Evidence Based Economics

When one has worked one’s entire career within the framework of a powerful paradigm, it is almost impossible to look at that paradigm as anything but the proper, if not the only possible, perspective one can have on (in this case) biology. Yet despite its great accomplishments, molecular biology is far from the “perfect paradigm” most biologists take it to be. This child of reductionist materialism has nearly driven the biology out of biology. Molecular biology’s reductionism is fundamentalist, unwavering, and procrustean. It strips the organism from its environment, shears it of its history (evolution), and shreds it into parts. A sense of the whole, of the whole cell, of the whole multicellular organism, of the biosphere, of the emergent quality of biological organization, all have been lost or sidelined.

(Woese, Carl R. (2005, 101) Evolving Biological Organization. In Microbial Phylogeny and Evolution: Concepts and Controversies (Jan Sapp, ed.). Oxford: Oxford University Press.)

“Whether you can observe a thing or not depends on the theory which you use. It is theory which decides what can be observed” (Albert Einstein speaking to Werner Heisenberg during his 1926 Berlin lecture, quoted in Salam 1990).

Edward Fullbrook (2016, 3) Narrative Fixation in Economics

It is essential to recognise here that the alternative to an explicit philosophy of science is not an absence of philosophy. Rather, it is an implicit and often bad philosophy. And, whatever may be the theoretical or substantive orientations of contemporary economists (whether econometricians, axiomatic-deductive theorists, hermeneuticists, and so on) their practices are all underpinned or informed by (competing) science-oriented philosophies of some sort. Of course, much of this is often tacit or unacknowledged, and it may be in contradiction with other beliefs. But it is precisely because of this that philosophical analysis can go to work. There is always the possibility that explicit methodological investigation of scientific practice, or other social forms, can make a contribution by rendering explicit some knowledge that is already implicit but unrecognised, and perhaps, in the reporting of economists (or whoever), openly contradicted. As Kant argued it is a function of philosophy to analyse concepts which are already given but confused.

(Lawson 2005, 44, Economics and Reality)

Michael Joffe uses a complementary, comparative approach, examining theory development in the natural sciences from a historical perspective to generate insight into how other fields of science use diverse types of evidence combined with causal hypotheses to generate empirically based causal theories. Using the history of natural science (i.e., germ theory, plate tectonics, money and banking, growth of the state, etc.) the goal is to learn useful methodologies for theory development. (Joffe 2017, 1, Abstract)

The history of natural sciences provides exemplars of how to develop causal theories based upon multiple sources of evidence and can be useful as a guide in reforming economics. One element of good scientific practice is cross-disciplinary, comparative perspective using a bottom-up focus on the actual practice of scientists. (Joffe 2017, 2-3, Introduction)

Empirically informed causal theories are developed over time, incrementally, and have an ontic rather than an epistemic focus. They place an emphasis on the role of evidence of multiple interlocking kinds (qualitative and quantitative, experimental and observational) in a dynamic iterative process in which diverse types of evidence are considered in light of hypotheses and theory production utilizing a full range of styles of reasoning. Where contextually appropriate, they use empirical research including experimental, observational, and historical analysis. For example,

The way that the correct description of the money-generating mechanism was achieved was by the patient documenting of what actually happens in the financial system, describing how banks really behave (Joffe 2017, 8).

Another example of theory development based on systematic empirical work is a two-volume study of the growth of the modern state (Lindert, 2004). This describes the growth of the state qualitatively and quantitatively in each of the major countries that developed rapidly after the industrial revolution, together with an analysis of the causal factors in that country. It then provides an over-view of the forces behind state growth, while acknowledging the between-country heterogeneity. Thus, it encompasses description, generalisation and explanation, as well as the limits to generalisation imposed by factors specific to each country. This use of comparative economic history is a good model for developing theory, not least because it ensures that any explanation or suggested causal mechanism corresponds to the spatial and temporal patterns that actually occurred, as well as paying attention to specific factors that may have been present in certain countries. (Joffe 2017, 8, emphasis added)

