Swedberg: The New Battle of Methods

R Swedberg, The New battle of Methods. (Univ., Sociologiska institutionen, 1990).

"As the 'cold war' between economics and the other social sciences draws to a close, new scientific discoveries are being threatened by the single-minded vision of the economic imperialists" (33).

This article begins by wondering where the line will be drawn between the study of economics and other social science endeavors. "It is my contention that economic imperialism is threatening to set off a new 'battle of methods," and this is something that could have very negative consequences for economics..." (33). The author focuses on the Methodenstreit battle that came to represent early iterations of the tension between economics and other social sciences, specifically in battles between economists who argued for a more historical approach and those who worked with purely analytical approaches, most notably the marginal utility approach of Menger, etc. Webber is seen as bringing both camps together in a school of thought that brought both history and theory to bear on economic problems. This was called the socioeconomic school.

The author wonders if the rationalistic approaches of authors like Becker are not isolating economics once again. This isolation and attempt to explain everything using economic methodologies is referred to as "economic imperialism" by Swedberg (36).

Rosenberg: Can Economic Theory Explain Everything?

A Rosenberg, “Can Economic Theory Explain Everything?,” Philosophy of the Social Sciences 9, no. 4 (1979): 509-27.

The article begins by wondering why homo economicus has made a comeback. It argues that this concept was previously not taken as being very seriously descriptive, and that it was merely an analytical tool for getting the theory of neo-classical behavior off of the ground. People didn't actually believe that agents were utility maximizing calculators; nor did they understand the actions of firms to take on characteristics that were driven entirely by strictly defined maximizing behavior. Homo economicus was a helpful way to make lower level assumptions that were able to aggregate up to more macro level economic behavior.

Rosenberg highlights Becker's contribution to the increasing importance of homo economicus. Becker's approach assumes maximizing behavior, relatively efficient markets and static preferences across culture and class. This argument is elegant and constructed to be widely explanatory. Rosenberg goes through the assumptions of the theory with an eye towards picking apart its logic.

The article is an excellent dissection of Becker's work, and whether or not it represents a truly economic explanation of all human behavior through models of rationality, choice and preferences. The author is skeptical that it meets any of the above goals, though he also contends that it is a remarkably accomplished piece that might make the case for homo economicus and the pervasive explanatory power of economics more thoroughly than others.

Dobbin: Forging Industrial Policy

Dobbin, F., 1997. Forging industrial policy: the United States, Britain, and France in the railway, Cambridge University Press.

Different countries have different policies to govern industry. Dobbin argues that these different policies stem from different histories that are tied to concepts of governance and instrumental rationality. These distinct trends then promote themselves when new problems are tackled using this same form of rationality.

Many scholars do not go very far in exploring the foundational differences that may exist between different conceptions of progress and rationality. This, Dobbin argues, is potentially a fundamental driver of the differences in different domestic approach to institutional policy production. These different understandings of progress, rationality, etc., become practice, which then becomes institution.

“My contention is that these varieties of realism obfuscate the nature of rationality in modern settings by taking too much of the social world at face value, when they should be asking how the world got to be the way it is” (5).

One form of explanation as to the different policies emanating from different polities is the political realist account, which explores the different forms of group interests, how they compete, and why one eventually wins. Dobbin claims that this explanation misses on a number of counts.

Another school of thought is the economic realist. These argue that economic factors determine the social interaction. This school of thought argues for convergence around the most efficient practices. This thesis is also potentially untenable, as it doesn’t explain divergence in development between such nations as the US and Sweden, for example.

Yet another basis of thought is identified as the institutional realist group who present a different account from the two realist accounts identified earlier. Institutions persist in a country because they have a certain kind of momentum, and this momentum exists because of the durable nature of the institution. Thus we have a circular logic and a reinforcing feedback loop.

“I argue that by following the lead of ethnographers, and viewing the institutionalized meanings found in modern society as products of local, social processes, we can gain a better purchase on public policy. To do so one must shift from the realist problematic, ‘What are the universal, rational laws of social reality?,’ to the constructionist problematic, ‘How do particular, rationalized social institutions develop in particular social contexts?’ I argue that differences in rationalized meaning systems explain broad cross-national policy differences, and that rationality is essentially cultural” (12).

The author then goes on to explain different ways in that these practices can become embedded within a society and go on to effect an understanding of rationality. The author then goes on to trace out different stories from the US, UK and France with an eye towards how different cultural understandings vis-à-vis industry lead to different understandings of what kind of policy should be made.

