Right Reason

Some Thoughts on Methodological Individualism

 

The wonderful Arnold Kling discusses the issue in a recent blog post, "Methodological Individualism, Libertarianism, and Conservatism":

I believe that there is a weakness in libertarian thought, but I am not sure that methodological individualism is the culprit. Consider an analogy. Chemists want to talk about atoms as being fundamental. But in the spirit of the quote above, one could argue that we do not have a substance until we have many atoms bound together. The relationships binding the atoms are what is really fundamental in chemistry. It is impossible to have a substance with just one atom.

I would say that it is useful for chemists to think in terms of atoms, and by the same token it is useful for social theorists to think in terms of individuals. But it is important for chemists to understand the various bonding mechanisms among atoms, and it is important for social theorists to understand the various bonding mechanisms among humans.

I think that what makes conservative social theory of the Burke/Tocqueville/Yuval-Levin sort distinctive is its emphasis on multiple modes of human interaction and bonding mechanisms, including families, organized religion, civic associations, and business enterprises. Libertarians tend to focus almost entirely on free trade as a mode of interaction, and progressives tend to focus almost entirely on the central government as a bonding mechanism.

 

That the individual is the sole unit of society is a big point made by the Austrian crowd. And they have a point. If one is to suppose that all analysis of social phenomena should be parsed in terms of human action, it does follow, pretty much by definition, that the fundamental unit of society should be the only element of society capable of action, that is the individual. In my estimation, the Homo-agens argument is sound.

However, I do think that we should be suspicious of talk about fundamentals and concerns about parsing social phenomena in terms of human action alone. After all, being a complex system, society emerges out of the interaction of individuals. It is more than the sum of individual action. We can see this in basic institutional analysis. Yes, when analyzing institutions, we should always care about thinking about the costs and benefits that a particular agent weighs in deliberating his future actions, but we will generally have to treat of institutions as transcendent to that deliberation. It will always be the individual plus institutions, with those institutions existing at an emergent level above, so to speak, the level of a single individual's actions. 

 

There are a lot of reasons to be skeptical of those who deny methodological individualism beyond concerns about foundations. Usually when people deny methodological individualism, they're trying to gloss over the differences between people. It's a lot easier to deal with disagreements in politics when one's conversation entirely neglects the level at which disagreement happens. In this fashion, methodological individualism serves as a instrumental prophylactic against error rather than a statement about the foundations of economics 

Taking Equilibrium Too Seriously

In “All Systems Will be Gamed,” chapter six of Complexity and the Economy, Brian Arthurs argues that economics lacks a failure mode analysis of how systems work analogous to stress testing in structural engineering. The reason economics doesn’t have such a mode of analysis, Arthur argues, is that economists work with equilibrium assumptions that assume away the exploitive behavior that such stress tests are trying to predict: 

Economic analysis assumes equilibrium of the system in question, and by definition equilibrium is a condition where no agent has any incentive to diverge from its prevent behavior. It follows that for any system being studies no invasive or exploitive behavior cannot happen. If such a system could be invaded, some agents would be initiating new behavior, and the system could not have been in equilibrium. Equilibrium economics then, by its base assumptions, is not primed to look for the exploitation of systems, and as a result systemic studies of how systems might fail or be exploited are not central to how the discipline thinks. (Arthur 2014: 104).

As will be clear to those who read the book, Brian Arthurs really has an issue with equilibrium that becomes a consuming obsession. There is much to be said about the economics profession’s probable abuse of the notion of equilibria. Nevertheless, in attacking the concept, Arthurs does exactly what those who abuse equilibrium do: He takes equilibrium too seriously. As a conceptual tool, equilibrium is a useful way of constructing systems that can improve our understanding of the world. It’s only when we presume that we therefore assume away the unknown unknowns of life, to borrow Donald Rumsfeld’s illuminating phrase, through our systems that we err, yet that is an error Arthur makes himself with his own complexity approach.

 

Such system building isn’t bad per se. Indeed, it is neither good nor bad per se. Building systems, however primitive they may be, is one of the ways that the human mind comes to understand the world surrounding it. The men of system who helped to set up the 2008 Financial Crisis, be they investors who utilized a ridiculous degree of leverage or regulators who pushed value at risk as the way of doing risk management, made the fatal mistake of thinking that their systems were near perfect approximations of the real economy. They were the ones who assumed away tail risks and presumed that they knew enough to end history. The presumption of knowing all of the facts, not the presumption that an economy tends towards equilibrium is what did those men of the system in. (After all, it is very possible for an economy to be heading towards equilibrium and the people within it being wrong about what equilibrium it is tending towards.) 

