unconventional economics

Unconventional EconomicsInterdisciplinary Challenges in Social Sciences

TÁMOP 4.2.4.A

22/10/2014 Juozas Kasputis

Supported by the National Excellence Program - Elaborating and Operating an Inland Student and Researcher Personal Support System convergence program

Economics

Value-free science or political activity?

Scientific methodology/ideological implications

Objectivity/subjectivity



Mary Ellen Solt

“Moon Shot”


The first picture of the moon by a U.S. spacecraft Ranger 7, on July 31, 1964 at 13:09 UT (9:09 AM EDT), about 17 minutes before impacting the lunar surface. The Ranger 7 impact site is off the frame, to the left of the upper left corner. NASA


Nikon P-300 BLK Riflescope and the image of its reticle

http://www.thetruthaboutguns.com

Mathematics and poetry

• Mathematics is not an empirical science

• Mathematics and poetry have deep connection with language

• Mathematics and poetry can classify shapes (establish symmetries) or creatively manipulate them (breaking symmetries)

• Mathematics and poetry can host different visions, but it makes them vulnerable to external abuse


“Two cultures” of knowledge

The 16th – 17th centuries: breaking up with philosophy

BaconUtilitarian turn, applicability of science, experiments, interrogation of Nature

DescartesDualism of matter and mind, supremacy of reason, clockwork mechanism of Nature

NewtonUniversal laws of motion and gravitation


“Two cultures” of knowledge The hierarchical structure:“By the beginning of the nineteenth century, the division of knowledge into two domains had lost the sense of their being “separate but equal” spheres and took on the flavor of a hierarchy, at least in the eyes of natural scientists – knowledge that was certain (science) versus knowledge that was imagined, even imaginary (that was not science). Finally, in the beginning of the nineteenth century, the triumph of science was ensconced linguistically. The term “science’’ without a specifying adjective came to be equated primarily (often exclusively) with natural science.”

I. WallersteinThe Gulbenkian Commission on the Restructuring of the Social Sciences, 1996


“Mechanics” of economics• Economics is one of the oldest branches of contemporary social sciences

which developed under the principle of ‘social laws’.

• The concept of “equilibrium” is borrowed from natural sciences. The notions of “balance”, “stability”, “normal” were derived from it.

• Economic theory can be useful but its static and fatalistic valuations cover biases of unscientific origin.

Gunnar Myrdal (1944)


“King is naked”Universalism of natural sciences permeated economics:

“Two mathematically trained engineers Leon Walras and Vilfredo Pareto translated Classical Economics with considerable refinement and elaboration into a concise language of algebra and calculus and called it the General Equilibrium Theory.Economists developed a nearly irresistible predilection for deductive reasoning: not having been subjected from the outset to the harsh discipline of systematic fact-finding as in the natural and historical sciences. As a matter of fact, many entered the field after specializing in pure or applied mathematics.”

W. Leontief (1982)


Political and ideological implications in economics

• From the 17th century it was realized that moralizing philosophy and religion can not restrain effectively the destructive passions of people.

• The success of mathematics and celestial mechanics fueled the belief that similar laws can be discovered for the actions of human beings, just as for falling bodies and planets.

• “The idea of engineering social progress by cleverly setting up one passion to fight another became a fairly common intellectual pastime in the course of the eighteenth century.”

• Montesquieu's tripartite system as the separation of political power among a legislature, an executive, and a judiciary was enforced by the same principle of countervailing passion.

A. O. Hirschman (1997)



• The destructiveness of passion and the inefficiency of reason were supposed to be put in order by the third intermediate category – interest. “Interest was seen to partake in effect of the better nature of each, as the passion of self-love upgraded and contained by reason, and as reason given direction and force by that passion.”

• The rationally conducted acquisition of wealth could be treated as calm passion but equally strong enough to fight turbulent passions.

• The rational agent as basic principle of classical economics seems to be deeply intertwined with newly established concept of state governance.

A. O. Hirschman (1997)



• Social sciences have certain flaws of immaturity because they were institutionalized only at the end of the 19th century. They still include the remnants of external political and ideological influences.

• Economics is positioned as “objective” social science, but the concept of impartial market forces bears the prevalence of liberal thought from the 19th century.

• For example, the notion of ’society’ is still framed by the boundaries of ‘state’ (I. Wallerstein, 2000). Accordingly, macroeconomics of ‘state’ can unproductively restrict economics as science.


Social sciences – political sciences?• “Man is, as Aristotle told us, a political animal, and social science is a political science

in this sense. Valuations are present in our problems even if we pretend to expel them.”

• “Facts, and the handling of data, sometimes show themselves even more pervious to tendencies toward biases that does “pure thought”. The chaos of possible data for research does not organize itself into systematic knowledge by mere observation.”

• “Scientific terms become value-loaded because society is made of human beings following purposes. A “disinterested social science” is, from this viewpoint, pure nonsense. It never existed, and it never will exist. We can make our thinking strictly rational in spite of this, but only by facing the valuations, not by evading them.”

Gunnar Myrdal (1944)


“Three cultures” of knowledgeMore unbiased structure:

Social sciences and humanities can not rely on the vocabulary of natural sciences. Rationality is under suspect.

Natural scientists are forced to accept a consensus in interpreting data produced by machine. The concept of objectivity includes social context.

Humanities can do quite well in reminding society of its contradictions, philosophy analyzes the coherence of scientific theories.

J. Kagan (2009)


The shortcomings of mainstream economics

• Ignoring fruitful explanations presented not by formal models, preferably mathematical.

