by Economics and the way the world works With any phenomenon of interest, understanding its nature or essential properties allows us to relate to, or interact with, it in more knowledgeable and competent ways than would otherwise be the case … A surprising number of social theorists, when embarking on substantive analyses, pay almost no attention at all to insights bearing on the nature of these (or any other) factors. Instead, the preferred option is to select the types of methods, procedures or tools to be employed before, and quite independently of, knowing the task to be undertaken, the nature of the phenomena involved, the context or any other specifics of the situation … This is the case of modern academic economics. Economists do indeed widely
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Economics and the way the world works
With any phenomenon of interest, understanding its nature or essential properties allows us to relate to, or interact with, it in more knowledgeable and competent ways than would otherwise be the case …
A surprising number of social theorists, when embarking on substantive analyses, pay almost no attention at all to insights bearing on the nature of these (or any other) factors. Instead, the preferred option is to select the types of methods, procedures or tools to be employed before, and quite independently of, knowing the task to be undertaken, the nature of the phenomena involved, the context or any other specifics of the situation …
This is the case of modern academic economics. Economists do indeed widely suppose, prior to undertaking any analysis that there is one specific way of proceeding that is appropriate for all occasions … This is to employ methods of mathematical modelling …
The discipline has failed to provide significant insight for the last 60 years or more … This persistent failure is indeed to a very large extent the result of sustained ontological neglect.
The kinds of laws and relations that economics has established, are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in the real world they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existent. Unfortunately, that also makes most of the achievements of contemporary economic theoretical modelling — rather useless.
When mainstream economists think that they can rigorously deduce the aggregate effects of (representative) actors with their reductionist micro foundational methodology, they have to turn a blind eye to the emergent properties that characterise all open social systems – including the economic system. The interaction between animal spirits, trust, confidence, institutions etc., cannot be deduced or reduced to a question answerable on the individual level. Macroeconomic structures and phenomena have to be analysed also on their own terms.
Mainstream macro models describe imaginary worlds using a combination of formal sign systems such as mathematics and ordinary language. The descriptions made are extremely thin and to a large degree disconnected from the specific contexts of the targeted system than one (usually) wants to (partially) represent. This is not by chance. These closed formalistic-mathematical theories and models are constructed for the purpose of being able to deliver purportedly rigorous deductions that may somehow be exportable to the target system. By analysing a few causal factors in their ‘macroeconomic laboratories’ they hope they can perform ‘thought experiments’ and observe how these factors operate on their own and without impediments or confounders.
Unfortunately, this is not so. The reason for this is — as underlined by Lawson — that economic causes never act in a socio-economic vacuum. Causes have to be set in a contextual structure to be able to operate. This structure has to take some form or other, but instead of incorporating structures that are true to the target system, the settings made in these macroeconomic models are rather based on formalistic mathematical tractability. In the models, they appear as unrealistic assumptions, usually playing a decisive role in getting the deductive machinery to deliver ‘precise’ and ‘rigorous’ results. This, of course, makes exporting to real-world target systems problematic, since these models — as part of a deductivist covering-law tradition in economics — are thought to deliver general and far-reaching conclusions that are externally valid. But how can we be sure the lessons learned in these theories and models have external validity when based on highly specific unrealistic assumptions? As a rule, the more specific and concrete the structures, the less generalisable the results. Admitting that we in principle can move from (partial) falsehoods in theories and models to truth in real-world target systems does not take us very far unless a thorough explication of the relation between theory, model and the real-world target system is made. If models assume representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. To have a deductive warrant for things happening in a closed model is no guarantee that they will be preserved when applied to the real world.