Economic theory

New book: Grivaux and Badiei, The Positive and the Normative in Economic Thought

Positive and normativeBy Mark D. White

Coming out in June from Routledge is a new book titled The Positive and the Normative in Economic Thought, edited by Agnès Grivaux and Sina Badiei:

The book responds to the need for greater clarity regarding the relationship between descriptive, evaluative and prescriptive approaches within positive and normative economics. It also analyses the entanglement between evaluative and prescriptive perspectives within several theoretical frameworks in normative economics such as social choice theory, the capability approach, behavioural welfare economics and various theories of justice.

It provides a forum for discussion between various schools of economic thought and several theoretical frameworks on the relationship between the study of facts, norms and values, with particular emphasis on classical political economy, the Marxian school of economics, the Frankfurt School, the Austrian school, the Chicago school, rational choice theory, expected utility theory, behavioural economics, experimental economics, development economics, welfare economics, public economics, constitutional political economy, the capability approach and politico-economic theories of justice.

Given the scope of questions treated in this book, it will be of interest to economists, historians of economic thought, political philosophers and philosophers of science, especially those interested in the philosophy and epistemology of economics.

The table of contents is very promising:

"The Positive and the Normative in Economic Thought: A Historical-Analytic Appraisal" (Sina Badiei and Agnès Grivaux)
"The Positive-Normative Distinction in the Classical Economic Methodology" (Michel S. Zouboulakis)
"Descriptions, Prescriptions and Norms: The Tripartite Classification of Economics by John Neville Keynes" (Gilles Campagnolo)
"Normative Economics and Its Enemies: Marx, Mises and Friedman" (Sina Badiei)
"Economics as a Normative Discipline: Value Disentanglement in an 'Objective' Economics" (John B. Davis)
"Realism and Deliberation in Normative Economics: The Fruitful Intellectual Dialogue Between James Buchanan and John Rawls" (Nathanaël Colin-Jaeger, Malte Dold, and Alexandre Gascoin)
"Normative Economics and Public Reason: Who Are the Addressees?" (Cyril Hédoin)
"Reconciling Normative and Behavioural Economics: The Problem That Cannot Be Solved" (Guilhem Lecouteux)
"The Unacknowledged Normative Content of Randomised Control Trials in Economics and Its Dangers" (Seán Mfundza Muller)
"The Positive, the Normative and the Marxian Heritage in the Early Frankfurt School" (Agnès Grivaux)
"Economics as Value-Laden Science: Lessons From the Philosophy of Science on the Normative/Positive Distinctions and Rational Choice Theory" (Magdalena Małecka)
"The Positive, the Normative and the Ontology of Social Problems" (Jesús Zamora-Bonilla)


Kwarciński and Turek, "Can Normative Economics Be Convincing without the Notion of Well-Being?"

Filozofia naukiBy Mark D. White

In the open-access special issue of the journal Filozofia Nauki (The Philosophy of Science) with the theme "Philosophy of Economics" (guest-edited by Łukasz Hardt and Marcin Poręba), Tomasz Kwarciński and Krzysztof M. Turek (Cracow University of Economics) ask the question, "Can Normative Economics Be Convincing without the Notion of Well-Being?"

From the abstract:

In this article, we examine the notion of well-being in light of the relationship between positive and normative economics. Having identified four interrelationships between possible theoretical developments within the two fields, we propose a framework for the analysis of normative economic theories. The starting point for these considerations were competing stances on well-being proposed by neoclassical welfare economics, Robert Sugden, Amartya Sen, and Daniel Hausman.

Near the end of their introduction, they preview their contributions:

First, if the development of positive economics is the main mode of resolving normative issues, then the category of well-being (especially when as specific as welfare) can be abandoned or replaced. Second, when the welfare approach in normative economics is replaced by an opportunity or capability approach, the question remains whether to accept normative minimalism, in the hope of resolving most normative issues through the development of positive economics, or on the contrary, accept a value-laden approach in normative economics. Third, if the category of well-being is to remain crucial in normative economics, a richer, normative account of that concept is required, since positive economics cannot solve normative problems by merely equating well-being with welfare.


What Kind of Ethics in What Kind of Economics?

