Recently I thought it might be interesting to give the other side in the modelling debate a chance. Frankly, I have not found the debates online to be particularly stimulating or interesting, so I thought I’d go to what is supposed to be a prime source. Some digging led me to the philosopher Nancy Cartwright (no, not the Simpsons voice actress!). I thought this would be a particularly interesting source because, apparently, she has recently waned in her support for modelling. So, I cracked open her book Hunting Causes and Using Them: Approaches in Philosophy and Economics.
Before delving into the particulars, I’ll be blunt: Cartwright’s argument is not interesting and it can be refuted by simply pointing out her poor use of analogy. I have some sympathy for why she used such a poor analogy upon which to build her argument and I will discuss why I think this was below. However, if this is the best the field has to offer then the modellers should be rather concerned.
The relevant chapter to this discussion is the 15th of her book, entitled The Vanity of Rigour in Economics: Theoretical Models and Galilean Experiments. The first half of that title sounded interesting to me, the second set off the flashing red light; and rightly so. You see, Cartwright defends economic models that oversimplify and make unrealistic assumptions — she calls these, following Lucas (yes, that Lucas), “analogue economies” — because she says the experiments in, for example, physics do the same thing. Her paradigmatic case is, of course, Galileo dropping the weight off the tower.
Cartwright thinks — again, following Lucas, so far as I can tell — that economic models are analogous to experiments in physics. Why? Because they both oversimplify. Here is Cartwright’s characterisation of Galileo’s experiment:
Galileo’s experiments aimed to establish what I have been calling a tendency claim. They were not designed to tell us how any particular falling body will move in the vicinity of the earth; nor to establish a regularity about how bodies of a certain kind will move. Rather, the experiments were designed to find out what contribution the motion due to the pull of the earth will make, with the assumption that that contribution is stable across all the different kinds of situations falling bodies will get into. How did Galileo find out what the stable contribution from the pull of the earth is? He eliminated (as far as possible) all other causes of motion on the bodies in his experiment so that he could see how they move when only the earth affects them. That is the contibution that the earth’s pull makes to their motion. (p223 — My Emphasis)
Frankly, I don’t think I even need tell the informed reader what the problem with this analogy is. Cartwright assumes that because, in physics, we can establish “stable” relationships then we can do the same in economics. But, of course, this is simply not the case and the reason for this is because when Galileo drops weight after weight off the tower the results follow an ergodic pattern: the pull of the earth does not change. In economics, however, we deal with non-ergodic data; so, to use an example familiar to readers of this blog, a rise in the interest rate in the US in 1928 will have wildly different results to a rise in the interest rate in the US in 1980.
When we deal with actual stable relations in economics we have a name for them; they are called “accounting identities”. The GDP equation is a stable relation, but only because it is also an identity and, ultimately, a tautology. Apart from this, stable relationships simply do not exist any more than they do in the study of history. But Cartwright, drawing her extremely poor analogy, uses Galileo as a justification for abstract models:
Now I should like to argue that a great many of the unrealistic assumptions we find in models and experiments alike are not a problem. To the contrary, they are required to do the job; without them the experiment would be no experiment at all. For we do not need to assume that the aim of the kind of theorizing under discussion is to establish results in our analogue economies that will hold outside them when literally interpreted. Frequently what we are doing in this kind of economic theory is not trying to establish facts about what happens in the real economy but rather, following John Stuart Mill, facts about stable tendencies. (p221)
And there you have it. By confusing a cat with a dog, Cartwright makes her case. I said above that I have some sympathy for why she falls into this trap. I have such sympathy because, on the one hand, the rest of Cartwright’s book deals with sciences that study ergodic data and have been very successful using the experimental method. On the other hand, Cartwright has — and I do not know why — bought into the rhetoric of economists like Lucas that economics must be a hard science.
Put two and two together and you can understand fairly well why Cartwright has structured her argument in such a manner. Basically, I think that Cartwright got sucked into the black hole that the likes of Lucas have been occupying for years; and given that her background was in studying successful experiments using ergodic data, the moment she bought into the economist’s rhetoric she entirely ignored the difference in the nature of the data being scrutinised and wholly immersed herself in the wild, out-of-this-world thought experiments characteristic of the New Classicals and their ilk.
As I said at the beginning, Cartwright has by the end of the chapter turned on the economic models she once defended. But she has done so for only the most shallow reasons. She writes:
My claim then is that it is no surprise that individual analogue economies come with such long lists of assumptions. The model-specific assumptions can provide a way to secure deductively validated results where universal principles are scarce. But these create their own problems. For the validity of the conclusions appears now to depend on a large number of very special interconnected assumptions. If so, the validation of the results will depend then on the detailed arrangement of the structure of the model and is not, prima facie at least, available otherwise. We opt for deductive verification of our claims in order to achieve clarity, rigour and certainty. But to get it we have tied the results to very special circumstances; the problem is how to validate them outside. (p229)
Cartwright is now skeptical of the models because their results can only be tied “to very special circumstances”. This is a long, long way from recognising that the nature of non-ergodic, historical time is such that every economic constellation is literally unique. But the intuition is there, if only as a murky shadow of what it should be.
I’m sure I will get some kickback on this post; commenters will likely say something like: “Phil! You hold a defender of Lucas and the New Classicals up to attack even Post-Keynesian modelling!? That is absurd. We try to make our models with realistic, not unrealistic assumptions. You simply cannot draw a comparison!”
First of all, this is not actually true. Your typical Kaleckian or Marxian model, for example, makes an entirely unrealistic assumption that there are classes called “capitalists” and “workers” with specific saving rates and behaviours and so forth. In an age with various pension plans tied to all sorts of capital markets this is an absurd oversimplification; but then it always was. Secondly, even if it were true that Post-Keynesians go out of their way to be realistic — which I don’t think they do, unless we take the term “realistic” to mean something highly idiosyncratic — the above defense and criticisms still apply.
Such models, even if they were “realistic” where Lucas’ are not, still aspire to the same discovery of stable relations as Cartwright discusses above. They also seek to “isolate” these supposedly stable relations in the manner that Cartwright compares to Galileo’s experiment. And they ultimately fall on the basis that we take either my criticism — i.e. that all economic constellations are absolutely unique and historical time is non-ergodic — or even Cartwright’s cruder criticism — i.e. that they are so specific that they can only deal with very specific circumstances.
Again, I will say what I always say: models are didactic tools only. They should be judged on the basis of whether they teach something of real interest — as the SFC models do — or they teach completely irrelevant nonsense — as the New Classical models do. I’ll also say this: any economic relation that was stable enough for these models to capture would likely not be worth studying because it would likely just be an identity and, thus, a tautology. And it is only on very rare occasions that we need new tautologies.