Brian Arthur has nothing to say about such systems in his article. Instead, he wrongly believes that the sin was in the assumption of equilibrium, rather than in the presumption of knowledge. “Failure-mode studies are not at the center our our discipline for the simple reason that economics’ adherence to equilibrium analysis assumes that the system quickly settles to a place where no agent has an incentive to diverge from its present behavior, and so exploitive behavior cannot happen” (Ibid: 117).  

 

Yes, the assumption of equilibrium does bring much presumption of knowledge if one takes the assumption too seriously. But as a modeling tool, it is more thematic, providing the opportunity for a system builder to provide a coherent narrative, than descriptive. It is only when we assume, as do many equilibrium theorizers do, that Even the use of engineering as the chosen parallel over the course of the article betrays Arthur’s perspective as one who believes that it is possible for economists to reliably foresee how systems are exploited: “Once we have identified where and how exploitation might take place, we can break open the overall economic model of the policy system at this location, and insert a module that ‘injects’ the behavior we have in mind” (Arthur 2014: 111). 

In his very own vision of stress testing economic systems, Arthur still presumes that how the system will be exploited can become a known known, manipulable by analysts, but it’s the unknown unknowns that should be keeping policymakers awake at night. Brian Arthur’s conviction that policy can be improved by using stress-test analysis ignores that policymakers are already trying to figure out how the incentives impel people to take certain courses of action in different policy environments. Contra Arthur, the reason those policymakers make mistakes aren’t that they are working with equilibrium models, or that they aren’t sufficiently scientific. The reason is that no policymaker can’t know everything. 

 

 

Bibliography

Arthur, Brian W. 2014. Complexity and The Economy. Oxford: Oxford University Press. 

Craft and Method

 

Discourse about method all too often starts from an unfortunate starting point. In such discussions, focus is on metaphysics and epistemology, yet away from view is one of the most important questions facing any theorist: What is their craft? What is their final cause that gives meaning to their efforts? There has to be some reason why they are doing what they are doing, and there has to be some problem which vexes his mind that he seeks a solution to. 

 

Aristotle started from this problem in the very first chapter of The Nicomachean Ethics. There he establishes that every inquiry must have some purpose, some final cause:  

Every art and every inquiry, and similarly every action and pursuit, is thought to aim at some good; and for this reason the good has rightly been declared to be that which all things aim. But a certain difference is found among ends; some are activities, others are products apart from the activities that produce them. Where there are ends apart from the actions, it is the nature of the products to be better than the activities. Now, as there are many actions, arts, sciences, their ends also are many; the end of the medical art is health, that of shipbuilding a vessel, that of strategy victory, that of economics wealth. But where such arts fall under a single capacity—as bridle-making and the other arts concerned with the equipment of horses fall under the art of riding, and this and every military action under strategy, in the same way other arts fall under yet others—in all of these the ends of the master arts are to be preferred to all the subordinate ends; for it is for the sake of the former that the latter are pursued. It makes no difference whether the activities themselves are the ends of the actions, or something else apart from the activities, as in the case of the sciences just mentioned. (Translation by W.D. Ross)

Method is a tool. As a tool, it must fit into the theorist’s craft. If a theorist is studying black holes, for instance, he will deploy different tools than if he is studying, as Georges Cuvier did, the similarity between extant Indian elephants and the Mastodon fossils that were brought to him from Ohio. Metaphysics and epistemology will certainly figure into the picture, but only insofar as they relate to the craft that the theorist practices. 

 

For the craft I’m more familiar with, economics, concern about the craft of economics has certainly motivated my concerns about method. The more and more I think about what the craft of economics is, the less and less I am satisfied with the picture Llionel Robbins gives of it in his Essay on the Nature of Significance of Economic Science. In fact, I have come to think that Robbins actually doesn’t capture the nature of economics as a craft. 

Robbins is famous for promulgating the definition of economics as “the science which studies human behavior as a relationship between ends and scarce means which has alternative uses” in that book. A nice, tidy definition, but one I think doesn’t capture really what I believe the craft of economics is about. Yes, microeconomics and concerns about the tradeoffs present in human behavior are vitally important to the economist’s craft, but they cannot be all that economics offers. After all, the emergent properties of the markets cannot be perceived from the first-person point of view of those within in; instead, economics needs reference to a third-person spectator who can behold the growth and change that happens to the commercial society. Simon Newcomb recognized that in Principles of Political Economy when he discussed how the coordination of society is manifest in its life: 

We readily perceive that the system by which the body of farmers on the prairies of the West exchange goods with various countries in Europe, Asia, and South America is exceedingly intricate in its details. Its successful operation depends upon the proper co-ordination of the efforts of manufacturers, merchants, ship-owners, and managers of railways. There being little real concert of action among these widely separated individuals, the co-ordination of their work is a matter of slowly growing habit (Newcomb 2012, 138).

