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Empirical Approach To Economics

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ex_banana-eater
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I've heard Objectivsts reject "praxeology," but praxeology itself includes a lot of things, not just the value-free aspects. What I wonder is whether the empirical approach to economics (the data gathering you see today, often this is called "positive economics") is rejected on epistemological grounds similar to that of Mises, or whether Objectivist economists believe we should perform economics or obtain economic principles from gathered empirical data?

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... ...obtain economic principles from gathered empirical data?
There's really no other way to derive principles of economics except by the observation of reality. Even Mises does so. So, assuming that "empirical data" is a synonym for the observation of reality, I'd say that there is no other source for principles of economics except empirical data.

In economics, with limited opportunities for controlled experiments, one is left with empirical data that has all sorts of aspects. Sometimes there are also very few instances of some type of event (like a major multi-year economic downturn under a fiat-currency regime), and enough variation among the instances that drawing out principles is not a simple task.

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I've heard Objectivsts reject "praxeology," but praxeology itself includes a lot of things, not just the value-free aspects. What I wonder is whether the empirical approach to economics (the data gathering you see today, often this is called "positive economics") is rejected on epistemological grounds similar to that of Mises, or whether Objectivist economists believe we should perform economics or obtain economic principles from gathered empirical data?

Of course using the praxeological method does not have to preclude being "empirical" in the broad sense of the term at all. Don't let Mises' use of Kantian terms mislead you into thinking the two are incompatible.

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There's really no other way to derive principles of economics except by the observation of reality. Even Mises does so. So, assuming that "empirical data" is a synonym for the observation of reality, I'd say that there is no other source for principles of economics except empirical data.

Gathering empirical data is not a synonym for observation of reality. Isn't it pretty clear what I mean here? There is one approach to economics that primarily uses deduction from axioms (which are derived from empirical observation of one's own choices) and there is another approach to economics, common among economists today, which consists of piling up huge amounts of statistics to try and prove whether free trade works from the 1947-1953 period in apples and chalk but not automobiles.
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Of course using the praxeological method does not have to preclude being "empirical" in the broad sense of the term at all. Don't let Mises' use of Kantian terms mislead you into thinking the two are incompatible.

I'm not sure I understand what you mean here.

Anyway, if praxeology allows data gathering to arrive at fundamental economics truths, then why do philosophically sound Austrian economists like George Reisman arrive at economic principles through deductive logic instead of intense data gathering?

Take for example this article: http://mises.org/daily/2361 The response by a neoclassical or an academic Friedmanite would be, "WHERES YOUR HISTORICAL DATA???" They think Reisman would have to plot and compile data on every single good and whether their price decreased or whether wealth increased from year to year in order to prove his point. They think this is a "scientific" approach to economics. And note that I'm talking about a lot of economists who are almost always libertarian or close to it.

Edited by ex_banana-eater
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Okay, I get your question now. Yeah, as far as I know, Objectivism would agree with the Austrian criticisms of this kind of economics, due to the fact that it would be impossible to perform the kind of controlled experiments, and pointless if human choices are involved. It wouldn't share the kind of skepticism the positivists have toward logical reasoning from generalizations.

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Gathering empirical data is not a synonym for observation of reality. Isn't it pretty clear what I mean here?
Not really. At its narrowest "empirical data" means a subset of observations of reality: i.e. those observations about reality that can be easily expressed in numbers.

Anyhow, the two tendencies you describe are pretty common among economists and are both invalid. These two faulty approaches explain why economics has not developed more than it has.

A proper approach takes observation of reality as a starting point. This includes both "empirical data" and any other observations that are not classified as empirical data. These are used to induce principle. In turn, principle must hold up against our observations.

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I posted another thread on this in epistemology but I may as well repeat it here.

Can one not validly make the *induction* that capitalist economies produce more material prosperity than statist economies, by looking at the wealth levels of free and unfree countries?

Why or why not would that induction be unreliable?

