The State of Contemporary Economic Methodology

What is characteristic of economic methodology since Kuhn is, to borrow Schabas's expression, the field's "breaking away" from economics through a process of increasing specialization. Before Kuhn, methodology was almost entirely the province of economists; after Kuhn, methodology largely became the concern of individuals for whom it was their primary specialization. My suggestion above, that this made the field "excitingly irrelevant," is meant to emphasize how the separation of economics and methodology removed the anchoring effect that economics had on methodology, creating a crisis in direction of development for the latter. But there is also a positive side to this crisis, associated with the rich proliferation of ideas in methodology that would likely not have occurred had a closer connection to the field been sustained. How, then, should one evaluate the state of economic methodology since Kuhn? In closing, I address this question by characterizing the relationship between economics and economic methodology in a manner analogous to the relationship between economics and the economy. My model for the latter is one of the most influential contributions to economics in the postwar period, namely Robert Lucas's famous critique of empirical macroeconomics (Lucas, 1976).

The Lucas critique was based on the idea that when people in the economy make choices, they take into account government policy regarding the economy and the theory on which it is based. The large econometric forecasting models of the macroeconomy, however, relied on equations that were assumed to be stable through changes in policy regimes. Lucas used the concept of rational expectations to argue that these models failed to predict how the economy would respond to policy changes, because they assumed that people would continue to expect old policies rather than adjust to new policies. Before Lucas, economists had operated on the premise that the economy as an object of investigation was not influenced by economic theory. With rational expectations, however, since people were now understood to operate with the very models that economists created, macroeconomics had to be reformulated (for Lucas, as the New Classical economics) to include this reflexive relationship between the economy and its theory. No longer could one assume that the economy was an object of investigation that was separate from the investigator; rather, the object being investigated was now influenced by the act of investigation, and this in turn influenced the nature of the investigation.

Of course, the degree to which, and the manner in which, reflexivity operates in connection with the macroeconomy has since been much debated, especially in regard to the concept of rational expectations. But the Lucas critique has been widely accepted, and remains part of contemporary macroeconomics. Thus it is interesting that reflexivity is essentially a methodological principle. Not only does it refer to the relationship between economics and the economy - and thus concern the definition and scope of economics - but it also recalls one of the more radical post-Kuhn methodological approaches, namely the pragmatist thinking of Rorty and the hermeneutic circle. Note that one of Rorty's key ideas is that the traditional philosophic approach that sought certain epistemic foundations for science is misguided. In the absence of such foundations, Rorty argues that we must look at how our beliefs become established and how this influences the formation of further beliefs.

What does this tell us, then, about the relationship between economics and economic methodology? Just as economics investigates the workings of the economy, so economic methodology investigates the workings of economics. My claim, then, is that just as the relationship between economics and the economy has reflexive elements, so also the relationship between economic methodology and economics has reflexive elements. Economic methodology, that is, cannot suppose that economics, its object of investigation, is not influenced by work in economic methodology, or indeed that this influence does not have its own effects on the practice of economic methodology. In saying this, I do not, of course, mean to suggest that something on the order of the tightness of fit that rational expectations assumes in connection with the economy and economics applies in this case to economics and economic methodology. Rather, the point is the more general one involved in the Lucas critique, that reflexivity implies the existence of feedback relationships between economics and methodology.

First, then, how might one argue that economics has indeed been influenced by economic methodology, despite economists' general ignorance of developments in the field? Let me suggest that although most economists could say very little about the content of recent methodological thinking, many are nonetheless aware of Kuhn and his idea that there may be such a thing as a "scientific revolution"; are aware that, since Kuhn, economic methodology has become an active domain of specialization; and are aware that, by and large, economic methodologists have a critical view of the methodological practices of economists. The combination of these points, in fact, gives us reason to believe that the separation between economics and economic methodology is also due to defensiveness on the part of economists. Since methodology had previously come from the ranks of economists, but now comes largely from outside their ranks, this has encouraged economists to distance themselves from the subject of economic methodology - particularly in the climate of skepticism about science brought about by Kuhn. But this cannot be a comfortable situation for economists, despite their disclaiming any interest in methodology, since it coincides with the loss of their monopoly over self-evaluation.

Secondly, how has this state of affairs reverberated back upon methodologists? On the one hand, the separation between economics and methodology has helped to make the former an object of the latter. As economists distance themselves from the field of economic methodology, this reinforces the relative autonomy of the field, thus giving methodologists confidence that their investigations are of value. On the other hand, this motivated separation also creates doubts among methodologists regarding the value of their explanations, stimulating them - it also seems - to ask whether their work ought not to draw more closely on the practice of economics. These "push" and "pull" forces, I suggest, are intrinsic to the field of economic methodology as a now relatively distinct form of investigation. Consequently, the tension between these two forces is likely to remain, and to continue to characterize debates in the field. From this perspective, the three controversies discussed above reflect a pluralism that should probably be considered normal fare in the field of economic methodology. In effect, fundamental differences will continue to obtain among economic methodologists, because the field is no longer internal to economics as a whole.

Thus the field of economic methodology is likely to persist in a state of permanent revolution. Is that state also one of crisis, a crisis of "exciting irrelevance"? The answer to this question, it seems, depends upon which side of the "push-pull" story one is most strongly attracted to. Those who emphasize the relative autonomy of the field presumably favor the proliferation in ideas and theories that separation permits economic methodologists. Those who doubt that methodology is sufficiently in touch with the practices of economists presumably favor closer proximity to economics. Apparently, however, both camps will continue to operate in the field.

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CHAPTER THIRTY-FIVE

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