Cameron: Distributional Coalitions and Other Sources of Economic Stagnation: On Olson's Rise and Decline of Nations

Cameron, D., 1988. Distributional Coalitions and Other Sources of Economic Stagnation: On Olson’s Rise and Decline of Nations. International Organization, 42(4), 561-603.

“During the last decade, the study of politics has been infused with a concern with economics” (561). “Yet, in spite of the proliferation of scholarship concerned with American, comparative, and international political economy, and important lacuna exists. Apparently accepting a disciplinary division of labor and willing to leave the subject to economists, most political scientists have neglected the systematic, theoretical and empirical analysis of why growth rates differ among nations and, within nations, over time. As a result, economic growth has been and remains, as Whiteley notes, ‘one of the most neglected topics in the emerging literature of modern political economy;” (561).

“In the first section, I question some of the major assumptions upon which Olson builds his ‘logic’ of collective action. The second section considers each of the nine ‘implications’ drawn from that ‘logic’ that Olson describes…Particular attention is given to those implications which are essential to an explanation of variations across time and space in rates of economic growth. In the third section, I review some of the empirical evidence that Olson claims supports his theory, especially his application of the theory to account for differences in growth rates among five nations…in the post-World War II era” (563).

Part of the claim is that, along with most literature that focuses on economic growth, Olson identifies the source of that growth domestically, while Cameron claims that it has much to do with the position of the country in the world economy, and the policy responses of countries in response to the relative of the country and the global economy.

“…Olson’s analysis of collective behavior rests on an apparent paradox: individuals, firms, or other units sharing a common interest that can be furthered by working together will decide rationally not to act as a group” (564).

For one thing, Olson’s analysis relies too heavily on a simplistic notion of society divided into groups, and these groups representing some kind of core societal function. Also, it also ignores the possibility of groups acting in the interest of other groups, or at least not acting in their own interest with rational maximizing being the predominant qualification. A second assumption of Olson’s analysis is that groups are able to achieve their objectives based entirely on whether or not they are internally structured to achieve these goals. There is not an emphasis on the relationship between groups, or of other more structural conditions that would hamper group action.

However, for Cameron, the weakest assumption of Olson can be drawn back to neoclassical economic assumptions: “Instead, the weakest assumption behind the ‘logic’ involves the nature of the costs and benefits obtained from group action. The logic is grounded, like the neo-classical economic theory from which It derives, on the assumptions that: 1) the relevant unit of analysis is the individual, 2) the costs and benefits of collective action are divisible and capable of being allocated among individuals, and 3) that individuals can, and do (assuming some form of rationality), determine the formation and behavior of groups through their calculations of cost and benefit” (566).

Cameron then goes through each of the 9 separate conclusions that Olson draws from his original logic and attempts to show how they are wrong-headed. I will not detail them here, though they represent a bulk of this article. Specifically, Cameron picks apart Olson’s account of different rates of growth of five key industrialized countries. Cameron concludes that the myopic focus on internal descriptions of different patterns of economic growth should be supplemented with an external, international perspective on different patterns of economic growth. “…I suggested that rather than reflecting only such internal, domestic characteristics as the structure and behavior of distributional collations, the variation among nations in growth rates may reflect the impact of external, international factors. In particular, the discussion of the German, Japanese, and British experiences suggested that a nation’s rate of economic growth may have less to do with the purely domestic social-organization characteristics and activities considered by Olson than with the nation’s historic an devolving position in the world economy, the policy responses through which government attempts to maintain or improve that position, and, finally, the constraints on (or, conversely, opportunities for) growth-orientated domestic economic policy that derive from that position” (603).

Olson: The Rise and Deline of Nations

Olson, M., 1982. The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, Yale University Press.

The author begins by arguing that there has been a consistent historical pattern of previously insignificant groups becoming more significant, and previously powerful and mighty groups falling to the way side. Olson does not want to write broad based histories of these accounts, but simply wants to provide a theoretical framework for helping understand how these shifts in history could occur. He claims that some of the underlying trends of these power shifts are poorly understood.

In the same way that the rise and fall of many civilizations has not been adequately explained, many large economic events have also had inadequate explanations. For example, the rise of the common European market in 1957 and the subsequent growth of Italy, France, West Germany and Benelux vis-à-vis other nations that one would have expected to grow more quickly (the UK, US, for example) provides a case of an economic phenomena that has not been adequately explained. Additionally, general economic phenomena have not been fully given accord by some of the major economic schools of thought. For example, while Keynes presents a good macro-level account of unemployment, it lacks on the micro level. Neo-classical/rationalist models, on the other hand, claim that all unemployment is voluntary. Olsen attempts to put forward a theory that provides an adequate account of unemployment while still using rational maximizing individuals.

