When I see criticism of economic theories they often seem to go on and on, use lots of “ism” words (positivism, pluralism, autism and worse), and be very vague and abstract and wordy. Which is why I have the following challenge: Take your criticism and formulate the main point in one sentence free from overly abstract and philosophical/methodological jargon.
Here’s my attempt:
- Against some types of welfare theory: If you have no empirical evidence concerning what people actually care about and what choice alternatives they actually face, then you do not have sufficient information to establish that they are welfare maximizing.
- Against some types of “explanatory theories”: If you claim to explain why something is the case, then all sorts of empirical information are relevant in assessing your driving assumptions and proposed mechanism– not just market data.
I don’t feel these two claims should be controversial. They seem rather obvious to me – yet these two “principles” (if accepted) are sufficient to kill off (I believe) much of the weirder (but accepted) theories in economics. My Ph. D. work on Rational Addiction theory was (in retrospect) basically the attempt to make these two claims and show why they were sufficient to discard many of the claims made in top 5 journals concerning the validity and implications of rational addiction theories:
- Welfare: As long as you merely observe market choices and develop a “choice model” to accurately reproduce/fit patterns in the market data (whether “stylized facts” or econometrically through structural models) – this does not prove/establish/support the claim that the consumers in question are maximizing their long term welfare. All you’ve proved is that they are acting “as if” they are maximizing some utility function (which you have not shown to be related to their actual welfare) given some choice set (that you have not shown to be the one they are facing). No matter how insanely and self-destructively you act – it will be possible to develop some model that rationalizes this as optimal behavior for some set of preferences and constraints.
- Explanation: Merely observing economic data and developing a “model” to accurately reproduce/fit patterns in this, is insufficient to establish that your proposed causal mechanism is actually at work in the real world. If your theory, e.g., asserts that people have information that does not exist, are solving problems that we know they are not facing, or influencing the world through relationships that we have no reason to believe in – then these are good reasons to discard your proposed mechanism as an explanation.
Is there some non-obvious flaw in my claims that rescues the weirder economic theories? I’m open to that possibility - please let me know.
Also interested in other attempts to formulate one-sentence summaries of