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Archive for December 9th, 2009

I don’t normally do this, but I thought Tom Hickey’s comment on my last post was particularly salient. Quoting partially:

The fact of the matter, however, is that social sciences are always normative to a degree, because universes of discourse are bounded by norms, and method is also…

Because models are necessarily simplifications of what they model, the parameters determine what is in, what is out, and what the priorities are. In the social sciences, these parameters are based on assumptions, and it is often at the level of the assumptions that norms migrate from methodological to value-laden.

Progressive economists generally admit that their assumptions have a value-laden bias. However, conservative economists often do not, but act as if they are describing what is. As a result, they represent what they are doing as positive science even though it often is not, in that assumptions especially, and often data too, are not evidence-based…

The logic of justification looks at the norms that determine what is admitted and rejected, and how data is assessed and evaluated in terms of specific criteria. Then it examines criteria for assumptions and bias.

Most economists don’t bother with this critical procedure. They just assume what they learned is the way that economics is properly done, especially when a school of thought is dominant. This leads to a lot of unexamined assumptions and sloppy thinking posing as science. It also leads to dismissing opponents out of hand, or marginalizing them as out of touch with mainstream thought.

One of the biggest criticisms of neoliberalism, for example, is unrealistic assumptions, e.g., basing models on a single representative agent as a rational actor that always acts on self-interest, taking the future into full account. This is just not the way way the world is, as behavioral economists, psychologist, cognitive scientists, and sociologists point out. However, assumptions like this make the building of complex mathematical models possible, whereas assuming different types of agent would make modeling too complex to be tied up neatly…

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Before yesterday, I didn’t really think so. However, Emmanuel Saez changed my outlook a bit. I attended a seminar he gave on a paper that he’s working on concerning optimal US tax and transfer policy. I liked the general thrust of his presentation; he was concerned with both the effects that income elasticities for taxation have on revenue collection and the implications of some behavioral insights for administering a tax system.

Explicit in all of this is the idea that redistribution is a good thing. In other words, if we can soak the rich to maximize revenue that can be transferred to the poor, without the rich “going Galt” or the poor deciding not to work, then we should. The question of taxation then becomes the issue of finding the marginal tax rate where the “rich,” however we choose to define them (Saez likes top 1%, but also drills down intop 0.1% and 0.01%), pay as much revenue to the government as possible.

The questions he received throughout did not challenge his prior that redistribution is good (I think he got one about this topic really being welfare economics, but there was a murmuring consensus in the room that this wasn’t true). Instead, they focused on details such as, “how do you make the tax base neutral,” or “where does the estate tax play into this?” In other words, their analysis and critique of his arguments seemed to be positive, but the entire premise for his argument was normative. And they want along with it (“they” being a group of neoclassical economists from Brookings and Urban). What other priors ostensibly derived from “welfare economics” would neoclassical economists accept/reject?

Update (12:14 AM): I should mention the couple comments on this post are quite good- I’ve given one of them its own post.

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