Another question put forth to explore: “Why are some modern societies to some degree ungovernable? That is, Why has it seemed that governments in some countries did not govern or control their societies as well as they had in the past?” (8).

Olson warns against ad hoc explanations for economic phenomena, though some of it may be right. It tends to be not-falsifiable, and hindsight tends to be such that conclusions can be drawn that would have been specious with foresight. Theories must be evaluated on the degree and precision of their explanations.

Ch. 2:

This chapter begins by exploring the differences between the actions of large groups and the actions of small groups. “The paradox, then, is that (in the absence of special arrangements or circumstances to which we shall turn later) large groups, at least if they are composed of rational individuals, will not act in their group interest” (18).

In a footnote, Olsen claims, “Rational need not imply self-interested. The argument in the text can hold even where there is altruistic behavior, although, if particular types of altruistic behavior are strong enough it will not hold” (19).

Incentives can be either negative or positive, and small groups experience these more acutely than large groups. Homogenous groups are more easy to organize. Large groups can experience many who remain rationally ignorant. “In particular, when the costs of individual contributions to collective action are very small, the individual has little incentive to investigate whether or not to make a contribution or even to exercise initiation. If the individual knows the costs of a contribution to collective action in the interest of a group of which he is a part are trivially small, he may rationally not take the trouble to consider whether the gains are smaller still” (28).

“…the larger the number of individuals or firms that would benefit from a collective good, the smaller the share of the gains from action in the group interest that will accrue to the individual or firm that undertakes the action. Thus, in the absence of selective incentives, the incentive for group action diminishes as group size increases, so that large groups are less able to act in their common interest than small ones” (31).

“The argument in this chapter predicts that those groups that have access to selective incentives will be more likely to act collectively to obtain collective goods than those that do not, and that smaller groups will have a greater likelihood of engaging in collective action than larger ones” (34).

Blinder: Hard Heads, Soft Hearts

Blinder, A., 1987. Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society, Addison Wesley Publishing Company.

“Murphy’s Law of Economic Policy: Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently” (1).

Blinder argues that issues upon which a vast majority of economists agree are things like the link between high tariffs and decreased economic welfare, the bridge between rent controls and decreased housing quality and the connection between decreased taxes and increased employment (2).

An example of bad policy decisions being taken is given relating to Laffer and his intuition that there is a point where too much taxes will actually decrease tax revenue because it will reduce incentives to produce. Laffer used this logic to argue that the US could increase tax revenue by decreasing taxes. Blinder argues that this was uncontroversially seen as being improbably by economists.

“O’Connor’s Corollary: When conflicting economic advice is offered, only the worst will be taken” (4).

Another example of the above corollary is good advice that was not taken: in the early 80s, Reagan grew the federal deficit greatly. This, many argued, would increase interest rates, push the value of the dollar up and hurt exports. This good advice did little to affect policy.

“To economists, the theoretical case for free trade is as natural as mother’s milk” (7).

Blinder presents the case against tariffs against Japanese auto-makers. Then he presents a case for how economists can solve pollution problems by reducing incentives to pollute.

Is there a chance that this trend can be turned around? Maybe. Part of the problem is that economists have not been as eloquent as they possibly could be. Another seems to be a public’s desire for parsimonious answers when the “right” answer might involve a good degree of nuance.

Becker: The Economic Approach to Human Behavior

Becker, G., 1976. The Economic Approach to Human Behavior, University of Chicago Press.

Ch. 1: The Economic Approach to Human Behavior

“The following essays use an ‘economic’ approach in seeking to understand human behavior in a variety of contexts and situations. Although few persons would dispute the distinctiveness of an economic approach, it is not easy to states exactly what distinguished the economic approach from the sociological, psychological, anthropological, political or even genetical approaches” (3).

“Economics is said to be the study of (1) the allocation of material goods to satisfy material wants, (2) the market sector, and (3) the allocation of scarce means to satisfy competing ends” (3).

The first definition, according to Becker, is wrong because the logic of economics can be applied much more broadly than simply material goods. The third definition is the most broad, and does more to identify the nature of a problem to be solved and little to identify what it is that economists do. “All of these definitions of economics simply define the scope, and none tells us one iota about what the ‘economic’ approach is” (4). Becker argues that the economic approach, or method, is what makes this study unique, and not the subject-matter in question.