 

In my own view, the economist’s craft is to understand how the commercial society operates, and how it serves universal benevolence in doing so. That it serves universal benevolence is not a given and obvious fact; instead, the work of economists is necessary to morally legitimate the commercial society, and those who pursue honest profit within it. Daniel Klein puts the policy angle well in Knowledge and Coordination when he writes that “Wisdom in economics resides principally in know-how in explaining that we do not know-how in explaining that we do not know how to intervene in a way conduces to concatenate coordination” (Klein 2012, 250).  

Such wisdom cannot come from studying the economy from the point of view of pure economic agents alone; instead, it needs an external spectator, and so the craft of economics must be about appreciating the economic order as a whole. 

Simulations in Nolan's "Interstellar"

 

Professor Thorne's diagram for how a black hole distorts light

 

The beauty, and utility, of computer simulations is that they can bring out emergent properties of an equation that would have otherwise gone unnoticed had a programer not brought the equation to life in silico. Iain Couzin’s work on simulating bait ball behavior is a great example for how complex behavior can be distilled down to a simple equation, and how we can really only notice the emergent behavior once we see equation finally simulated. Just looking at it on paper, its emergent qualities would escape notice. Once those equations are simulated, though, and suddenly those emergent properties jump out. 

In an article at Wired, “Wrinkles in Spacetime: The Warped Astrophysics of Intersellar”, Adam Rogers discusses how Christopher Nolan’s collaboration with Kip Thorne, the former Feynman Professor of Theoretical Physics at Caltech, in the creation of stellar set pieces for Interstellar has created at least two paper’s worth, by Professor Thorne’s reckoning, of new scientific findings. As a result of the demands of the plot, Christopher Nolan wanted to depict celestial phenomena that would fit the demands of his script, and to do so “he asked Thorne to generate equations that would guide their effects software the way physics governs the real world.” As Adam Rogers writes:

 They started with wormholes. If light around a wormhole wouldn't behave classically—that is, travel in a straight line—what would it do? How could that be described mathematically?

Thorne sent his answers to Franklin in the form of heavily researched memos. Pages long, deeply sourced, and covered in equations, they were more like scientific journal articles than anything else. Franklin's team wrote new rendering software based on these equations and spun up a wormhole. The result was extraordinary. It was like a crystal ball reflecting the universe, a spherical hole in spacetime. “Science fiction always wants to dress things up, like it's never happy with the ordinary universe,” he says. “What we were getting out of the software was compelling straight off.”

Their success with the wormhole emboldened the effects team to try the same approach with the black hole….

 

Still, no one knew exactly what a black hole would look like until they actually built one. Light, temporarily trapped around the black hole, produced an unexpectedly complex fingerprint pattern near the black hole's shadow. And the glowing accretion disk appeared above the black hole, below the black hole, and in front of it. “I never expected that,” Thorne says. “Eugénie just did the simulations and said, ‘Hey, this is what I got.’ It was just amazing.”

In the end, Nolan got elegant images that advance the story. Thorne got a movie that teaches a mass audience some real, accurate science. But he also got something he didn't expect: a scientific discovery. “This is our observational data,” he says of the movie's visualizations. “That's the way nature behaves. Period.” Thorne says he can get at least two published articles out of it.

The entire article is worth reading just for the fascinating potential for computer simulations to reveal the emergent properties to the world to human eyes. 

What Is Information?

 

From Information: The New Language of Science by Hans Christian von Baeyer:

The gradual crystallization of the concept of information during the last hundred years constrats sharply with the birth of the equally abstract quantity called energy in the middle of the nineteenth centruy. Then, in the brief span of twenty years, energy was invented, defined and established as a cornerstone, first of physics, then of all science. We don't know what energy is, any more than we know what information is, but as a now robust scientific concept we can describe it in precise mathematical terms, and as a commodity we can measure, market, regulate and tax it. (von Baeyer 2003: 11)

Just like our notion of energy, our notion of information is at best ephemeral when separated from its context. Yes, we know that energy is spent when we slipe a phone from one side of a table to another, but that part of our mind wanting to know what energy is will always be left a bit disappointed with the explanation.

 

Like energy, information is a puzzling concept that eludes our desire to know what it is. The form of a great white shark clearly contains more information than that of a common earthworm — that much is known from common experience — but that brings us no closer to knowing what information is. 

