Economics: Puzzles or Problems?

26 June 2006 at 8:15 am 14 comments

| Peter Klein |

I’ve enjoyed reading Wittgenstein’s Poker: The Story of a Ten-Minute Argument Between Two Great Philosophers, an engaging account of the famous “poker incident” at which Ludwig Wittgenstein may or may not have threatened a visiting Karl Popper with a fireplace poker during a 1946 meeting of Cambridge’s Moral Sciences Club. David Edmonds and John Eidinow perform a forensic reconstruction and conclude that Popper probably exaggerated what happened but that Wittgenstein did act like a boor. More important, Edmonds and Eidinow explore the background and aftermath and use the incident to anchor an elegant survey of twentieth-century philosophy putting Popper’s and Wittgenstein’s contributions in context.

(Incidentally, neither philosopher comes across as the sort of guy you’d want to spend an evening with. Popper appears petty and insecure, almost paranoid. As for Wittgenstein . . . I’m no philosopher, but I know what I like, and Wittgenstein — in his later incarnation, anyway — isn’t it. He’s revealed here as a spoiled brat, petulant and overbearing, and his linguistic approach to philosophy strikes me as little more than clever nonsense. In the spirit of full disclosure, I should mention that I first heard about the poker incident from Popper’s student W. W. Bartley, III, who was far from impartial. See The Fortunes of Liberalism, p. 179, footnote 5.)

At issue between Popper and Wittgenstein that night was the status of philosophy itself. Are there real philosophical problems, as Popper maintained, or merely “puzzles,” as Wittgenstein and his disciples insisted? Contemporary analytic philosophy has tended to gravitate toward the latter view, that philosophy is little more than word-play, a fun and interesting exercise but one with little bearing on the “big questions” of life.

What about economics? Over the last couple of decades economists have paid less attention to the “big questions” of unemployment, inflation, capitalism versus socialism, the quality of life, and so on, focusing instead on finding clever solutions to small, empirical puzzles — call it the “Freakonomics approach.” There are exceptions to this trend — the literature on institutions and economic growth, for example — but on the whole economists seem more interested in puzzles than problems.

Is this a bad thing? On the one hand, it must be admitted that prior attempts to tackle the “big questions” were not entirely successful. (Consider the Keynesian macro models of the 1960s and 1970s — Requiescant In Pace!) On the other hand, as contemporary microeconomic theory has become more flexible and realistic, better able to explain a variety of empirical phenomena, it has arguably become too elastic, and may even be “losing its spine,” as Nicolai has argued. (The Folk Theorem doesn’t quite say that “anything goes,” but it comes awfully close.) Bright young scholars such as Steve Levitt, Austan Goolsbee, Matt Rabin, and Tyler Cowen do a terrific job illuminating various facets of everyday life, but their interests seem far removed from those that occupied earlier generations of economists.

Comments are invited!

Update: I should have referenced a January 2006 NY Times piece by Louis Uchitelle, “Students are Leaving the Politics Out of Economics,” which opens: Taking as a model the research techniques that Steven D. Levitt displays in his best-selling book, ”Freakonomics,” graduate students in economics are focusing on small insights about the economy rather than broad theories that explain how the overall system works.

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14 Comments Add your own

  • 1. Tom  |  26 June 2006 at 11:04 am

    I find it necessary to ask whether the “Freakonomics approach” is over represented. The questions are amusing and attract attention from economists, non-economist academics, and the everyday reader. It is in the same way Galbraith’s ideas were overly represented because of the sheer readability. Also, read Greg Mankiw’s brief post to get his feelings about the availability of the big questions in economics.

    Also, I believe it was Coase who mentioned that the reason economists spend time outside of economics is our failure to solve problems within economics. I disagree with this, but it is to be considered. Mathematicians, for example, spent large amounts of time on Zeno’s paradoxes despite being rather trivial problems. Like the mathematicians trying to use their science for problems outside of sums and divisions, economists are attempting to take the theory of choice to other areas. If these applications work then it vouches for our imaginative framework of choice, utility, payoffs, etc.

    As an amusing side point, I always enjoyed my friend’s post of Wittgenstein’s linguistic qualities.