ScalesGuest post by Yannis Papadopoulos

The re-establishment of ethics in economics—and more precisely in economic theory—is now more than eminent. It is promoted and supported by numerous philosophically intrigued economists. The claim has shifted from Wertfreiheit to teaching economics’ students the importance of moral philosophy in the development of economic theory, and how virtues and moral values do not limit the objective perception of economists by dragging them down a road of vague cogitation, but offer a more concrete understanding of human action. “What to do, then, for economics? Answer: raise ethical men and women, some of whom become economists. We are not doing so now in the education of economists.”* Yet this procedure, even though presented and understood as a leap forward and an escape from the strict mathematical and narrow-minded neoclassical economics method, could still be inadequate and one-dimensional. The question is what kind of ethics are students being taught?

There is not just one ethical theory. As economic theories have their differences, so do ethical theories. Utilitarian and outcome-based ethics are embedded in economic theory and have played a crucial role in the formation of neoclassical economics. If utilitarianism and consequentialism are the only ethical theories that should play a role in economic theory, then we should rest assured that ethics never left and therefore there is no need for their re-establishment in economic theory. Thus, the argument is not to re-establish ethics in economics, since ethical values never left the discussion. The argument is to introduce other ethical theories in economics, which have not participated so far. Utilitarianism and outcome-based ethics can be found not only in neoclassical economics, but in some branches of heterodox economics as well. Kantian and rule-based ethics, however, have been limited to discussions concerning trade and transnational agreements and some policy making processes. Virtue ethics are nowhere to be found.

Students are not in need of introductory lectures that praise the importance of ethics in economics and present ethics only form the utilitarian point of view. Students can easily apprehend the utilitarian logic behind works of great classical and neoclassical economists without being taught the importance of utilitarian ethics. Economics’ students should be given the opportunity to connect economics with a variety of ethical theories. That could lead to a generation of open-minded and ethically-integrated economists and humans in general. By pretending to reexamine economics through ethics, yet being interested only in the utilitarian perspective of ethical values, the course is definite and parallel if not the same as the one economics have followed so far.

* Deirdre McCloskey, "Conclusion: Raising Up Private Max U," in Wilfred Dolfsma and Ioana Negru (eds), The Ethical Formation of Economists (London: Routledge, 2018), pp. 164-183, at p. 177. (Preprint here.)


Yannis Papadopoulos was born in Athens in 1993 and studied European and International Relations at Panteion University in Athens. He received his Master’s degree in Political Economy from King’s College London. At the moment, he is in the final year of his doctoral thesis entitled “The Ethics of Efficiency and the Efficiency of Ethics” at Panteion University, for which he has received a scholarship from the Hellenic Foundation for Research and Innovation (H.F.R.I).

Email: ioannisjohnpapadopoulos@gmail.com


Ricardo Crespo on teaching the philosophy behind economics to economists (at Journal of Philosophical Economics)

J of phil econBy Mark D. White

In the latest issue of the Journal of Philosophical Economics (14/1-2, Spring-Autumn 2021), Ricardo Crespo (IAE) shares his reflections on "Teaching the Philosophical Grounding of Economics to Economists: A 10 Years' Experience." He describes his rationale below:

Looking at the possibilities of the new currents mentioned above – behavioural economics, neuroeconomics, evolutionary economics, happiness economics, civil economy, and the capability approach – proves highly attractive for students. This is an effective way to introduce philosophy because it is easy to understand that these plural economic approaches are supported by philosophical underpinnings, different epistemological perspectives, and views on human nature and the social world. However, a deep analysis of these new fields (which I undertook in my 2017 book) reveals that not all of them ‘escape’ from the narrow outlook that characterizes current economics. As John Davis points out (2008, p. 365),

economics, as other sciences, has regularly imported other science contents in the past, and having subsequently “domesticated” them, remade itself still as economics. In the current situation, for example, behavioral economics – a research program in economics, not in psychology – employs imports from psychology but frames them in terms of economic concerns.

Exploring the attitudes of economics towards these new possibilities – open or ‘colonialist’ – helps to differentiate them and to discover their philosophical roots. Thus, this analysis shows the influence of underlying philosophical notions on economic theories. (pp. 219-220)


Call for papers: "Prizes and Virtues: An Interdisciplinary Workshop" (Rome, April 10-11, 2017)

“PRIZES AND VIRTUES: AN INTERDISCIPLINARY WORKSHOP”
LUMSA University, Rome – April 10-11, 2017

To an economist, a prize, such as a golden medal, is merely a special type of incentive. Any other kind of social scientist would be perplexed by thinking of the Nobel Prize, or of the Medal of Honour, in these terms. In contemporary neoclassical economics, the concept of incentive is a primitive, similar to that of “utility”, “price”, “production” or “consumption”, that all economists use but none feels the need to define: it is a foundation, or a corner stone, of the science of economics. However, if we tried to articulate what economists mean by incentives, we would probably find that they are considered as any “motivation” for adhering to and for complying with some form of contract. Once incentives are intended in this all-embracing way, it immediately follows that prizes and awards are considered simply as their sub-set. Yet many real world prizes and awards do not follow this contractarian, consequentialist logic and cannot be understood within this framework. A more complex understanding of human motivation–we believeis needed to hold that prizes are indeed not incentives.

