I suppose the one criticism anyone with any concerns at all about neoclassical economics will know about is this business about unreal assumptions. It’s hardly the most significant issue in bad economics in the conservative style, but anyway let’s talk about that this week.
One issue complicating this topic is potentially conflating positive and normative economics and the methodological issues relevant to each, thus equivocating on the term “assumptions” as either inputs in positive models or as factual premises in normative theories. Recall a “positive” model, theory, argument in this context is about what is, as opposed to what one supposes ought to be. One form of “positive economics” is about objective empirical prediction of observable events as sales, profits, employment, wages, inflation, GNP, whatever it is. There is another form of “positive economics” all about logical analysis and mathematics, “pure theory,” as it were, with no reference to objective, empirical fact. It is about what is in the sense of how things are defined and how concepts relate under some system of logic.
Positive empirical neoclassical economics is usually more engineering models than careful accumulative empirical science, per se, which seeks to eschew false, simplifying assumptions in favor of hewing as closely to reality as possible. However, it’s still meant to be a positive endeavor. An issue in positive empirical endeavors as predictive engineering models is the potential role of normative beliefs or biases, which may predispose one to accept or investigate theories that are less successful on empirical bases merely because they appeal to one’s normative beliefs. In that context, the problem with false, simplifying assumptions in positive engineering models is they provide a handy hook on which to hang normative beliefs. It’s hardly a secret many ostensibly positive economists seem rather taken with the “beauty” and “elegance” of their models and so on. Along the same lines, many ostensibly positive economists accept a storytelling function, suppose part of their job is to spin intuitive, attractive narratives. Again, it raises questions about the evaluation and real function of false, simplifying assumptions in positive empirical economic models.
Those are some issues relating to unreal assumptions in positive empirical economics, often discussed in the context of philosophy of science. Now let’s turn our attention to normative economics, about what one supposes ought to be, evaluation, advice, policy recommendations, etc. Normative economics is a form of what is called in philosophy ethics, that is, it presents an argument about ostensibly optimal economic arrangements, what others ought to do. A complicating issue here is that normative economics, like all ethical philosophy, involves logic and factual premises. The presence of logic and factual premises implies a role for positive inputs to normative theories. Does the presence of logic and factual premises mean ethical arguments are not really normative but positive? No. They’re normative theories with positive inputs. I thought I should mention it as a common conceit among normative economists is they’re not doing ethical philosophy, not recommending what anyone ought to do, but doing positive economics, simply delving into the positive elements of a certain ethical theory, in case anyone cares. It’s a fatuous, disingenuous argument as economists do, in fact, recommend, often in the most strident of terms, what others should do on the basis of the ethical theory they’re analyzing, and they’re really the only people expressing any prior interest in the ethical theory they’re analyzing. It’s the equivalent of a philosopher who develops let’s say a theory of utilitarian philosophy suggesting he didn’t write a book on ethics at all but merely a logical analysis of some normative propositions plus a description of empirical reality in the form of any factual premises used.
In the context of a normative ethical theory, the presence of false factual premises is an issue because they make that theory inapplicable to reality. They obscure issues that exist in reality but not under the false factual premises. The theory must then be revised before applied to reality. For example, analyzing the ethical significance of individual preference ranks under conditions of perfect information and rationality is obviously different from analyzing their ethical significance under conditions of ignorance, irrationality, emotions, psychology, addictions, that sort. Another issue in normative economics is conflating factual premises with normative propositions. (Recalling the time a fellow student questioned the relevance of some normative conclusion by pointing out real people don’t act that way only to have our professor glibly retort, “Well, they should.”) Another issue in normative economics is potentially inappropriate evaluation. Ethical propositions, inputs, conclusions are meant to be evaluated by reference to the subjective moral sense or sensibility of the evaluator. Aesthetic evaluation, elegance for example, is inappropriate in that context. Finally, the issues in interpersonal ethics raised by the ethical half-theory of neoclassical welfare economics and the related false, misleading full ethical theory of bad economics in the conservative style, are vastly more significant than false factual premises, which are very much a sideshow.
It’s perfectly fine to critique false simplifying assumptions in positive economics and false factual premises in normative economics, but to avoid long, pointless, circular conversation, do try avoiding conflating the two. Also, do then move on to the more important issues in interpersonal ethics.