  • [...] Peter Klein asks whether economists are still asking interesting questions or if they are looking more at entertaining, but trivial questions: Over the last couple of decades economists have paid less attention to the “big questions” of unemployment, inflation, capitalism versus socialism, the quality of life, and so on, focusing instead on finding clever solutions to small, empirical puzzles — call it the “Freakonomics approach.” There are exceptions to this trend — the literature on institutions and economic growth, for example — but on the whole economists seem more interested in puzzles than problems. [...]

  • 3. Lasse  |  26 June 2006 at 6:25 pm

    Maybe big questions relate to economics as creativity to innovation!

  • 4. C. Grammich  |  26 June 2006 at 6:59 pm

    Interesting point, Peter. I’m especially curious what other non-economist social scientists have to say about similar trends in their own fields.

    I sometimes wonder if the methods of economists have too much influenced those in political science (my own original field), particularly American politics. As a result, there is much interest in and research on, say, why theological conservatives are political conservatives in the voting booth, featuring quantification (sic) of religious phenomena. But there is little interest or even understanding that this wasn’t always the case or about what may have caused this change. There may be still less in the fact that most Americans, evangelical or otherwise, really don’t have much interest in politics or will even define their relationship with the body politic in many ways that don’t involve things as easily measured as voting–and, indeed, may involve *non*-voting.

    Alas, the more relevant (and less self-serving) examples of political science are less interesting than this. They’re also much less interesting than those in Freakonomics, which, as noted, are readable. But, again, I’m curious whether there’s a larger trend here . . .

  • 5. Peter Klein  |  26 June 2006 at 9:03 pm

    Cliff, I recall Barry Weingast at a conference a few years ago lamenting how political science — largely under the influence of interlopers like himself — was degenerating into navel-gazing(e.g., study after study of the committee structure of Congress), instead of analyzing real political problems. I understand that there’s been something of a backlash against this in political science, however. Can any specialists out there fill us in?

  • 6. C. Grammich  |  26 June 2006 at 9:36 pm

    Peter, you may be right. Weingast certainly is right that the problem is at least as bad in studies of Congress as it is in studies of voting. I can’t say I’ve followed the discipline closely enough since getting my degree to know for sure. So, like you, I’d be interested in hearing what any specialists–either in political science or fields (that I perceived) with similar problems like sociology–with more current knowledge would have to say about this.

    I can’t forget one specialist in religion and politics, however, haranguing (under the pretext of giving advice to) me for two hours that if the NES could be refined sufficiently to include the “footwashing” Baptists whose politics all over the map so fascinated me then it would find their linkages between religion and politics more predictable than either of us realized. Ummmmm, ohhhkaaaayyy . . . I’m guessing to this day he doesn’t see the irony of applying reductionism to such elementary religion.

    Incidentally, the same comments apply to analyses using county-level statistics on religious adherence (in which I also have some special personal interests). There’s some really neat work on it, but also some that is so limited and thereby requiring such precision as to make me wonder if the authors have given any serious thought to exactly how these statistics are compiled (and how they, um, evolve over time . . . ) . . .

  • 7. Peter  |  27 June 2006 at 2:11 am

    Just FWIW, there’s no such Latin word as “resquiat”; the word you want is “requiescant” (being plural, in line with “models”). And “pacem” is in the wrong case; should be “pace” (“in pace” = in peace; “in pacem” = into peace)

  • 8. Peter Klein  |  27 June 2006 at 8:27 am

    Thanks, I’ve corrected the error. (Of course, I put it there deliberately, just to see if anyone was paying attention….)

  • 9. Mark E Hoffer  |  27 June 2006 at 9:53 am

    Why would we be surprised that there is a thin market for large ideas? Seriously, what are the dominate trends, in our Polity, over the last ~40, ~70, ~90,~140 years?

    The “big ideas” have been marked down– “Government governs best, when it governs Least.” “A stable unit of account provides for maximum Economic Efficiency.” “Beware of foreign Entanglements.” …the list is hardly complete.

    Are we really afraid to ask ourselves: “Who are we working for?” (Supply conforms to the “Market’s” demand signals, no?)

    I suspect that an honest answer, to the above Q, will tell us all we need to know about the trends extent in the fields of our Inquiry.

    That, previously, honorable callings have been reduced to “Su Doku” Economics and “Survivor” PoliSci is through no Action, but, of our own.

