Is It True that Economists Often Mistake Beauty for Truth?

|Peter Boettke|

Paul Krugman early in the self-evalution of economists in light of the financial crisis of 2008 claimed that one of the reasons that economists got it wrong was because of the intellectual penchant for confusing beautiful mathematical systems to truth about the economy.  The focus of Krugman's critique wasn't the heyday of the Neo-Keynesian synthesis, but the rise of New Classical Macroeconomics and what he terms "Panglosean Finance."  That essay was published in 2009.

Just this month, Simon Wren-Lewis, an economics professor at Oxford, has revisited the issue and asks why economists were led to turn away from certain evidence, and why they focused instead on some puzzles rather than others.  The first essay is Microfoundations and Evidence: The Street Light Problem, and the second essay is Microfoundations and Evidence: Ideological Bias.

Wren-Lewis counters the beauty myth and instead focuses on puzzle selection, and ideological bias.  While both essays are written in a reasonable tone, and the argument is made in a straightforward manner, the accusation is made I would argue without a hint of self-awareness that all contending perspectives in economics might be so accussed.  In fact, I'd argue that in puzzle selection, that economists choose puzzles to work on that excite their intellectual imaginations and among those, they work on those they think they can solve with the tools and techniques they deem as scientific.  A lot of presuppositions (some explicit, some tacit) go into that exercise.  Furthermore, ideology (or what Schumpeter termed our pre-analytic cognitive act of vision which provides the raw material for analysis) exists across all economists, even those who believe themselves above such biases.  In fact, it is probably the case that ideological bias is strongest in those who think themselves most immune from ideological influence.

The economist as social engineer is different from the economist as student of society, and the perception of the state as an active player in the economic game is different from the perception of the state as a referee in the economic game.  The (tacit or otherwise) presuppositions of political economy matter for the puzzles one works on, and the evidence one finds telling.  Rather than economic debate being so easily settled by reference to the "objective facts", the economic conversation is an on-going contestation of differing perspectives each attempting to provide clear and logical argument and marshalling evidence.  It is necessary for economists to develop the skill to think within the alternative frameworks, as well as to question the coherence and the evidence marshalled for the different perspective.  This is our challenge.

In my new book, Living Economics: Yesterday, Today, and Today, an attempt is made to articulate what I consider to be enduring and what I consider to be fleeting in the teachings of economics.  The teachings of Smith and Hume, Say and Bastiat, Mises and Hayek, and more contemporary thinkers such as Alchian, Buchanan, Coase, Demsetz, Kirzner, North, Ostrom, and V. Smith, among others reflect that mainline of economic thought, even as the "mainstream" of scientific economics often gets caught up in fleeting fads and fashions. As Lord Acton wrote long ago: “But it is not the popular movement, but the travelling of the minds of men who sit in the seat of Adam Smith that is really serious and worthy of all attention.”  That is not a conclusion that follows from mistaking beauty for truth, nor from a puzzle selection bias, let alone from an ideological bias clouding the objective assessment of the 'facts'.  But it is a conclusion that follows from a recognition of the mystery of the mundane; of the sheer wonderment of everyday economic life in a modern society; and of a deep exploration of the wealth and poverty of nations.

Comments

[Roger Koppl]

I'm looking forward to reading your new book, Pete. Congratulations on its release. (No Kindle edition?)

Your post puts a finger on something very important, IMHO. It's always the other guy who mistakes beauty for truth; me, I'm an objective scientist. With that attitude, you are above the model; you are not in the model. Any model in social science should pass a kind of reflexivity test: What happens when you apply the model to the model maker? Let's say the model maker thinks he is smarter than the agents in his model. In that case, when you apply the model to the model maker, a new meta-model buds off in which the meta-modeler is smarter than the modeler. That budding creates a infinite series of models in which, for each n, the modeler at level n+1 is smarter than the modeler at level n. In general, nothing weird or bad should happen when you apply the model to the model maker.

[Daniel Kuehn]

I accept the distinction between the "mainline" and the "mainstream" that you make here and have made before - but I'm a little fuzzy on why a particular person's selection of who rightfully belongs in the "mainstream" isn't, as you put it, "a conclusion that follows from mistaking beauty for truth, nor from a puzzle selection bias, let alone from an ideological bias clouding the objective assessment of the 'facts'".

Krugman's point here is, when you strip it down to its fundamentals, the same as yours: there is a mainline of good, solid, timeless economics (you and he would probably agree on some elements of that mainline and disagree on others), and there is at any given point a mainstream which may or may not coincide with the mainline.