 

Obession with non-equilibrium models, however appealing they may be to a theoist, is thus misguided. The study of complexity doesn't need to build itself new textbooks of models; rather, it needs to take to heart the lesson that our universe is nonergodic, that is it is non-repeating. If we could run the history of life on earth multiple times, we wouldn't be left with the same story. There may be repeating themes, such as rows or teeth and quadrapedel species, but that story would look different each and every time we rerun it.

As a result, those fascinated with complexity need to turn their fascination to history, whether that history is biological, social, or otherwise. Plato's heavens need to be left so that concern can be given the concrete and to the contingent. The story of how entities became complex is what matters, and those stories necessarily involve historical detail. The phrase "complex, adaptive order" is pleonastic. All complex order is adaptive order, and has grown the level of information it has because of its adaptation to its environment. The information contained in the complex nature of a great white shark tells us about its environment because 

 

What Is Information?

From Information: The New Language of Science by Hans Christian von Baeyer:

The gradual crystallization of the concept of information during the last hundred years contrasts sharply with the birth of the equally abstract quantity called energy in the middle of the nineteenth century. Then, in the brief span of twenty years, energy was invented, defined and established as a cornerstone, first of physics, then of all science. We don't know what energy is, any more than we know what information is, but as a now robust scientific concept we can describe it in precise mathematical terms, and as a commodity we can measure, market, regulate and tax it. (von Baeyer 2003: 11)

 

Just like our notion of energy, our notion of information is at best ephemeral when separated from its context. Yes, we know that energy is spent when we slide a phone from one side of a table to another, but that part of our mind wanting to know what energy is will always be left a bit disappointed with the explanation. Both are puzzling concepts that eludes our desire to know what they are. For instance, the form of a great white shark clearly contains more information than that of a common earthworm — that much is known from common experience — but that brings us no closer to knowing what information is. 

Nevertheless, we don’t need to know what information is to work with the concept. It is merely the formal key to understanding other concepts, and should be understood merely as an instrumental concept. Claude Shannon, for instance, defined a message’s information content as the number of binary digits that message could be expressed in. That definition doesn’t address what information is, and yet it can enable us to tackle topics, such as the information content of a stand of RNA. 

 

If you’re like me and have a very strong desire understand objects in terms of what they are, then such a definition of information will be disappointing, but such big-think obsessions can do more harm than good. What matters is the concrete and imminent. Explaining how the entities with information that we see around us got their information content is what matters. As James Buchanan once wrote, order is defined in the process of its emergence, and so we know that entities we see around us got their information by the process of their creation. As a result, attention is best turned to the creation of particular objects around us than a wild-goose chase over what ‘information’ is. 

The National Geographic Interviews Jane Goodall

 

 

The National Geographic's David Quammen interviews Jane Goodman, famous for her four decade research on chimpanzees in Tanzania's Gombe Stream National Park. The part about academia's reaction to Goodall's methods is especially of note: 

JANE GOODALL In those days, you know, ethology was really trying to prove that it was a hard science. Which of course it can’t really be. Not unless you’re very invasive. And so, although individual differences were sort of admitted, they were not discussed.

DAVID QUAMMEN Academic ethology didn’t like to talk about individual differences. It liked patterns.

JG It was very reductionist.

DQ Reducing individuals and their behavior to data and the patterns that can be drawn from data.

JG Right. And anecdotes were absolutely the worst sin.

DQ And you came along and wanted to talk about individuals, and about personalities and about character.

JG I wanted to talk about emotions. I wanted to talk about the mind, and thoughts.

DQ How did that play out at Cambridge?

The answer was, not well. Her professors disapproved of her approach.

JG It was a bit shocking to be told I’d done everything wrong. Everything. I shouldn’t have given them names. I couldn’t talk about their personalities, their minds, or their feelings. Those are unique to us. Fortunately, I thought back to my first teacher, when I was a child, who taught me that that wasn’t true. And that was my dog, Rusty. You cannot share your life in a meaningful way with any kind of animal with a reasonably well developed brain and not realize that animals have personalities.

PSST > AD/AS

 

In a post about Scott Sumner, "The Economics of Unobservable Variables", Arnold Kling makes a good point about Mr. Sumner's use of NGDP expectations as a means of describing recessions as predictions of slow NDGP growth:

Unfortunately, this puts a huge emphasis on something that is unobservable, namely “expected NGDP 1, 2, 5 and 10 years out in the future.” Any time you have a theory that relies on such an unobservable, you drift further away from the realm of science and nearer to the realm of circularity.