  • 10. Steve Sailer  |  27 June 2006 at 4:22 pm

    As a non-economist, my perspective is close to 180 degrees the opposite. Many of the issues raised in “Freakonomics” are important ones:

    – Did legalizing abortion cause a sharp drop in crime?

    – Does it matter which high school your child attends?

    – When school districts report rising test scores, as mandated by the No Child Left Behind act, can we trust them?

    – Is the vast home real estate agent business useful to consumers or is it based on cartel power?

    – Especially since Freakonomics, Levitt has been moving more into the biggest question of all in the human sciences: Nature vs. Nurture, as in racial differences in IQ.

    My objection to Levitt’s work is not that he’s wasting his vast analytical powers on trivial subjects, but that his analytical powers have too often been found inadequate for the magnitude of his subjects. For example, his celebrated abortion-crime theory has taken a fearful beating over the last seven years from people more familiar with the actual crime statistics than he is.

  • 11. Peter Klein  |  27 June 2006 at 7:00 pm

    Point taken. I agree that the issues you mention are far from trivial. They’re much more “contemporary,” however, than those traditionally tackled by economists (unemployment, inflation, monetary policy, socialism, etc.). These general, theoretical problems that endure from one generation to the next are those that used to attract the best and brightest minds in the discipline.

  • 12. Henrik Berglund  |  4 July 2006 at 1:43 pm

    At the risk of coming across as too “pomo” for the readers of this blog, I think one might benefit from looking outside the traditional economic toolbox and also embrace sociological (Oh no!) and phenomenological (What!!!) ideas when trying to comprehend why talented economists and others engage in trivial pursuits rather than engaging “big questions”. I know the post is a bit long but please bear with me, it may all yet turn out to be rational choice…

    In a great 1971 paper, Murray Davis set out to described why certain theories are deemed “Interesting” whereas others are ignored; an issue that, to Davis, was fundamentally different from whether they are true:

    It has long been thought that a theorist is considered great because his theories are true, but this is false. A theorist is considered great, not because his theories are true, but because they are interesting.

    In the paper, Davis reviews the work of numerous classical social science writers (e.g. Freud, Marx, Simmel, Weber) only to find that they all share a common dialectic in their theories:

    All of the interesting propositions I examined were found to involve the radical distinction between seeming and being, between the subject of phenomenology and the subject of ontology. An interesting proposition was one that first articulated a phenomenological presumption about the way a particular part of the world had looked, and then denied this phenomenological presumption in the name of truth, that is, in the name of a more profound, more real, more ontological criterion. Put more precisely, an interesting proposition was one that attempted first to expose the ontological claim of its accredited counterpart as merely phenomenological pretence, and then to deny this phenomenological pretence with its own claim to ontological priority. In brief, an interesting proposition was always the negation of an accepted one. All of the interesting propositions I examined were easily translatable into the form: “What seems to be X is in reality non-X” or “What is accepted as X is actually non-X.”

    Building on this general logic he then produces an “Index of the Interesting” comprising twelve logical categories that involve either the characterization of a single phenomenon or the relations among multiple phenomena:

    A – The Characterization of a single phenomenon

    (i) Organization
    a – What seems to be a disorganized (unstructured) phenomenon is in reality an organized (structured) phenomenon.
    b – What seems to be an organized (structured) phenomenon is in reality a disorganized (unstructured) phenomenon [or organized/structured in a different way.]

    (ii) Composition
    a – What seem to be assorted heterogeneous phenomena are in reality composed of a single element.
    b – What seems to be a single phenomenon is in reality composed of assorted heterogeneous elements.

    (iii) Abstraction
    a – What seems like an individual phenomenon is in reality a holistic phenomenon. (sociologizing)
    b – What seems like a holistic phenomenon is in reality an individual phenomenon. (psychologizing)

    (iv) Generalization
    a – What seems to be a local phenomenon is in reality a general phenomenon.
    b – What seems to be a general phenomenon is in reality a local phenomenon.

    (v) Stabilization
    a – What seems to be a stable and unchanging phenomenon is in reality an unstable and changing phenomenon.
    b – What seems to be an unstable and changing phenomenon is in reality a stable and unchanging phenomenon.

    (vi) Function
    a – What seems to be a phenomenon that functions ineffectively as a means for the attainment of an end is in reality a phenomenon that function effectively.
    b – What seems to be a phenomenon that functions effectively as the means for the attainment the attainment of an end is in reality a phenomenon that functions ineffectively.