I agree with Roger - everybody is at least at risk of being guilty of mistaking beauty for truth. But I think this is a problem that we run into when we discuss competing mainlines.

Obviously nobody is consciously mistaking beauty for truth. We all think we are a part of some mainline.

[Matheus Assaf]

I do agree that "it is necessary for economists to develop the skill to think within the alternative frameworks", and that this is important to keep the economic conversation. But aren't some economic paradigms so different, that the questions (or puzzles) made by this paradigm have absolutely no sense within an alternative view? As sometimes economic paradigms seem even to study completely different disciplines, how can we manage to develop a conversation between so divergent views?

[Troy Camplin]

"Beauty is truth, truth beauty -- that is all
Ye know on earth, and all you need to know."
-- Keats

Knowledge is always knowledge of the particulars; wisdom is understanding the whole; beauty synthesizes the two.

The scientists should always aim for truth, to be sure, but for beauty most of all, as that contains truth.

I have a few things to say on economics and beauty:

http://zatavu.blogspot.com/2010/01/on-beauty-and-feeling-at-home-in.html

http://zatavu.blogspot.com/2011/03/praxeology-of-truth-virtue-and-beatuy.html

http://zatavu.blogspot.com/2007/11/middle-way-part-6-death-vs-growth-vs.html

[McKinney]

I enjoyed the two articles by Wren-Lewis very much and appreciate the candor.

Commenting on the demise of the monetary theory of business cycles, Mises wrote that he suspected that socialist ideology required a market failure theory of cycles, so economists obliged. Since macro economists don’t have a decent theory beyond !@#$ happens, maybe it’s time to give Cantillon’s theory a second look.

[McKinney]

Troy, "Beauty is truth, truth beauty" only for those who care about truth. When other things are more important than truth, beauty and truth don't correlate.

[George Machen]

In the 1960s, P.A.M. Dirac — one of the founding fathers of modern physics, ranked with Newton, Einstein, Planck, Heisenberg, Schrodinger & Fermi — famously asserted that:
"It is more important to have beauty in one's equations than to have them fit experiment."
Dirac's statement on the importance of "beauty in one's equations" was intended for Erwin Schrödinger. In Schrödinger's first attempt to concoct his famous wave equation, he looked for one that agreed with relativity theory. The equation he came up with, however, was not supported by experiment. Eventually he produced the Schrödinger equation, which was not beautiful, but did at least fit the data. Dirac thought that Schrödinger should have ignored the data and persevered in his pursuit of a beautiful equation. Dirac did just that. He discovered an equation that was consistent with relativity theory but represented in a mathematics unfamiliar to most physicists — spinors, intermediate between vectors and tensors. The problem was that it predicted particles with negative energy, which everyone thought an impossibility. Werner Heisenberg condemned it as the "saddest chapter in theoretical physics." Shortly afterwards, Dirac realised that these particles were actually antiparticles with positive energy. They were later discovered in the laboratory. Once again, insisting on beauty in a mathematical theory revealed unexpected features of nature. [from Arthur I. Miller's essay, "Science A Thing of Beauty"] http://tinyurl.com/d4bbt4z

On the other hand, that was physics, not economics.

"Thus mathematics may be defined as the subject in which we never know what we are talking about, nor whether what we are saying is true."
– Bertrand Russell

The student of mathematics has to develop a tolerance for ambiguity. Pedantry can be the enemy of insight.
– Gila Hanna, in David Tall (ed.), Advanced Mathematical Thinking

As far as the laws of mathematics refer to reality, they are not certain, and as far as they are certain, they do not refer to reality.
– Albert Einstein

[McKinney]

Wren-Lewis linked to a Justin Fox post in which he quoted Lucas: "If an economist had a formula that could reliably forecast crises a week in advance, say, then that formula would become part of generally available information and prices would fall a week earlier."

And yet Richard Cantillon made a fortune shorting shares of John Law’s Mississippi Company in 1720. Was Cantillon just lucky or did he have a theory that the asset prices would fall? Of course, he provided his theory in his treatise on economics.

[Woj]

Congratulations on the release of your new book! I look forward to reading it and second the question of whether or not it will be available for Kindle.

Really enjoyed the line...
"It is necessary for economists to develop the skill to think within the alternative frameworks, as well as to question the coherence and the evidence marshalled for the different perspective. This is our challenge."

