Another thought. You've persisted with the view that when the science is crappy - whether because of bad data or some kind of bad equilibrium I guess - there is disagreement. ... What's at stake in finance? The flow of resources to finance people comes from Wall Street. All the Wall Street people care about is making money, so good science gets rewarded. I'm not saying that macroeconomic science is bad, only that there are plenty of opportunities for policymakers to be sold schlock macro pseudo-science.What I aim to do in this post is offer an explanation for the 'divide' in economics from the perspective of moral philosophy and on this basis argue that finance is not guided by science but by magic.
As a Scottish Marxist in the 1950s, Alasdair MacIntyre wanted to establish if Stalinism could be reasonably criticised without undermining Marxism. In 1981 MacIntyre published his conclusion: modern moral philosophy was incapable of reasonably criticising anything because it had was dominated by arguments based on willpower. MacIntyre argues (my naive interpretation) that society should focus on where it wants to get to, and then work out how to get there, and this is the Aristotelian approach that was abandoned in the nineteenth century. The dominant philosophical approach is that science establishes principles and society is a deductive consequence of those principles. The Nietzschean approach is to dominate the discussion of the principles, through willpower, and so determine the direction that society travels in.
For example all (British) mainstream political parties believe in 'fairness', but we never discuss what a fair society actually looks like. The debate focuses on the conflicting principles that fairness is founded on equal allocation of resources or that it is based on equal opportunity, these apparently similar principles lead to very different political principles. The contemporary economic debate seems to be governed by the conflicting principles of whether you are pro-austerity or pro-deficit, not a discussion of what type of society people want and how, whether through tight or loose monetary policy, will this society be achieved.
I think their is a symbiotic relationship between the Nietzschean approach and academics. If the focus of the debate switches to the democratic deliberation of what type a society people want, scientists become the servants of society. In the current system, scientists become the guides of society. MacIntyre's moral philosophy emasculates academics and it is not surprising many regard it as relativistic mumbo-jumbo.
Relativism is a problem if differing points of view are seen as exclusive options. The solution to relativism is not to shrug your shoulders and accept the sacrifice of children is acceptable in a cultural context, it is to engage in deliberation that attempts to understand the reasons for the action and to reflect on where there are weaknesses in your own cultural norms. The disagreement in macro-economics is an indication that economists see some benefit in the process of public deliberation.
The current political paradigm includes the principle that policy should be 'evidence based', reliant on 'science', without much thought to the how 'science' is constructed. The problem with the economic debate is the discussion is focusing on the scientific questions not the democratic questions.
Most physical scientists will have given up a few paragraphs ago, because scientists are committed to the belief that they are guided by 'nature'
@TCJUK You mis-read a crucial sentence. "Nature" is the adjudicator above opinion, not just "science". This is a very important distinctionWhat these types of scientists generally refuse to acknowledge is that they choose which questions to answer. In The Value of Science Poincare argued against the idea popular today "science for science's sake" rather the scientist should concern themselves with identifying the hidden connections between the apparent facts in the service of society (mathematics is there to do this when experimentation is not possible). A good scientist is someone who asks the important questions.
— Brian Cox (@ProfBrianCox) January 5, 2013
The advantage that physical scientists have over social scientists is they have a significant degree of autonomy over what they study. People believe that cosmology and particle physics are important because there are a lot of (historically) well funded cosmologists and particle physicists telling them that these are important and they close the discussion down by appealing to the almost divine authority of 'Nature'. Brian Cox seems to really believe that he is guided by Nature in determining it is more important to look for the Higgs Boson than working out obtuse questions, such as "what is money". The result is the chattering classes have a better comprehension of quantum mechanics than the relatively straightforward financial system and the effect is that people are perplexed by financial crises and unable to formulate coherent responses to them. Cox has said the money spent on the finding the Higgs Boson (around $13 billion, the accounts are not clear, a cynic might say that at this cost they were bound to prove the maths) was well spent in comparable to the £38 billion banking support - the point is the finding the particle does not contribute to mitigating financial disasters and the UK's share of the LHC funding, in retrospect, could have been better spent.