    (vii) Evaluation
    a – What seems to be a bad phenomenon is in reality a good phenomenon.
    b – What seems to be a good phenomenon is in reality a bad phenomenon.

    B – The Relations Among Multiple Phenomena

    (viii) Co-relation
    a – What seem to be unrelated (independent) phenomena are in reality correlated (interdependent) phenomena.
    b – What seem to be related (interdependent) phenomena are in reality uncorrelated (independent) phenomena.

    (ix) Co-existence
    a – What seem to be phenomena which can exist together are in reality phenomena which cannot exist together.
    b – What seem to be phenomena which cannot exist together are in reality phenomena which can exist together.

    (x) Co-variation
    a – What seems to be a positive co-variation between phenomena is in reality a negative co-variation between phenomena.
    b – What seems to be a negative co-variation between phenomena is in reality a positive co-variation between phenomena.

    (xi) Opposition
    a – What seem to be similar (nearly identical) phenomena are in reality opposite phenomena.
    b – What seem to be opposite phenomena are in reality similar (nearly identical) phenomena.

    (xii) Causation
    a – What seems to be the independent phenomenon (variable) in a causal relation is in reality the dependent phenomenon (variable).
    b – What seems to be the dependent phenomenon (variable) in a causal relation is in reality the independent phenomenon (variable).

    Now what, one may ask, does all of this have to do with Freakonomics, the attempts by economists to solve non-economic problems, or the neglect in economic discourse of “big questions”? Quite a lot I would say.

    Levitt and others who use one or a few simple analytical concepts of economic theory to describe, what have traditionally been understood as much more complex social problems (Mises and Kirzner also come to mind), may for instance be interesting because they conform to category A, ii, a above.

    Similarly, many of the “big questions” such as the debate with socialists and communists are simply too uncontroversial in the public mind in our current time and place. Arguing that free market capitalism is generally the best way of organizing the economy was very interesting when it was done by Mises and Hayek. But today it is simply too uncontroversial to be of interest (this, of course, does not mean that it is true). As Davis puts it:

    All interesting theories, at least all interesting social theories, then, attack the taken-for-granted worlds of their audiences. An audience will consider any particular proposition to be worth saying only if it denies the truth of some part of their routinely held assumption-ground. If it does not challenge but merely confirms one of their taken-for-granted beliefs, they will respond to it by rejecting its value while affirming its truth. They will declare that the proposition need not be stated because it is already part of their theoretical scheme: “Of course.” “That’s obvious.” “Everybody knows that.” “It goes without saying.”

    This, finally, allows us to suggest what may be both an interesting and economic explanation of why economists venture out of their field and write things like “Freaconomics”. This is simply what rational researchers should do if they want to maximize the returns on their publication efforts, given of course that the goal is to be perceived as interesting and original (though perhaps not by grumpy and jealous economists). If these are indeed their goals, such behavior chould be considered perfectly rational.

    To the extent that this type reasoning is interesting, this is of course also easily explained by the Index of the Interesting…

    Davis, M. (1971). “That’s Interesting! Towards a Phenomenology of Sociology and a Sociology of Phenomenology.” Philosophy of Social Science 1: 309-344.

  • [...] I am reminded of all this by this paragraph, quoted in Peter Klein’s post (which was triggered by an earlier post): Economists are extending the range of their studies to include all of the social sciences. . . . What is the reason why this is happening? One completely satisfying explanation . . . would be that economists have by now solved all of the major problems posed by the economic system, and, therefore, rather than become unemployed or be forced to deal with the trivial problems which remain to be solved, have decided to employ their obviously considerable talents in achieving a similar success in the other social sciences. However, it is not possible to examine any area of economics with which I have familiarity without finding major puzzles for which we have no agreed solutions, or, indeed, questions to which we have no answers at all. The reason for this movement of economists into neighbouring fields is certainly not that we have solved the problems of the economic system; it would perhaps be more plausible to argue that economists are looking for fields in which they can have some success. [from Ronald Coase’s 1978 paper titled “Economics and Contiguous Disciplines”. [...]

  • 14. Mario Rizzo  |  16 October 2012 at 1:26 pm

    TALK TO RODERICK LONG ABOUT WITTGENSTEIN AND PRAXEOLOGY.

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