As a future economist, I fully accept and look forward to the challenge of understanding an array of frameworks, while always remaining open to questions about the merits of different views. (http://bit.ly/HZuNCS)

[Roger Koppl]

I think some of us are taking the word "beauty" too literally in this conversation. I think the issue as intended by Pete and Krugman was not a general philosophical question of whether beauty is a marker for truth. The issue is whether charm of DSGE bedazzled economists into ignoring urgent issues. I like doing DSGE; it's fun. Therefore, I will talk only about what can be squeezed into DSGE. I just don't think that issue tracks the high-level issue about truth and beauty that some folks on this thread seem to be raising.

@McKinney: I can't believe you mentioned Cantillon's theory of the trade cycle. Very cool. Awesome. I agree that it's good stuff. I would not have thought that it applied to, or at least was central to, the Great Recession, however. The way I remember Cantillon, it's a lot like ABCT except the screwed up price is the exchange rate. For the Great Recession, wasn't the issue monetary expansion in the US driving a false credit boom? In other words, the screwed up price was the interest rate, not the exchange rate, right?

[McKinney]

Roger, yeah Cantillon's theory applies loosely. I mentioned it mainly to show that, contrary to Lucas, people have predicted asset price crashes for centuries and made a lot of money from it.

[Rafe Champion]

Part of the problem is that we have been seriusly let down by the philosophy and especially the philosophy of science of the 20th century. You sometimes get the impression that some of the influences around the beginning of the century were more helpful than the revival of positivism/logical empiricism, the Wittgestein diversion and the degeneration of phenomenology driven by Heidegger.

The worst aspect of the positivist philosophy of science was the banning of metaphysics, so the most powerful drivers of intellectual effort, the fundamental presuppositions of research programs, could not even be talked about in polite society. But don't worry, Karl Popper and Barry Smith have shed some light there. No I am not going to tell you about it here, you will have to wait and buy the book. It will be an e book priced at $9.99.

[McKinney]

Rafe, we were told that scientists don't have biases or presuppositions. Getting the PhD purges such nonsense!

[McKinney]

Thinking further about Cantillon, recall that Greenspan denied the Fed's responsibility for cheap mortgage rates and blamed China's savings glut, instead.

But the Chinese didn't loan us yuan, or remnimbi. They loaned us dollars. How did all of those dollars the Chinese loaned us get to China? Could it be that flooding the US with cheap credit caused Americans to buy Chinese products?

This is where Cantillon comes in. China had fixed their currency to the dollar, so the exchange rate couldn't adjust to make Chinese goods more expensive. So dollar pile up in China and China invests them back in the US. So there was some exchange rate dynamic contributing to credit expansion in the US.

[Greg Ransom]

What economists mistake are (1) purely formal puzzles for (2) problem raising patterns in our experience.

And they think that (3) formally manipulated data streams ("econometrics") can somehow make (1) an empirical "science".

The BIG DEAL in economists is the incapacity of the profession as closed guild institution to focus on getting clear about (2) and its relation to a sound contingent causal mechanism to explain it / account for is.

[Barkley Rosser]

I have that Keats quote in the beginning of my paper "On the Foundations of Mathematical Economics," available on my website at http://cob.jmu.edu/rosserjb , which I think I have cited here previously with Greg R. even commenting on it. The issues raised there run a bit deeper than what Kruggie et al are arguing about.

Roger,

Yes, much of the fuss is over DSGE models, but anybody thinking they represent beauty, well, they are not exactly Virgins painted by Raffaello.

Pete,

I shall have to read your book, but offhand based on how I have seen it presented previously, your concept of the "mainline" seems to me to be somewhat ill-defined and arbitrary. "Mainstream" is defined by Colander and Holt and me as being "those who are in charge of the profession." Your parallel seems to be some combo of certain orthodox mainstreamers with some less orthodox types that you approve of. Is there something clearer or more definite about the definition, please?

[Barkley Rosser]

Heck, while I am at it, are you all participating in ICAPE or if you are not doing so is that a matter of choice or a matter of not being allowed in? Dave Colander and Ric Holt and I are currently writing a reply to a rather nasty attack on us by Fred Lee, ICAPE's grand master, who thinks that we are insufficiently heterodox and shills for the establishment. In this attack he lists schools of heterodox economics, but somehow Austrians are not in his list. We are going to slam him on that, among other things.

OTOH, maybe with all this "mainline" stuff you all do not want to be identified as "heterodox" anymore. You are mainline, which is almost mainstream, if not quite the same. Or whatever. So, what is up on all this?

[Troy Camplin]

One has to be careful by what one means by "beauty." Since beauty was raised, though, we have to deal with the various meanings of beauty. People often mistake the merely pretty for the beautiful. But when we have beauty in its fullest form, it always correlates with truth. And, as Aristotle pointed out, virtue aims at the beautiful. Thus a rejection of beauty is a rejection of the aims of virtue itself. A non-beautiful economics is a non-virtuous one.

I think this is -- or should be -- a high-level discussion. Krugman is wrong. There is no truth unless there is beauty. But those claiming beauty may be wrong about the nature of beauty. Or they may be paying attention to small details, noticing their beauty, and ignoring the lack of beauty in the larger picture implied by their work.

[Barkley Rosser]

Troy,

And you're a poet, doncha know it.

[Troy Camplin]

Barkley,

You have no idea:

Made, And Made Anew
The stones are worn with even, weary waves –
The ships are rusting by the rotting dock
That constitutes their cold, collective graves –
As weather runs down every object’s clock.
I look at you, your each new crease and gray –
The sand swirls, eddies up around your feet
With waves which wash so no sand, stone will stay
The way or where it is with every beat.
And yet our children play and chase the birds
That live with what the waves stir up. The seals
Are nursing pups. Sea grass will feel the herds
Of deer who make for cougar mothers’ meals.
Destruction is a part of nature, true –
But first things must be made, then made anew.

[Steve Horwitz]

ICAPE has historically welcomed the SDAE Barkley and we now have a dedicated position on our Executive Committee who is a liaison with them. I spoke at one of the first conferences several years ago.

[McKinney]

Nice, Troy!

[Barkley Rosser]

Thanks Steve and Troy.

Still waiting, Pete.

[Troy Camplin]

Thanks. I have several poems I wrote inspired by economics. :-) They are all on my blog Thyme and Time Again

[Peter Boettke]

Yes, Barkley --- mainline is Smithian --- rational choice postulate reconciled with the invisible hand postulate via institutional analysis. It is about a style of reasoning and substantive propositions about how the economy operates. Mainsteam is a sociological idea (same as you guys argue) about who controls the profession at any moment in time.

And furthermore, I then discuss throughout the book the ideas that are enduring and those that are fleeting.

[Barkley Rosser]

Clearly, I shall have to check out your book, Pete, before I poke at you further, :-).

In the meantime, you should be careful about poking at Amartya Sen any furthe as you just did on FB...

[Jim]

The money line in the post:

I'd argue that in puzzle selection, that economists choose puzzles to work on that excite their intellectual imaginations and among those, they work on those they think they can solve with the tools and techniques they deem as scientific.  A lot of presuppositions (some explicit, some tacit) go into that exercise.

Isn't this what everyone does? And if humanity's progress is a search inspired by imagination and ideology, then concepts like equilibrium and the tautology of worker vs. capital (capital follows any good idea) is horribly mistaken and inappropriate.

Economies and cultures are huge complex systems of groups and individuals all acting on their environments.

To even attempt to 'manage' such a system with monopolistic currencies or 'price levels' or 'aggregate demand' is hubris at its most presumptuous. But it is worse than that; control produces a statist outcome when complexity and therefore innovation prizes adaptability. We regressively cement in our structural issues instead of enabling people and investment to change and restructure. And economics helps drive that statist bus.

I humbly suggest Austrian economics could take a larger step forward if it fully and publically explored its relationship with complexity theory, which is diametrically opposed to any kind of upside-down Keynesian thinking. There is a reason that complex systems / scale free networks are nature's favorite form, and that Hayek gave up the confining hallways of economics to study them.

[Roger Koppl]

http://www.gmu.edu/depts/rae/archives/VOL19_4_2006/1-Koppl.pdf

[Troy Camplin]

I agree with Jim. Economies are scale-free, self-organizing, emergent processes and therefore in a far-from-equilibrium state. If that fact makes economic modeling difficult, better difficult and right than simple and wrong.

[Jim]

Mr. Koppl,

Having previously read your excellent 'Austrian economics at the cutting edge' speech, I must say I agree with almost everything you say; we are entering an era of convergence of multi-disciplinary thought, isolated at the moment mainly by educational structure and language.

But within each discipline, there are major portions caught in ideological backwaters. Psychology (as example) was side-lined by Freud and generally captured by a strange leftist sociology, but has still produced startlingly effective steps forward with cognitive and behavioral approaches driven by works like logo-therapy that brush up against philosophy. All these advances are consistent with Austrian economics and complexity research while rendering much of today's 'mainline' thinking irrelevant or just plain wrong.

As you said in your speech better than I did in my post, Austrians can attract a great deal of attention by acting as a synthesizer of these discussions in various disciplines. That would both re-position economics, arguably to its real role (as opposed to slipping into irrelevance) while reframing much essential and current cultural conversation.