Theory can become a barrier to causal understanding when it becomes myopic; instead of seeing the world as it is, the scope of what can be examined and seen is determined by the dominant theoretical perspective—its starting point is epistemic (axiomatic) not ontic (Joffe 2017, 9). In such situations what can be studied and observed become restricted by philosophical and/or methodological presuppositions. “Economics analysis should be data-first not theory-first (Juselius, 2011).” When substantive (obvious) knowledge is ignored and not incorporated into theory development to maintain either theory or model “purity” of the axiomatic deductive methodology this is frequently done to maintain an implied universality of stories/models of human behavior even in the face of obvious evidence that shows fundamental dissimilarities between different types of economic systems. The purity of the theory must be maintained so it can be explained in terms of universal human attributes or other postulated attributes of human behavior regardless of how unrealistic such postulates are in the real world. An example of such theory induced blindness can be seen in certain economists search for micro foundations akin to physics (Joffe 2017, 9):

Thus, there is a danger that bad theory can be protected by the co-existence of substantive knowledge by “theory” that does not incorporate it. An important instance is the idea that any macro concept, such as that of economic growth, requires “micro-foundations.” (….)  The insistence on the need for micro-foundations is held by many economists, but the “news” that growth has had a specific spatial/temporal distribution is not news to them—and therefore it would not be accepted as evidence against the theory. (Joffe 2017, 10)

Addelson similarly notes:

The language of economic theory, like any language provides a framework for thought: but at the same time it constrains thought to remain within that framework. It focuses our attention; determines the way we conceive of things; and even determines what sort of things can be said…. A language, or conceptual framework is, therefore, at one and the same time both an opportunity and a threat. Its positive side is that (one hopes) it facilitates thought within the language or framework. But its negative side arises from the fact that thought must be within the framework. (Coddington 1972: 14-15) (Addelson, Mark. Equilibrium Versus Understanding [Towards the Restoration of Economics as Social Theory]. London: Routledge; 1995; p. 12)

The “conventional starting point” for neoliberal and even some heterodox economics is a top-down axiomatic deductive methodology. Joffe (2017) proposes an evidence-based bottom-up approach in which theories are generated from evidence rather than based on a story or parable about universal human behavior and/or upon hypothetical stylized behavior (i.e., axiomatic deductive methodology). Neither just-so story telling and/or axioms of universal human behavior start with observations of actual occurring processes of observed human behavior. Such abstractions are derived from axioms not observed human behavior and therefore have limited scope and applicability since they don’t take into account actual historical context of time and place.

A different approach is to study human behaviour as it is, e.g. truth-telling (Abeler, Nosenzo, & Raymond, 2016) and cooperation and altruism (Rand, Brescoll, Everett, Capraro, & Barcelo, 2016). This has the potential for developing a theory of economic behaviour that is based on the heuristics people actually use, and to link this with an evolutionary account of the causal processes that led to their existence in our brains (Gigerenzer, Hertwig, & Pachur, 2011; Gigerenzer, Todd, & ABC Research Group, 2000). (Joffe 2017, 12)

Realistic theory can be derived from observations. Evidence, whether experimental or observational, is used in generating new theory. (Joffe 2017, 12) Lines of evidence can be combined. Evidence is diverse, qualitative and quantitative, historical and experimental, and strands of evidence can be combined and/or generate new insights with broad explanatory hypotheses in support of empirically informed theory.

This would be a natural way of developing conceptual categories that correspond to natural categories (“carving nature at its joints”) with strong ontic emphasis and focus on causation. A theory in this sense can also be said to be true or false—or perhaps better, that it is able to possess some degree of truth. (Joffe 2017, 12)

~ ~ ~

Joffe aspires for a value neutral practice of science that elevates evidence over bias, presuppositions, and prior beliefs. It requires discipline and sincerity to put these prejudices and biases aside and let the evidence lead one wherever it is heading. Just as evidence is the basis of fairness in any judicial context, evidence is also the basis of hypotheses generation in any scientist’s mind when endeavoring to generate theoretical understanding.

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