The demonstrably strong support of the working classes everywhere for capitalism
22 Aug 2014 Leave a comment
George Stigler on mistaken decisions as an explanation of social phenomena
06 Aug 2014 Leave a comment
The power and self-discipline of parsimonious analysis
30 Jul 2014 Leave a comment
in Alfred Marshall, David Friedman, economics, George Stigler, Karl Popper Tags: methodology of economics
Some bristle over the small size of the basic analytical tool kit of economists and the leanness of the behavioural assumptions therein (Stigler 1987).
Simpler explanations and more parsimonious abstractions are better ‘engines for the discovery of concrete truth’ about how people will respond to changes in their economic and social environments.
A limited set of causes or postulates in a theory reduces the chances that one or more of the assumptions on a more extensive list inadvertently explains away in an ad hoc manner every possible anomaly, or allows for a deft reinterpretation and/or adaptation to temporise and escape refutation. An every growing number of auxiliary hypotheses and ah hoc assumptions to co-op inconvenient facts may forever immunise the basic theory under scrutiny against testing and falsification (Olson 1982; Popper 1963). More parsimonious abstractions are less likely to found theories that seem to have successfully explained a particular social phenomenon spuriously by chance.
Complex human objectives are not assumed in economic analysis because everything could be explained and nothing could be falsified. Every empirical anomaly could be covered in advance by assuming human objectives that are sufficiently complex and large enough in number that are pursued with a high frequency of error and inertia (Friedman 1990; Popper 1963).
Subsequent ad hoc reinterpretations that add new objectives or additional sources of human frailty can finesse major anomalies to make the basic theory compatible with the facts to side-step refutation. Heavily qualified theories and intricate explanations of narrow application rarely come in the open for long enough to be found wanting.
A good theory is a prohibition: the theory forbids certain things to happen. The more that a theory forbids, the better the theory is. Bold, novel and chancy predictions are even better still.
These predictions are less likely to explain social and economic behaviour spuriously by chance. If incorrect or incomplete, bold and novel predictions are more likely to be quickly found at odds with experience and the basic theory is either revised or is discarded (Popper 1963).
George Stigler on do business owners maximise profits?
29 Jul 2014 Leave a comment
in applied price theory, Armen Alchian, entrepreneurship, George Stigler, survivor principle, theory of the firm Tags: george stigler, market selection, profit-maximisation
Entrepreneurs often do not know why they survived in competition. George Stigler in his autobiography told this wonderful story about how you could not get businessmen to admit in a survey that they maximise profits.
You go to their office and asked them: Do they maximise profits?
Their answer would be, of course, not. I am here to provide employment to my workers and put a small amount aside for the education of my children.
The surveyor would then ask them: if you do were to raise your prices, do you expect to increase your profits?
The businessman answers no.
The surveyor how would then ask them: if you were to cut your prices, do you expect to increase your profits?
The businessman answers no.
The survey would then ask: can you point to a time in the last 12-months where you substituted profit for some other objective?
At this point of time, you would be thrown out of their office as some sort of lunatic.
George Stigler on Thomas Malthus – with relevance to his modern day successors
18 Jul 2014 Leave a comment
Regulation and competition are rhetorical friends and deadly enemies
06 Jul 2014 Leave a comment
in economics of regulation, George Stigler Tags: regulatory capture
George Stigler stubbornly insisted that regulations be judged by their actual results, not their intended results.
Gary Becker and George Stigler on continuity in economic thinking
17 Jun 2014 Leave a comment
in Gary Becker, George Stigler, history of economic thought Tags: methodology of economics
this recession had got a lot worse, we would have seen two major changes: much more government intervention in the economy, and a lot more concentration in economics in trying to understand what went wrong.
Assuming I’m right and, fundamentally, the recession is over—a severe recession but maybe not much greater than the 1981 recession, or those in the nineteen-seventies—I think you are not going to see a huge increase in the role of government in the economy.…
Economists will be struggling to understand how this crisis happened and what you can do to head another one off in the future, but it will be nothing like the revolution in the role of government and in thinking that dominated the economics profession for decades after the Great Depression.
If the problems of economic life changed frequently and radically, and lacked a large measure of continuity in their essential nature, there could not be a science of economics.
An essential element of a science is the cumulative growth of knowledge, and that cumulative character could not arise if each generation of economists faced fundamentally new problems calling for entirely new methods of analysis…
[Economics] will continuously be confronted with new circumstances which call for more than a routine application of standard knowledge. Thus the energy crisis of the nineteen-seventies has provided much employment to economists, but it has not called for important changes in economic science…
The responsiveness of economics to environmental problems will naturally be more complete and more prompt, the more urgent the problems of the day. The response will also be more complete, the less developed the relevant body of economic analysis.
The responsiveness of macroeconomics to contemporary events is notorious. Keynes’s conquest in the nineteen-thirties was due to the fact that the neoclassical theory could not account for the persistent unemployment of that decade. A generation later, persistent inflation even with less than full employment was equally decisive in ending Keynes’s supremacy. If and when macroeconomics produces a good theory of the business cycle, its responsiveness to environmental changes will diminish sharply
Stigler’s law of textual exegesis
18 May 2014 Leave a comment
in George Stigler, history of economic thought Tags: textual exegesis
There are cottage industries of academics living of the questions such as what did Marx actually say, or what did Keynes really mean? A sign that you have really made it is people squabbling over what you really said.
Stigler’s law of textual exegesis (1965) is that because even the great and the good are human enough to contradict themselves, change their minds, and even write in vague terms from time to time and are misheard, rely on their own summaries of their own work to work out what they really think rather than hand-picked quotation. You can then check if their analytical system supports their summaries of their main work:
Let us recognize the fact that the interpretation of a man’s position –– especially if the man has a complex and subtle mind –– is a problem in inference, not to be solved by the choice of quotations.
As for why we ponder over the great texts, our goal should not be to understand what an author really believed, instead it is
…to maximize the value of a theory to the science… The man’s central theoretical position is isolated and stated in a strong form capable of contradictions by facts. The net scientific contribution, if any, of a man’s work is thus identified, amended if necessary, and rendered capable of evaluation and possible acceptance.
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