Is it senseless for me to cite data like the Freedom Of The World report? (Apart from simple validation).

Isn't this the same type of induction we make when studying history?

Edited by ex_banana-eater
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The two approaches are not mutually exclusive.  The amount of economic knowledge that can be gained from simply reasoning from human action is quite limited, and those principles are quantitatively undefinable.  To answer any meaningful question about a past economic occurrence requires empirical data.  Because of the nature of economic data, arguing for causality in an economic context often requires advanced econometric techniques to isolate and estimate the quantitative effect of one variable on another.  In short, empirics and econometrics are vitally important for economic knowledge.  You might consider principles of economic behavior deduced from human action to be the skeleton of economics if you like, but a full body of economic knowledge requires much more than simply a skeleton.

It is simply incorrect to hold up a deterministic interpretation of Friedman's positivism as the only alternative to economic reasoning from human action.  Empirical work can tell us a lot about how people tend to behave in economic matters without claiming perfect prediction as the theoretical goal.

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Can one not validly make the *induction* that capitalist economies produce more material prosperity than statist economies, by looking at the wealth levels of free and unfree countries?

Why or why not would that induction be unreliable?

That information alone is not nearly enough to make a valid induction about causal factors.  There are a huge number of factors that need to be considered when attempting to account for GDP (and also significant problems with using GDP as a measure of material prosperity).  You would need to account for other possible factors influencing GDP before you could consider making the statement that economic freedom has caused much of the material prosperity in relatively free countries.

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Is it senseless for me to cite data like the Freedom Of The World report?
It's definitely not senseless; just the opposite. It is perfectly sensible to examine whether freedom is actually, empirically, related to prosperity.

However, if all we consider is correlation, we can't claim a really firm understanding -- a firm knowledge. A century ago, some would have argued that Protestantism caused prosperity. They could have demonstrated pretty good correlations, and even shown a causal chain (the so-called "Protestant work-ethic"). There was a period when prosperity correlated with race, with White countries being wealthier -- the correlation even showing up in South Africa when compared to the rest of Africa. With the passage of time, we see that other variables are proven not to be so correlated after all. With China and India opening up, we see that freedom continued to correlate with prosperity, but Protestantism and race did not. With every decade the correlation between freedom and prosperity holds up, while the correlation between prosperity and other variables does not. So, it becomes more convincing that we're seeing causation, not just correlation.

Still, put yourself in a hypothetical universe: imagine that we saw the correlation but were mystified how there could be any causal relationship. For instance, suppose that instead of freedom, we were indeed still talking about Protestantism. Suppose that as it spread from country to country, we found that country turning more prosperous (as well it might have). Or imagine anything more far-fetched: say the adoption of middle names is highly correlated with prosperity (which is not that far-fetch as far as alternative history goes). We would not conclude that the names were causes, but would delve deeper. Seeing no causal relationship, we might think: these names have been adopted, as part of the adoption of XYZ culture. We might then take it further and ask: what about that culture might cause prosperity. By an analysis of causes, we might see that the XYZ culture allows more freedom, particularly in economics. We might test this by asking: how does freedom fare in a completely different culture. Studying Lenin's N.E.P., we might see that a little dose of freedom made relatively a big difference in a completely different context. Still, unless we understand the mechanism, the correlations get stronger and stronger, but the knowledge is not firm.

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I believe I have been told George Reisman, who is both an Objectivist and an Austrian economist that works in part for Mises Institute, has done a lot of work in attempting to merge these two. I have only heard great things about his book Capitalism, although I have not read it myself, and I have been told some of that work is expressed there.

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I believe I have been told George Reisman, who is both an Objectivist and an Austrian economist that works in part for Mises Institute, has done a lot of work in attempting to merge these two. I have only heard great things about his book Capitalism, although I have not read it myself, and I have been told some of that work is expressed there.

I wish Reisman was less wordy, because his book does look like a goldmine. I find him almost impossible to read. :(
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