Heterodox Economics Newsletter

Issue 271 November 09, 2020 web pdf Heterodox Economics Directory

In confined days like these, opportunities for good academic discussions are rare. Against this backdrop, I was happy to join a discussion at the Virtual Plenary of INET's Young Scholars Initiative dedicated to assessing the state of the sub-field of "Philosophy & Economics". As some of you might know (or might have guessed), I consider myself to be an occasional contributor to said field and it was quite refreshing to engage with a series of young and talented scholars debating possible future outlooks for the field. In preparation, I had been asked by the organizers what, in my view, the field should be (more) concerned with in the future.

In a nutshell, my answer to that question was to focus on four core issues:

(1) critical discussions of economic models on the level of textbooks as well as current research. The core aim should be to carefully evaluate important issues such as consistency (both within and across models), how models deal with the differentiation of ‚law-like‘ and ‚auxiliary‘ assumptions (which also pertains to the question to which cases a given model actually does apply) or the role of normativity in basic assumptions as well as with regard to main outcomes (examples for doing so can be found here, here or here).
(2) connecting findings of economic sociology with philosophy of science, for example by asking how economists practice inclusion and exclusion or by assessing how influential groups in economics shape the discipline by inventing new strands of modeling, new empirical approaches or new ways of justifying how things are done (useful starting points could be here, here or here).
(3) contribute more strongly to the solution of the problem of socio-historical specificity – what mechanisms and theories do hold under exactly what conditions and how is this related to the role of auxiliary hypotheses in specific models? Can pluralism contribute anything here?
(4) the critical reflection of new trends and findings in econometrics. The field should be concerned with issues like p-value hacking, publication bias, preference falsification and replication crisis. It should critically examine recent trends in „econometrics without the con“, e.g. by asking for the validity of identifying assumptions, exclusions restrictions and the like (laudable examples can be found here, here or here).

While I hope you share some of my views on this issue, I also wanted to point out that given current calamities related to Corona, the climate et al., the issue of normativity in economic thought probably is most pressing. I am always surprised to see how many standard economists out there still think that economics is a largely 'value-free' endeavor, where normative judgements matter only when deciding on research questions, while in reality the typical economists' use of the concept of efficiency is highly value-loaden.

Let me be clear on that last one: while it is theoretically possible to have a purely instrumental understanding of efficiency as the simplest ways to achieve a given, clearly defined end, it is also possible that 'efficiency' becomes an end in itself or that it affects related concepts or measurements in a normative way.* An example for the first case – efficiency becoming an end in itself – is given by the advocacy of a majority of economists for free trade on the grounds that is welfare-enhancing, i.e. 'more efficient'. While it is sometimes acknowledged that economic openness might have adverse distributional effects (in most cases by referencing this theorem), this insight never turns the table since the preference for efficiency imposes that a greater pie is always to be preferred to a more equally distributed one.

Similarly, efficiency has an imprint on other concepts used that are supposedly 'value-free': it can affect the way we conceptualize (e.g. GDP resembles a quantitative 'more is better' approach to welfare) or employ (e.g. interpreting the wage share as the 'relative contribution of labor') economic measures and it shapes our understanding of related theoretical variables. In both contexts, normative aspects can play a key role. Key examples related to current crises are how to economically represent human lives to conceptualize ill-suited 'trade-offs' between saving lives and saving employment (Corona) or how to adequately discount future states in economic modeling (climate). Regarding the latter, for instance, economists have declared that human impatience is a relevant normative foundation to be factored in to finally arrive at an estimate for an 'optimal', i.e. efficient, degree of global warming. Such modeling decisions are obviously highly value-loaden and contestable – and they are closely related to a specific understanding of efficiency that prevails in standard economics. In this framework any assumption about preferences can be potentially normative – and discounting is just an example for one that is heavily so.

Hope to not have bored you with my current philosophical concerns. In any case, I hope you enjoy this issue of the Newsletter!



* On a more general level the notion of 'efficiency becoming an end itself' is a basic topos of many dystopian storylines, from classics like "Brave New World" or "We" up to these nice guys, who, like economists, always strive for "peak efficiency";-)

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