In the 1902 Marcel Mauss and Henri Hubert wrote in A General Theory of Magic
The magician is a person who, through his gifts, his experience or through revelation, understands nature and natures... Owing to the fact that those magicians came to concern themselves with contagion, harmonies, oppositions, they stumbled across the idea of causality, which is no longer mystical even when it involves properties which are no way experimentalThe two distinguish magic and science by observing that magic is based on belief in a set of rituals. A person will only consult a magician if they have faith in the actions that the magician will perform. Science is not based on belief in its theorems, the equivalent of magic's rituals, but on a belief in the process by which science is created. This is a subtle point, but the effect is that magic is necessarily static, a contemporary astrologer would have more authority if they claimed to be experts in ancient knowledge. Similarly, most religions claim to encapsulate what is permanent in a changing world. On the other hand, science is necessarily dynamic, we trust modern science's explanations of cosmology more than those of the Babylonians.
The implication of this distinction is that either mathematics exists independently of human thought and mathematicians discover theorems, Platonism or `Mathematical Realism' and mathematics is immutable, as Augustine claimed, or mathematics is created by living, breathing, mathematicians in response to the world around them. The advantage of Platonism is that it provides scientists with a stable framework in which they can work, and is regarded as many scientists, such physicists Roger Penrose, as an invaluable tool. On the other hand, the implication of Anti-Platonism is that mathematics is dependent on society's attitudes, and its claims to certainty are as strong as the claims to certainty of the social sciences.
While magic and science are distinguished by static or dynamic belief, Mauss and Hubert distinguish magic and religion by hidden and open belief
Where religious rites are performed openly, in full public view, magical rites are carried out in secret... and even if the magician has to work in public he makes an attempt to dissemble: his gestures become furtive and his words indistinct.The suggestion is, for science to be reputable and maintain a divide with magic, it needs to be carried out, like religion, in the open. As soon as either science or religion takes place out of the public arena, they risk degenerating into magic. Today, many scientists, in particular social scientists, regard scientific knowledge as 'shared belief', not necessarily 'justified belief', science is less about 'truth' and more about 'consensus' with an Italian definition of science
the speculative, agreed-upon inquiry which recognizes and distinguishes, defines and interprets reality and its various aspects and parts, on the basis of theoretical principles, models and methods rigorously coheringScience is speculative, not certain, and agreed-upon, not secret. It is on this basis that society can begin to understand the value of science.
So, in response to Stephen Williamson's implication, and it is an implication he does not make the statement, that finance is more scientific I have two comments. Firstly I agree that the focus of contemporary finance is about "making money" and this provides a clear objective for the discipline to work towards. The question I would pose is "making money" a good internal to the practice of finance? I would argue that the good internal to finance is the effective distribution of money to fund economic activities. The monomania of Wall Street needs to be challenged and I wonder if a re-orienting of finance to focus on (my view of) its internal goods will result in such a 'scientific' finance.
The second issue is highlighted in the UK Parliament's report on banking. The document makes few references to the role of mathematics in finance, but where it does it is damning
89. The Basel II international capital requirements regime allowed banks grantedThe science, the mathematics, is not being used to enlighten finance but to obscure its practices. Recently the report on J.P. Morgan's London Whale revealed how tweaking their model, the bank could reduce their apparent exposure from around $40 billion to $20 billion. The Whale report highlights how finance is actually more committed to 'rituals' around risk management than the 'science' of risk management, and this seems to be facilitated by mathematics.
“advanced status” by the regulator to use internal mathematical models to calculate the risk
weightings of assets on their balance sheets. Andy Haldane described this as being
equivalent to allowing banks to mark their own examination papers. A fog of complexity
enabled banks to con regulators about their risk exposures:
[...] unnecessary complexity is a recipe for […] ripping off […], in the pulling of the wool over the eyes of the regulators about how much risk is actually on the balance sheet, through complex models.
I think there are a variety of factors involved in this obfuscation, not least the culture of associating mathematics with hidden truths: the mathematician has a magical key to financial reality. There is also a metaphorical issue. At the start of the seventeenth century Francis Bacon is associated with using the metaphor of Science as masculine probing and taming the feminine Nature. Towards the end of the seventeenth century the metaphor of finance as 'Lady Credit' similarly emerges, and I think there has been a similar sense that a masculine Science can tame the fickle and unruly Lady Credit. I think both relationships could improve by becoming less dysfunctional. Ultimately, and untypically, I associate the failures of contemporary finance not with its own unruliness but with the interference by a deterministic scientific ethos. Economics might appear incoherent, but it is finance's coherence in the wrong direction, that causes more real problems.