Saturday, February 02, 2008

Is Brad DeLong An Austrian?

(click here if you're not sure what "Austrian" means in this context)

He almost sounds like it:

[Mainstream] Economics is the hyper-positivist of social science disciplines: believing that everything of interest can be reduced to law-like theoretical and empirical propositions modeled after classical mechanics; that what cannot be reliably, repeatedly, quantitatively, and empirically demonstrated does not really exist as knowledge; that the only good social science is a deductive, analytical, model-based, general, experimental science.

But this misses a lot. Because we are people like those whom we study, we have psychological access to our subjects’ internal decision-making processes and motivations at a level that we cannot obtain from market price-quantity data. There is lots of interest that happens once and only once. Natural experiments are rare, and so if we restrict ourselves to positivist tools alone much is underidentified. The individuals’ preferences — the “tastes” part of “tastes and technologies” are not primitive but are themselves the result of long and complex historical, sociological, psychological, and — yes — economic processes. You need thickly-described case studies and anecdotes looking out from people’s insides before you can tell if your statistical results mean what you assert they mean.

Here's a video where he explains more:

Peter Klein shares his thoughts on DeLong's comments, including this excellent quote from Israel Kirzner:

Suppose a man from Mars is doing research for his doctorate and, after focusing his telescope on a particular location on Earth, discovers a certain regularity. Through his telescope he observes a set of boxes lined up in a row. He further discovers that a smaller box moves past these boxes every day at 7:30 A.M., comes to a stop at one of the boxes, and then, after a short stay, moves on. Moreover the investigator discovers something else; out of one of these boxes a body emerges every morning, and when the moving box makes its daily stop, the body is swallowed up by the moving box. Discovering this regularity, the researcher postulates a definite law, the law of moving boxes and bodies.

As he goes on with the research, however, he discovers that sometimes the box moves away before the body has entered it, leaving the body behind altogether; while sometimes the body moves at an unusually rapid speed, arriving at the daily moving-box stop just in time to be swallowed up before the box moves on. Now this Martian researcher may be able to predict just when the person is going to miss the box and when he is going to catch it. He may even be able to explain the movements of the body and the box entirely without reference to the fact that someone is trying to catch the bus because he wants to get to work on time. But if he does so, he has not told us everything there is to be learned about this situation.

A theory of moving bodies and boxes that does not draw attention to the dimension of purpose gives a truncated picture of the real world. This is what economics, in the Austrian view, is all about. Economics has to make the world intelligible in terms of human motives. It is more than simply moving boxes or changing economic quantities. This is the task to which Lachmann drew our attention when he insisted that we must make the world intelligible in terms of human purpose.

Read the rest of Klein's comments and watch the video.

This is some valid criticism of how much of economics is done. Coincidentally, this is also part of why I am such a big fan of agent-based models as a means of modeling human behavior. While agent-based models are an intentional abstraction of reality (as any model is) they are based upon studying how individual behavior in interaction with others creates complex macro-level phenomena.

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