Shelia dow - a response

economics macro dow

-Sheila Dow-

Simon Wren-Lewis’s misunderstanding of my argument (The culture of expertise in macroeconomics) shows where I need to offer some clarification. He argues (in Why does economics get so much stick?) that, if not trivial, it is dangerous to suggest that all of economics is value-laden. Invoking the ‘scientific method’ (without explaining and justifying what he has in mind), he argues that pluralism allows politicians to pick and choose economic advice that fits with their values, which he equates with fitting with what they want to do anyway.

First we need to consider the role of formal models. Wren-Lewis implies that they form the basis for economic policy advice, i.e. that macroeconomics is equated with formal models. Yet this presumes that everything that is pertinent to a policy decision can be included in such models, or else that economists have nothing to say, or advice to give, beyond what they can show in their formal models.

Even if we were to accept such a narrow understanding of the potential for economics, Wren-Lewis himself makes a limited case for pluralism. He refers to the significant consensus of economists (drawing on different models) behind the likely effects of austerity and of Brexit. In fact, in an earlier blog (Why the microfoundations hegemony holds back macroeconomic progress) he discusses complementarity between modelling approaches.

That the same general policy argument arises from different approaches to modelling lends weight (in the Keynesian sense) to the argument. The argument is more persuasive (no one approach being able to demonstrate its superior ‘truth’) than if it was justified by one modelling approach alone.

But to equate macroeconomics only with formal models (based on a particular, positivist view of science) is to preclude analysis of factors which cannot formally be modelled. This represents a methodological value judgement. Indeed economics is value-laden at many levels. This is the kind of value judgement which underpins the exclusivity of the microfoundations agenda against which Wren-Lewis has argued so consistently.

At another level of value judgement, it is not, as Wren-Lewis implies, trivial that each approach inevitably excludes factors from its theories. For example values enter into the meaning of social welfare, whose enhancement is a core policy goal. Thus, for example, any formal models analysing the effects of austerity policies or Brexit on welfare which still do not include income distribution are implicitly making the value judgement that it should not enter into the policy decision. Perhaps such analyses would have greater resonance if they did?

At another level, models analysing the effects of Brexit which do not incorporate analysis of such matters as power relations, institutional evolution (or rupture), identities or shifts in fundamental uncertainty reflect the judgement that these are not relevant to the economic analysis. Nor do they provide any guidance to policy-makers as to how these factors should be analysed alongside the formal models which exclude them, assuming that they are in fact separable.

If nothing else, Wren-Lewis’s acceptance of modelling plurality therefore needs to be extended to a wider plurality of approaches for which formal modelling is only one of a range of analytical methods (and for some approaches, not even that).

Wren-Lewis’s ultimate objection is that policy-makers will simply pick the advice that fits their inclinations. But, since all of economics involves value judgements at different levels, it is surely reasonable for governments to pay particular attention to analysis which is based on value judgements they share. If the government sees income distribution as an important factor in social welfare, for example, then it makes sense to draw on theory which incorporates analysis of income distribution. But, given the nature of politics, it is also advisable for governments to know about analysis based on other value judgements.

But in any case, the policy decision will be more robust the wider the knowledge base consulted; this is the core argument for methodological pluralism and pluralist methodologies. It is not a simple matter to build up an analysis drawing on different models and statistics, far less different approaches and types of evidence. But to develop that expertise in judgement is necessary for sound decision-making, for which governments are held to account.

Pluralism therefore is quite the opposite of abandoning attempts at building robust knowledge. If most economic knowledge is uncertain, that does not mean that all arguments are equally reasonable (or unreasonable), but rather that arguments and the approaches on which they are based need more rounded justification. Uncertainty and reliability are not absolutes, but rather matters of degree.

The demands on economists of pluralism are therefore much greater than those of positivism. The onus is on all economic advisors to explain their value judgements and to justify their arguments in relation to others, and in relation to the evidence as they understand it and its relevance.

While Wren-Lewis advocates instead a continued focus on mainstream economics, it is arguably the widespread confident absence of justification that this is the best way of analysing the economy which explains much of the erosion of public trust in economics.

 


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11 January 2018

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