In Sumner’s defense, he wants expectations for nominal GDP to be observable, by having tradable NGDP futures contracts. Even so, it is rare for any such contracts to go out more than a year ahead.

I don't think recessions are a prediction of economic diaster as most economists would understand it, that is as a change for the worse in the path of aggregate demand.

After all, if people are profit maximizers, as most economics would also supposes, they are maximizing their profit which means that they are doing to make bets about the particular sectors which affect them. It's their own particular profits that they care about, not the economy as a whole. They are in effect bets about particular demands, not aggregate demand.

With these two considerations, we find that a heavy emphasis on aggregate demand is neither scientific nor does it entirely mesh with what entrepreneurs are trying to do in the markets. There is never really a drop in aggregate demand so much as there are drops in particular markets just as entrepreneurs don't really care about the path of aggregate demand so much as they care about profits in the specific sector that concern them. 

Smith Contra Praxeology

 

From Smith's 1762-63 lectures on jurisprudence:

A free commerce on a fair consideration must appear to be advantageous on both sides. We see that it must be so betwixt individualls, unless one of them be a fool and makes a bargain plainly ruinous; but betwixt prudent men it must always be advantageous. For the very cause of the exchange must be that you need my goods more than I need them, and that I need yours more than you do yourself; and if the bargain be managed with ordinary prudence it must be profitable to both. It is the same thing with regard to nations. The exchange must always be profitable if they act with prudence, and as the number of the prudent will be pretty much the same on both sides, and this will be the far greater part, the benefit will be mutual. For it is evident that the other nation stands more in need of it than the other does of its own, and this must be the case on both sides (Lectures of Jurisprudence B: vi.160).

 

Clearly, Smith wouldn't go along with Mises' idea of praxeology. Smith wasn't trying to establish his study of the commercial society as a science as Mises was trying to do with praxeology. Instead, he was simply trying to understand the effects that people's interactions would have in the commercial society. He was a moral philosopher - one who believed The Theory of Moral Sentiments,rather than The Wealth of Nations,was his magnum opus - and so the notion of virtue was never far behind his writings, and here the virtue of prudence is on display. 

In the quote above, Smith depicts the commercial society as an ecosystem of virtue. Surely, yes, it's important that most trades in the commercial society are mutually beneficial, but also important from Smith's moral point of view that people who exercise prudence are the ones who most gain from trade.  The commercial society encourages virtue, which is a layer of analysis absent from Mises.  

 

In Human Action, Mises, ever the Kantian, was very much trying to elucidate a series of schemata of human behavior all architectonic by the principle that man acts. The first hundred and so pages of Human Action is largely simply a recapitulation of Immanuel Kant's method from The Critique of Pure Reason. Whereas Kant used the schema to establish the possible forms of our perception, Mises used his schema to establish all of the possible forms of purposeful behavior. Whereas Kant established his architectonic of transcendental idealism under the idea that all forms of perception are determined a priori, Mises established his architectonic of praxeology under the idea that human beings always trade a less satisfactory world for a more satisfactory one.  

 

Motivating Mises' use of schemata is his view that economics should be treated as a science: "Science always is and must be rational. It is the endeavor to attain a mental grasp of the phenomena of the universe by a systematic arrangment of the whole body of available knowledg" (Mises 1998: 10).  Throughout Human Action, Mises pounds the table that economics is a science, and that it should be treated as a science. Yet, I find that annoying.  

A discipline doesn't have to be a science to make meaningful statements about the world nor is being a scientist the badge of epistemological soundness that all too many. Even scientists can talk jibberish when they should know otherwise.  

Myself, I don't see what the fuss is all about. The modernist obsession with science is something we should grow out of. It would be nice if we could easily categorize sense and nonsense as 'science' and 'non-science', but we should know better. Gaining understanding is a more worthwhile goal than doing science, and we should leave no options to gain understanding untouched. 

 

A One Paragraph Description of Becker's Research Program?

 

A paragraph to ponder form "A theory of the allocation of Nobelist's time" by Steve Cicala:

Yet the “invisible hand” is a metaphor for an empirical proposition, not doctrine and certainly not magic. More than simply extending economics, Gary’s work tests this proposition by demonstrating the validity of the economic approach at its most basic level: human behavior. The proof is by contradiction: suppose decisions to marry, have children, go to school, commit crimes, etc., are all totally unresponsive to incentives and the economic approach utterly fails to explain how people behave in these contexts. Why would one put any stock in our ability to understand markets? Is there too little competition for spouses? Are the stakes too low when facing time in prison? Of course not.