Tuesday, October 03, 2006

The Economic Noumenon and the Innocuous Empiric

According to Lawson’s critical realist view, the central aim of economic theory is to provide explanations in terms of hidden generative structures. Despite Lawson’s clarity of style and painstaking efforts to explain his view—a process involving a good deal of repetition—his essays are not easy to read. His criticisms of mainstream economics seem familiar and are widely held in circles of critical realists. They include: excessive reliance on deductivist methodology, uncritical enthusiasm for formalism, an unwarranted faith in “event regularities” in economic and social life, a mistaken belief in the scope for strong conditional predictions in economics despite repeated failures, and confusion with respect to methodology. A fundamental reorientation of the discipline is needed to remedy this sorry state of affairs, including a radical transformation of its accepted objectives. This would bring about the effective demise of economic orthodoxy.

While the main thrust of Lawson’s argument is decidedly anti-positivist and anti-empiric it is not, by most standards, avant garde. Lawson explicitly dissociates himself from the views of subjectivists and the hermeneuticists. He maintains that economics can be scientific in precisely the same sense as physics. Where the critical realist approach differs is in saying that economics ought to embrace “social ontology”, which a strict attention to the empirical reality is not presently able to include. (1)

The main project is that of ontological inquiry, for Lawson argues that the abandonment of ontological reasoning is the basic error underlying the now discredited positivist conception of science. According to the transcendental realist (in a semi-Kantian sense) there are three distinct domains of reality: the empirical (characterized by event regularities), the actual (events and states of affairs in addition to the empirical), and the real (structures, powers, mechanisms, and tendencies in addition to actual events and experiences.) The three levels of reality are “out of phase” with each other (2). The real world the scientist examines is the empirical. This is limited, Lawson argues, because empirical realists presume that the objects of inquiry are solely empirical regularities, with no substance, no underlying causes. Or at least, these underlying causes are not taken seriously by mainstream economists.
Transcendental realism views the third domain, the real, as the focus of science, whereas positivists adopt the erroneous view that ontological matters can always be translated into epistemological terms.

According to Lawson, transcendental realism is the general theory of science which is combined with a specific theory of ontology to form critical realism. Enduring social structures are distinguishable from purely natural ones by their dependence on human agency, and the task of social research, including economics, is to uncover such social structures as exist—for example, rules, relationships, and positions. Contrary to the methodological individualists’ claim, such as the Austrians, these social structures are not reducible to individual human actions. The positivists’ basic error is the failure to examine explicitly the “intransitive objects of social science.” (3)

Most mainstream economists take it for granted that their theories, procedures, and techniques are appropriate for the investigation of social life, but this is not the case. The result is a conservative ideology which serves to rationalize contemporary practice.

Lawson’s consideration of competing explanatory theories is central to an understanding of his contribution to economic methodology. Contrary to the orthodox economists’ positivistic claims, strict event regularities cannot be found in the social realm (and, indeed, only rarely in the natural world, and even then only under strictly controlled experimental conditions.) Hence, the economist is forced to reply on partial event regularities (or demi-regs). The result is that economic analysis is usually a “complicated and messy affair.” (4)
The methodological position that Blaug adopts is, roughly, logical empiricism as propounded by Karl Popper and his followers. Blaug is a “shout-it-from-the-rooftops empiricist” with an unqualified commitment to the methodologies of Popper and Lakatos. He is for prescriptive methodology and is against the postmodernist tendency towards hermeneutics and rhetorical analysis. “Methdological pluralism” is a sham—an excuse for making final judgments about competing theories (5).

And where some blame the absence of judgment on the failures of econometrics, Blaug calls for “more and better econometrics” (6). For an unrepentant neoclassical, he is surprising sympathetic to Marx and to radicals.

In Blaug’s account, Popper and Lakatos seem to be indistinguishable, although he does say that Lakatos is “softer on science” than Popper (7). Lakatos is, however, much “harder” than Kuhn and more inclined to criticize bad science. He seems to reduce Lakatos’ methodology to (i) theories should be progressive in that they predict something beyond the facts used to construct them; and (ii) theories should be confronted with experience. To an empiricist, these are unexceptionable statements. But perhaps that is Blaug’s point: are we all Lakatosians now?

Blaug is a Popperian methodological falsificationist, and as such, he is unhappy with the present state of affairs in economics. However, Blaug is not upset with the lack of transcendental wishy-washiness, but rather the lack of hardcore Popperian falsificationism. The problem is plain to see: though economists have learned to preach the rhetoric of falisificationism, they have not yet learned to practice it, preferring instead verificationism, or “innocuous falsificationism”. Testing ought to give way to testability as a demarcation criterion.

Both Lawson and Blaug see ugly currents in modern economics. But the ugly is more consistent from Lawson’s point of view. Perhaps this can be attributed to its vagueness, but at least it is consistently vague. Blaug makes interesting arguments, and his essays are better written than Lawson’s. But his criticism of critical realism, if applied, could not possibly be relevant, whereas Lawsons’ criticism of Blaug, if applied, is better understood. Lawson may be considered an innocuous falsificationist in his empirical economics. But if the critical realist project is seen as a research program, it cannot be thrown out as being a degenerative one. Its hardcore is sustained by the economists busy bouncing negative heuristics off the protective belt. It is thus a progressive research program. Blaug tries to blend the Lakatosian and the Popperian together, but overlooks the more relativistic notions that Lakatos introduces. Thus it does seem that with Lakatos falsification no longer matters where progressiveness is the standard for research evaluation.

The critical realist position, broadly, is not relativistic. It can give an account of ugly economics with an ability to criticize not just falsificationism, but all of modern economics, for not having any explanatory power with regards to underlying causes. Perhaps it cannot give an adequate of account of what proper social ontology ought to be, but it is defensible in the sense that it is consistently arguing for a proper place in economics of the causal explanandum.

Works Cited:

(1) Review: Economics and Reality. A.W. Coats. Jstor.org :1997
(2) A Realist Theory For Economics. Tony Lawson. New Directions in Economic Methodology: 1994. P 260
(3) ibid. P 265
(4) Why I am Not a Constructivist. Mark Blaug. New Directions in Economic Methodology. 1994: p 116
(5) ibid. P 363
(6) Pluralism in Economics. Andrea Salanti. Jstor.org 1998
(7) Paradigms versus Research Programs. Mark Blaug. Anthology. P 353

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