“Everyone recognizes that the economic approach assumes maximizing behavior more explicitly and extensively than other approaches…Moreover, the economic approach assumes the existence of markets that with varying degrees of efficiency coordinate the actions of different participants…Prices and other market instruments allocate the scarce resources within a society and thereby constrain the desires of participants and coordinate their actions. In the economic approach, these market instruments perform most, if not all, of the functions assigned to ‘structure’ in sociological theories…The preferences that are assumed to be stable do not refer to market goods and services, but to underlying objects of choice that are produced by each household using market goods and services…The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as I see it” (5).

He then goes on to explain why these core assumptions of the economic approach are appropriate. Becker also explains how the economic approach can be applied to really any problem facing the social sciences. That being said, however, he ends this chapter by claiming that the economic approach provides a certain kind of knowledge about the world and that other approaches are quite useful in explaining different kinds of human behavior. In the end, there is a role for approaches that theorize actors to be rational maximizers with stable preferences operating in equilibrium seeking markets.

de Mesquita: The War Trap Revisited

de Mesquita, B., 1985. The War Trap Revisited: A Revised Expected Utility Model.”. The American Political Science Review, 79(1), 156-177.

“An expected utility approach to the study of international politics offers both the opportunity to deduce propositions about international conflict, and, through the application of admittedly crude indicators, to evaluate the usefulness of those propositions as explanations of actual behavior” (156).

“My main objective here is to reconstruct the model so that it reflects risk through the introduction of concavity or convexity into the utility functions. In doing so, it is imperative that the model give each actor the opportunity to have a differently shaped utility function, with the extremity of the function’s curvature embodying the extremity of the decision maker’s willingness (or reluctance) to take chances” (156). The second goal of this piece deals with the relative subjectivity of actor’s perceived utility: de Mesquita attempts to build the model to avoid interpersonal comparisons.

This addition to The War Trap was then explored through game theory rationalist models using both the convex and concave curves for either risk averse or risk acceptant actors to determine the relative utility different actors put in potentially conflictual contexts.

Keohane: International Institutions: Two Approaches

Keohane, R., 1988. International Institutions: Two Approaches. International Studies Quarterly, 32(4), 379-396.

“To understand international cooperation and discord, it is necessary to develop a knowledge of how international institutions work, and how they change” (380).

Starts out with the claim that general theories of IR are not plausible or probably possible.

“’Cooperation’ is a contested term. As I use it, it is sharply distinguished from both harmony and discord. When harmony prevails, actors’ policies automatically facilitate the attainment of others’ goals. When there is discord, actors’ policies hinder the realization of others’ goals and are not adjusted to make them more compatible. IN both harmony and discord, neither actor has an incentive to change his or her behavior. Cooperation, however, ‘requires that the actions of separate individuals or organizations’…be brought into conformity with one another through a process of policy coordination’” (380). Cooperation and discord stand in a dialectical relationship; to see one you have to see the other. Cooperation doesn’t necessarily have to happen because of altruism, etc. Also, while order is a value, it is not the only value in international relations (see Bull and order/justice discussions).

Institutions are overdetermined. There is an odd dialogue between rationalism and post-rationalism discourses. He’s committed to the former, but also keen on the later (calls them interpretive scholars).

“My chief argument in this essay is that students of international institutions should direct their attention to the relative merits of two approaches, the rationalistic and the reflective. Until we understand the strengths and weaknesses of each, we will be unable to design research strategies that are sufficiently multifaceted to encompass our subject-matter, and our empirical work will suffer accordingly” (383).

There is then a discussion of the diverse kind of usages for the term institution. It can be seen as a kind of pattern, ala sovereignty. It can be more specific, like the UN.

Rationalist approaches are good for doing certain things, but they do not endogenously treat interest: preferences are exogenous and fixed. “Reflective” theory can be used to explore preferences. We need a theory that can at least partially help us understand how interests change.

“…the greatest weakness of the reflective school lies not in deficiencies in their critical arguments but in the lack of a clear reflective research program that could be employed by students of world politics” (393).

Sen: Rational Fools

Sen, Amartaya K. (1977). Rational Fools: A Critique of the Behavioral Foundations of Economic Theory (Vol. 6, 317-344): JSTOR.

This essay explores some of the problems associated with the assumption that all actors are rational individuals. These assumptions have formed the core of neoclassical economic theory. Additionally, they are improbably linked to the idea that markets are equilibrium seeking units. When behavior is tied to equilibrium seeking effects, it is said to represent the core of the economy, which is defined as activities that are Pareto superior. Sen points out that these “core” activities have little to do with social welfare.

The article proceeds to highlight all of the reasons for that assumptions of rationality are lacking. It is a very strong critique of neoclassical rationality. However, the purpose of my reading of the article was to examine how it may or may not relate to economics and equilibrium.

“The purely economic man is indeed close to being a social moron” (336).