultimately, the debate between the historical school (empiricists and inductive) and the marginalists (logic based and deductive) calmed down so much during the late-50s because both realised that the other one had a point. As a result, economists have tried to stick to ‘positivist’ assumptions in both the deductive and inductive sense in order to incorporate both schools of though. I guess part of the debate here might be on what qualifies as a ‘fact’?

Hi Oliver,

“Economics as a discipline, like any other social science or any science at all for that matter, is dominated by emotion, normative/value-assertive assumptions and politics”

What we are trying to tell you is that ‘economic science’ is based on positive assumptions – the application of economic science is where normative assumptions come into play. I have also read a lot of PAE’s stuff, and they seem to be annoyed with the arrogance and implicit value judgments in much economic education – that is a fair criticism where such biases are in place.

In a sense we are of differing opinion because of grammar – you wish to criticise the normative assumptions that some economists make, we believe that ‘economists’ try to separate value judgments and facts.

“It might make you realise that non-comformity to mainstream economics doesn’t make you an idiot, as you’d clearly like to think.”

I don’t think thats what any of us are saying – I just think we have differing ideas about what ‘mainstream economics’ is. Yes it is neo-classical in terms of method – but that does not ensure the policy conclusions that were tied to the neo-classical method in the 70s. This is the difference between the positivist frame that all economists follow vs the normative frame that some economists on TV etc believe.

How could I forget noted Auckland neo-liberals like Tim Hazeldine and Susan St. John? 😉

Hi Matt,

An excellent contribution to the debate above, and I virtually agree with everything you’ve said. I hadn’t initially understood your differentiation between positivist and normative economics, but after that good explanation, I am very clear :).

Another interesting area to look at that relates to this is the debate in wider philosophy (not just in economic philosophy) regarding the relative importance of individual preferences versus society/community-wide ones. Indeed the liberal versus communitarian debate of the 70s, 80s and 90s between John Rawls et al and Communitarian philosophers, which really challenged the universalisation of value-laden methodological practices in philosophy, sociology and politics, let alone economic policy preferences.

I side firmly with the communitarian side of the debate, which unfortunately lost out against the liberals, and thus adds to the unorthodoxy of my views regarding research and analytical methodology of economic systems. I very firmly follow these principles when conducting academic research where compatible

[…] wish to focus on a subject that is a little different than the rationality definition that my esteemed colleague has been looking at. I plan to look at the equity-efficiency […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Add to Google
%d bloggers like this: