Thursday, November 17, 2011

Assault of Thoughts - 11/17/2011

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- One little pet peeve that has come up recently: people who, when speaking of the demand curve facing all firms in a market for a single product, call it "aggregate demand" instead of "market demand".

- Sometimes I just don't understand how other bloggers' minds works. Thankfully, probably the two blogging minds I understand least blog together (easier to contain my puzzlement that way). The most recent zinger was this post from Don Boudreaux where he presents the most common argument for constitutional limits to democratic governance - the argument that I accept for constitutionalism, and the argument that has allowed constitutionalism to sweep the free world - and he asserts that that argument is "seldom identified" as a reason "for restricting the role and scope of government". Really Don? Really? I'm filing this under "inventing an opposition out of thin air just so you can argue with them".

- LK makes an interesting point discussing this Skidelsky interview. Everybody ought to know by now that the 1930s in both Britain and the U.S. amounted to blind groping towards something like Keynesianism. Understandable, of course. Keynes didn't even have a full grasp on Keynesianism until 1936, and these things take time to digest. As we know, his ideas became very popular very quickly, and were eventually used in policy making more deliberately. LK notes that the first time Keynesians really had the reins of policy was during WWII, and their task then wasn't to increase aggregate demand, but to tamp it down and control inflation. When I was looking through the Keynesian predictions for the post-war period I saw this a lot too. They stated regularly how important it would be to keep hold of inflation now that we're out of the depression. One new policy tool that was often cited in this regard was Social Security (forced savings). Hayek said that Keynes was worried his followers might turn into inflationists. I wonder if this is just another of Hayek's many tall tales. If you think about the Keynesian scene in the 1940s, there really doesn't seem to be much reason to think they'd turn into a bunch of inflationists. There was inflation then, of course. But then again - it's not cheap to kill fascists. I don't know how attributable that is to Keynesianism, particularly when the administration hired the Keynesians to keep all that in check.

- Brad DeLong takes Paul Krugman to task for yelling at David Glasner. I agree strongly. Take a look at the update in Glasner's post - he links to F&OST. I made the same connection to the liquidity trap that Krugman did (before Krugman did), without treating Glasner like an enemy (which he's clearly not). [UPDATE: After all, if Brad DeLong has to tell you you're being too harsh to someone on the internet, you know you have a problem! :) ]

- Speaking of people who link to F&OST.


  1. Congratulations Daniel on being referred to by Brad DeLong!

    Out of curiosity though, what do you think of Daniel Ellsberg's contributions to economics? I know he's more famously known for his anti-war campaigns, but his Ellsberg paradox has been an important source of research. Have you covered his work at grad school yet?

  2. Nope - haven't covered him. Sorry.

    After some quick googling though, I think it seems potentially important.

    Clearly it shows a departure from standard utility theory, and those departures are important to catalogue. However, I think we always need to include in this conversation "how important is this departure?".

    You can do a lot of utility theory with just completeness and transitivity of preferences. Now, in reality I doubt preferences are complete. I think it's more likely they're transitive, but even that might not hold in all cases. The point is, though, completeness and transitivity of preferences just ensure you can do that math. Before jettisoning these assumptions we need to ask ourselves "Is the real world departure from completeness and transitivity such that the simplified math fails to describe it?". If the answer is "yes", we have a real problem.

    Completeness, for example, ensures that we have an optimal goods bundle when we do the math. I don't really think preferences are complete, but for all intents and purposes we do because it's probably reasonable to think preferences are complete locally - in the neighborhood that we are optimizing on. So if assuming completeness non-locally helps me do a little constrained optimization to describe that, I'm going to assume completeness non-locally.

    Now - that's just a really elementary example I'm more familiar with. How do Ellsberg's exceptions fit into this? That's something I don't know. Maybe his are more crucial. If they are, they certainly don't seem to have overthrown neoclassical theory just yet.

    Another thought coming...

  3. Kuhn said that science moves forwards when these idiosyncracies pile up and they move from being just some odd puzzles to being incongruities so large that another theory describes the set of observations better.

    This is the way I look at things like the Ellsberg Paradox or really anything that challenges neoclassicism. I do recognize the problem as a real problem. What I am not aware of is a theory that offers a better way of dealing with all of this. Some day I'm sure there will be. One hundred years from now, I highly doubt we will be talking about utility theory the same way we talk about it today. The problem is, I don't know what that way of talking about it is yet.

    Behavioral economics is really just a body of these puzzles. That body of puzzles is very important to build up and talk about. Right now - even though I have a very limited knowledge of this stuff - it doesn't seem to me that we have an articulated theory that can account for these puzzles. Until we do, we're still going to be in the neoclassical paradigm. That frustrates a lot of people - including a lot of my colleagues at American University. It doesn't frustrate me. I'm fairly comfortable in neoclassicism for now, which is different from saying I'm deaf to the issues you raise.

    An alternative approach is to scrap it all. Some people would rather explain less but have less puzzles (I'd put most Austrian discussions of utility theory into this box). I suppose sometimes this is appropriate, but to me it seems like a very dangerous path forward.

    Every step we take forward will veer off the "right" path. It's bound to. I say let's take a few steps and then pull out our compass and recalibrate - then take a few more steps and then pull out our compass and recalibrate. That seems a lot better to me than waiting for a fool-proof path forward.

  4. I didn't read the post which is mentioned, but I would say that it is seldom identified very consistently or coherently.

  5. Daniel,

    Kuhn modified his view of things over time; it was too much of a straight jacket and poorly explained (or didn't explain at all) a great deal of what happens in science re: change.

  6. Daniel Ellsberg's paradox can be used as an empirical buttress for Keynes's theory of liquidity preference because it demonstrates that people are risk-aversive and that their decision-making demonstrate non-linear and non-additive characteristics.

    The agent depicted by neoclassical economics is really a limited case, at best. Michael Emmett Brady has a good review on Daniel Ellsberg's doctoral dissertation (regrettably published in 2001 instead of 1961), "Risk, Ambiguity, and Decision". Brady's review explains the accomplishments in the book.

    The demonstration of non-linearity in decision-making can account for a lot of paradoxes in decision-making. I'll be sending you a copy of Daniel Ellsberg's article, "Risk, Ambiguity, and the Savage Axioms" later today for your's not as good as the doctoral dissertation published in 2001, but it should give you a good idea of where Ellsberg is coming from.

  7. I'd be interested in sources.

    I should hope he modified it... that's the Kuhnian thing to do.

    I wonder what he really "modified", though. A lot of people took him (like Rorty, in fact) to be a relativist that rejected standards of evidence. Perhaps what you take to be "modification", Kuhn would argue as "clarification" (although I personally don't see how anyone could read him as a relativist).

    Not that fundamentally new "modifications" couldn't have been made. As I said, I would hope they would be! But how different was the claim, really? Could you provide some details?

    I mean, simply take the postscript on the later edition of The Structure of Scientific Revolutions. Would you call that postscript a "modification"? I'd call it a "clarification", personally. Nothing substantial in the argument seems to have been modified.

  8. Just to clarify, Blue Aurora, that last comment was for Gary.

  9. Suffice it to say that scientific change is less punctuated in the modification. That is partly the result of the dialogue going on between Kuhn and other people. It is actually something that provides a fair amount of engaging reading if you ever have the time to kill.

    When I get off work tonight I'll dig some things up for you. That is if I don't go to bed first; I have another cold. *blech* Need to get well so I am in good shape for Chloe's birthday party on Sunday.

  10. OK, well the relative degree of punctuation really doesn't seem as important as the mechanism. Some of this I think even comes out in the initial work. It's interesting, obviously the Copernican material seems like a big change, but some of the other changes he's talking about are striking in that they (1.) don't seem as radical, and (2.) have antecedents. The important thing we take from Kuhn, I think, is the mechanism of scientific progress.

  11. @Daniel Kuehn: Understood on your message. Just for the record, I literally just sent you a copy of Daniel Ellsberg's article on the "Quarterly Journal of Economics". I hope you keep the file for your future reference!

  12. *in the "Quarterly Journal of Economics".

  13. Well, it is one claimed mechanism; there are others. There are lots of problems with Kuhn's original thesis and there are problems with his modified thesis as well. I don't think anyone has come up with a satisfactory explanation of said mechanism.

  14. re: "I don't think anyone has come up with a satisfactory explanation of said mechanism."

    I suppose that depends on your definition of "satisfactory". If you mean "completely correct", then no, no one has come with a satisfactory explanation. If you mean "useful for understanding the world", I think the nebulous collection of Kuhnian insights floating around out there is "satisfactory".

    Of course, "satisfactory" is relative to a certain community. As I said above, I don't think 2011 neoclassical utility theory will be "satisfactory" 100 years from now. I do think it is "satisfactory" now. But that's just my definition of "satisfactory".

  15. Gary Gunnels,

    It isn't satisfactory to the field studying the issue certainly; it never was even in at Kuhn's height of influence in the field for that matter.

  16. OK, I have to keep pushing back on this. Can you define exactly what you mean by "satisfactory", please?

    If you mean they didn't close the books, pack up their bags, go home, and take up oil painting, then of course they didn't find it satisfactory.

    Of course we're still thinking through and improving these ideas. Is that all you're saying? No idea any human has ever had is "satisfactory" in that sense of the word. But if all ideas are thus "not satisfactory", "satisfactory" is no longer a term that can be used to discriminate between certain things, and it becomes useless.

    You seem to take the trivial sense in which ideas (not just this - you do this on many issues) are "not satisfactory", and then try to leverage more meaning out of that by staying fast and loose with your use of the terminology.

  17. Daniel,

    It isn't satisfactory. It is a poor explanation on numerous levels. That ought to be obvious by merely reading Kuhn's original work alone (much less the works that responded to it, etc.). My suggestion is to read those response to Kuhn.


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