This search cannot ignore the history of economic and philosophical ideals. Competing theories of action and motivation were central topics of debate among eighteenth century philosophers. David Hume, Jean-Jacques Rousseau, and Adam Smith’s theories implied much more complex social and economic motivations than mere self-interest, which can be opportunely diverted through an appropriate incentive. Within the Italian school of civil economy, Pietro Verri and Antonio Genovesi elaborated on the unintended consequences of public and institutional actions on individuals’ behaviour. In the same line, Giacinto Dragonetti debated (at a distance) with Cesare Beccaria on the nature and effectiveness of punishments and awards in shaping agents’ choices, both in private and public contexts. From the mid XIX century onward, economists became those social scientists most characterized by the purest anthropology (i.e. that of a human being acting in order to maximize individual utili!
 ty), endorsing utilitarian philosophy and sacrificing previously complex understanding of human actions. In the XX century, microeconomics has continued this process of anthropological reductionism: management theory, as well as agency and contract theory, have distilled the all-embracing theory of incentives.

In the last three decades, behavioural and experimental economics are undermining from within this reductionist model of human behaviour. By taking serious account of concepts such as reciprocity, intrinsic motivation, inequality aversion, and fairness, they are making more complex interpretations of human action and motivation central again, albeit still within the utilitarian framework. In addition, there is an important contemporary philosophical stream of inquiry, the so-called virtue ethics, which competes with utilitarianism yet remains almost unknown to the economic profession. We argue that this research may provide further insights into human action, which seem otherwise intractable within the current anthropological framework, and can cast a new light on the nature and working of prizes as fundamentally different from incentives. In particular, prizes may well suit the rewarding of virtues, because incentive are known to be liable to cause motivation crowding-out.

To advance our understanding of the economics of prizes, awards and their link with virtues,we warmly invite economists, historians, philosophers, scholars in organization and management and other social scientists to answer to this call and submit an extended abstract (max 1000 words).

Keynote speakers:
– Robert Dur, Erasmus University Rotterdam (Economics)
– Bruno Frey, University of Basel (Behavioural Science)
– Ruth Grant, Duke University (Political Science)

“Pier Luigi Porta” Award:
Heirs will honour the memory of the past Heirs’ President Professor Pier Luigi Porta by a special award to the best paper presented at this conference, a stream of research strongly supported by him before dying. Heirs invites all under fourty scholars to apply for this special “Pier Luigi Porta Award”. The award consist in 2500 euro plus travel cost and accomodation for the conference. The prize will be assigned during the social dinner.

Deadline for submissions of extended abstracts (max 1000 words):
February 15th, 2017 (acceptance date: February 25th, 2017)
to: heirs.unimib@gmail.com

Organization committee: HEIRS & LUMSA University
Luigino Bruni (LUMSA), Vittorio Pelligra (U. Cagliari), Tommaso Reggiani (LUMSA),     Matteo Rizzolli (LUMSA), Alessandra Smerilli (LUMSA).

Contacts:
heirs.unimib@gmail.com


Dan Hausman on the limits of economics (in The New York Times)

Mark D. White

HausmanIn today's installment of The Stone in The New York Times, Gary Gutting interviewed philosopher of economics Daniel Hausman about the role of economics in public policy and the media. Hausman usefully points out the limitations of economics in predicting the outcome of real-life crises (such as the current Greek crisis):

Speaking of the predictive power can be misleading. Scientists (and I include economists) are not fortunetellers. Their theories only allow them to predict what will happen if initial conditions are satisfied. Elementary physics enables us to predict how long it will take an object to fall to the ground, provided that gravity is the only force acting on the object. Predicting how long it will take a leaf falling from a tree to reach the ground or where it will land is a much harder problem.