• Arbitrary scale of numbers. For example, a utility is measured as having property of mass.

• Economic concepts do not satisfy all the mathematical requirements.• 19th century economists copied the concepts of energy and equilibrium from physics

of era.• The concept of the expected utility preference is treated in objective mode

neglecting subjective mode.• Premise that mathematical tools are applicable to economic decisions is based

rather on belief.• A rational choice model is inappropriate – not everybody can be regarded as free

agent.• The concept of human capital includes the costs of school systems, but ignores the

education of children at home.


The end of universality

• The quest for universal laws has monotheistic implications – Newtonian laws render quasi-religious system, but gravitational force is too weak on microscopic level.

• The conception of classical observer has changed – it’s impossible to remain a pure observer on cosmological or microscopic scales.

• Godel’s incompleteness theorem – the axioms of ordinary arithmetic can not determine the truth or falsity. The possible deductions can not possess more information than axioms.

• The world is not a completely deterministic – chaotic systems.


Complexity theoryChaotic system:

•Non-linear – the whole accounts to more than the mere sum of its parts.

•Low level of predictability – the slightest uncertainty results in loss of information about future.

•Extreme sensitivity to the starting state – multiple possible histories.

•Limited knowledge of individual agents.


Complexity theoryMany sided complexity resides in the “betweeness” of very small and very large.

Organized complexity or ‘emergence’– order out of chaos.

Overall stability is maintained by local instability.

Chaotic systems: weather, the economy, etc.


Complexity theory and social sciences

• Complexity theory mainly is based on experimental mathematics, thermodynamics, physical chemistry and evolutionary biology. Social sciences can learn a lot from these fields, there is no hierarchy.

• The concept of chaos does not necessarily abandon the rationality.• Complex systems are evolutionary, the key dimension of movement is change through time.• Both in the social world and biological reality causation is complex. Causes interact in a non-

additive fashion, the combined effect is not the sum of the separate effects.• “Chaos/complexity, because it recognizes the significance of emergent properties, asserts the

emergent, distinctive and non-reducible character of the social, and thereby respects the autonomous logic of sociological theory.”

• The capacity of linear mathematical models of mainstream economics breaks down because of complexity.

• Complexity theory rejects the development of social laws analogous to the laws of mechanics.• “The meso-level of regional and urban planning is of particular interest as a locale of “applied

social science” based on the “chaos/complexity” programme.”

D. Byrne (1998)


Premises for alternative economics(inexactness of economics)

• Economists can not effectively test their theories because of complexity and inaccurate knowledge.

• “What is wrong with economic theorizing is not what economists are doing, but what they are not doing and what they refuse to do.”

• The inexactness of economics should be tolerated – if progress in science depended on the rigorous exactness, there would be no progress in science.

D. M. Hausman (1992)


Mesoeconomics

“The mesoeconomy has profoundly qualified – and in key respects undermined conventional macroeconomic theory and policy. Its significance lies in the fact that it not only represents a new power structure of monopolistic and multinational business, but also that intermediate mesoeconomic power impacts on both the micro and macroeconomy, and in large part divorces the macro-micro synthesis of Keynesians and monetarists. One of the main qualifications of conventional macroeconomic theory on prices and inflation arises from the price-making power of mesoeconomic big business.”

S. Holland (1987)


Leontief input-output model

• The output of any industry is needed as an input in many other industries, or even for that industry itself

• Interdependence of industries is analysed instead of market equilibrium conditions

• The major mathematical tool – matrix algebra


Leontief input-output model


1 2 3 ... N1 a11 a12 a13 ... a1N

2 a21 a22 a23 ... a2N

3 a31 a32 a33 ... a3N

... ... ... ... ...

N aN1 aN2 aN3 ... aNN

OUTPUT

Software for input – output analysis

Regional Economics Applications Laboratory

Regional Research Institute


Modeling of complex systemsThe Center for Connected Learning (CCL) and Computer-Based Modeling at Northwestern University

Multi-agent programmable modeling environment

The Gephi Consortium - a not-for-profit corporation created to join the efforts of industrials, laboratories and civil society

Open source software for network visualization and analysis


Numerical analysis

GNU OctaveHigh-level language, primarily intended for numerical computations. It provides a convenient command line interface for solving linear and nonlinear problems numerically, and for performing other numerical experiments

FreeMatEnvironment for rapid engineering and scientific prototyping and data processing


Bibliography

Barrow J. D. (2007). New Theories of Everything: The Quest for Ultimate Explanation. Oxford, New York: Oxford University Press.

Birken M. and Coon A. C. (2008). Discovering Patterns in Mathematics and Poetry. Amsterdam, New York: Rodopi.

Byrne D. (1998). Complexity Theory and The Social Sciences. London, New York: Routledge.

Dyson F. (2006). The Scientist as Rebel. New York: New York Review Books.

Hirschman A. O. (1997). The Passions and The Interests: Political Arguments for Capitalism Before Its Triumph.Princeton, New Jersey: Princeton University Press.

Holland S. (1987). The Global Economy: From Meso to Macroeconomics. London: Weidenfeld and Nicolson.

Myrdal G. (1944). An American Dilemma: The Negro Problem and Modern Democracy. New York, London: Harper&Brothers Publishers.

Kagan J. (2009). The Three Cultures. Cambridge, New York: Cambridge University Press.

Leontief W. “Academic Economics”, Science, 1982, vol. 217, p. 104-107.

Wallerstein I. (2000).The Essential Wallerstein. New York: The New Press.


unconventional economics

Presentations & Public Speaking