The problems that we want economists to help us solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum. Economic phenomena are affected by a very large number of causal factors of many different kinds. The Greek economic crisis is extraordinarily complex, and it has as many political causes as economic ones. Standard economic theory provides useful tools, but it focuses on a very limited range of causal factors — mainly the choices of millions of consumers, investors and firms — which it simplifies and assumes to be governed entirely by self-interested pursuit of goods or financial gain. When one recognizes all the other factors that affect economic outcomes, from government policies to the whims of nature, it is easy to see that economists cannot predict the economic future with any precision.

When Gutting asks what help economists can provide in debates over public policy, Hausman's answer places economics much closer to philosophy than physics: "They tell us which are the right questions to ask... Knowing what to ask is enlightening even when it is hard to find the answers." In other words, economics provides focus to help policymakers choose the means that will best further their ends, wherein both means and ends are ethically loaded concepts as well as economic ones.

(Hausman also highlights the biases of economists as well as the journalists that write about them, and deftly resists Gutting's attempts at the end to goad him into going political or condemn some economic theories as having "no scientific support.")

Hausman ends by saying:

There are cognitive limits to what can be learned about such a complicated system as a modern market economy, and there are practical and political limits to our ability to make use of what can be learned. Within these limits, economics can be of use. I fear this is faint praise.

I don't think that's faint praise at all; rather, it reflects appropriate humility toward a realm of study that is often called upon to decide issues that are outside its purview. And it leaves tremendous room for economics to contribute to—but not determine—the choices of policymakers

As Hausman recognizes, economics can be of invaluable use to policymakers in terms of analyzing aspects of a problem that relate to prices, output, and simple measures of well-being, and it can often predict many significant outcomes of alternative policies to inform policymakers. But economics cannot dictate policy choices that are, by their nature, inherently moral or political choices as long as it refuses to acknowledge and either embrace or question its moral and political foundations.


Economics After the Crisis

Irene van Staveren

Irene bookA year after the fall of Lehman Brothers, The Economist's headline proclaimed the end of modern economics. What has happened since? Well... almost nothing.

Mainstream and near-mainstream economic textbooks still sell like before. And INET has supported some initiatives that eliminate the rough sides of neoclassical thought and neoliberal policy advice. Very laudable initiatives, with, for example, Wendy Carlin's work on developing a new undergraduate curriculum CORE. But students of economics are not satisfied with these minor changes, so many years after the start of the financial crisis. Their Rethink Economics petition demands more fundamental changes to textbooks.

As a supporter of every single petition, pamphlet, op-ed, and plea for pluralism in economics before and after the crisis, I decided three years ago that I should practice what I preach. The result is Economics after the Crisis, a pluralist introductory textbook published by Routledge in January 2015. It offers a tool to understand the basics of economics from four theoretical perspectives either for use in the classroom or for self-study alongside a standard course book. The theories are presented in every chapter, micro and macro. And from interdisciplinary and close to real-world experiences to mathematically in an idealized world of perfect markets and agents following the single ethical guide of utility maximization. The book presents social economics, institutional economics, post Keynesian economics, and neoclassical economics and thereby shows that almost no economic concept or tool is theory-neutral. If only this message gets across, the book will have accomplished already more than I could hope for.

The window of opportunity to reform economic teaching is almost shut. Banks pass stress tests in Europe and the US while still being too big to fail. Nobel Prizes are awarded to economists who show no effort at all in rethinking economics. And economic policies ignore the danger of continuously increasing private and public debt, while shifting the consequences of such myopia on disadvantaged groups and whole populations.

If it is not now, we may have to wait for the next crisis to change economic thinking and teaching. I truly hope that the combined efforts of critical economists, activist students, and courageous teachers will help to make the change. We cannot afford to standby any longer.


Jonathan Wight's 2014 Presidential Address to the Association for Social Economics

Mark D. White

WightBecause he's too bashful to tell you, I'll tell you that Jonathan Wight's 2014 Presidential Address for the Association for Social Economics, delivered at January's ASSA meetings, has just been published in the Review of Social Economy, and the link has been posted to the ASE blog.

The title is "Economics within a Pluralist Ethical Tradition":

Ethical pluralism is the recognition that multiple ethical frameworks operate in social settings to solve problems of moral hazard. In particular, non-consequentialist considerations of duty and virtue operate to restrain self-interest and lower transaction costs in exchange, such as when asymmetric information exists. Positive economics has tended to rely exclusively on a behavioral model that assumes utility maximization, but this approach fails to give credit to the neglected foundations of duty and virtue. Consequences, duties, and virtues all play a role in sustaining businesses, for example, and in promoting the search for truth within the economic research community. Normative welfare economics can also benefit from understanding vertical and horizontal pluralism.