Saturday, June 6, 2015

The Chimerical Analogies of Growth and Distribution

Together with Simon Kuznets, Atkinson more or less single-handedly originated a new discipline within the social sciences and political economy: the study of historical trends in the distribution of income and property.... All subsequent work on historic trends in income and property inequality to a certain extent follow in the wake of Kuznets’s and Atkinson’s groundbreaking studies. -- Thomas Piketty,"A Practical Vision of a More Equal Society"
Note that word "historical" there. Simon Kuznets's 1947 essay on "Measurement of Economic Growth" outlined many of the biases and obstacles in the way of defining and measuring income and thus growth.
Growth is a concept whose proper domicile is the study of organic units, and the use of the concept in economics is an example of that prevalent employment of analogy the dangers of which have been so eloquently stressed recently by Sidney Hook.
The Sidney Hook reference is to a contribution by him to a slim volume on Theory and Practice in Historical Study, which sought to bring some coherence and consistency to historians' use of terminology. Recall that when economists are writing about historical trends they are practicing historiography. The following are some key passages from Hook's entry on the use of analogy in historiography:
An analogy is a comparison which, on the basis of certain points of resemblance between two cases, suggests the existence of some further resemblance selected because of its relevance to the purposes of the comparison. As a figure of speech it functions as a metaphor to enliven and enrich historical style, e.g , when a revolution is described as a "storm that shook the land" or as a "fever" through which society has passed. As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion. E.g., when an analogy has been drawn between colonies and children to suggest the duty of accepting the rule of the mother country, it can be countered with an analogy between colonies and matured offspring whose subsequent growth depends upon independence of their parents.  
At best an analogy can only suggest a plausible conclusion whose validity must then be established on other grounds. The uncritical use of analogies is the bane of much historical writing, particularly when the resemblances lack clear definition or when they are blurred and presented as identities. The two most pervasive analogies in historiography are those drawn from biology and physics. For example, "cultures are organisms and world history is their collective biography" (Spengler). "This country will yet be viewed and reviewed as an organism of historic growth, developing from minute germs from the very protoplasm of state-life" (H. B. Adams). The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like "birth," "reproduction," and "death." 
Although the proper domicile of the concept of "growth" may indeed be the study of organic units, as Kuznets observed, there is actually another, more crucial and more subtle, analogy being employed in the national income and product accounts. That is the analogy between the firm and the nation. To paraphrase Hook, the analogy between nation and firm is no less formally worthless and logically deficient as an argument than is the analogy between nation and organic unit.

As Hook pointed out, analogy as a figure of speech functions as a metaphor. In the case of "economic growth" (and consequently income distribution) this double analogy -- to firm and to organic unit -- is a decidedly mixed metaphor, which invites all kinds of interpretive mischief from conveniently switching back and forth between features of firms and the features of organisms.

Throw in the mathematical models whose "proper domicile" is neither the organic unit nor the profit-seeking firm but the machine and the historiographic study of economic growth and income inequality truly resembles a dog's breakfast of scientific incoherence.
The most helpful applications of mathematics to economics are those which are short and simple, which employ few symbols; and which aim at throwing a bright light on some small part of the great economic movement rather than at representing its endless complexities.  
Thus, then, dynamical solutions, in the physical sense, of economic problems are unattainable. -- Alfred Marshall, "Distribution and Exchange:"
But, as Egmont K-H asked, "Who said what to whom -- and does it matter?"

Well, if you really want to know what Kuznets meant about the dangers of analogy, you have to know what the text he was referencing said. Kuznets, as Piketty pointed out, was the originator of a discipline. He didn't reject analogies; he employed them, critically. Today, we use the analogies indiscriminately. This uncritical abuse of metaphor gets very close to (psst... this is an analogy) Gregory Bateson's description of schizophrenia:
...the ‘word salad' of schizophrenia can be described in terms of the patient’s failure to recognize the metaphoric nature of his fantasies. In what should be triadic constellations of messages, the frame-setting message (e.g., the phrase 'as if') is omitted, and the metaphor or fantasy is narrated and acted upon in a manner which would be appropriate if the fantasy were a message of the more direct kind. 


Thornton Hall said...

Just to spell it out a little further, scientists use models. The mouse organism is a model of the human organism. They are not the same thing as each other, but the difference is has absolutely nothing to do with "simplifying assumptions". There are zero assumptions. I know humans have hearts, I know mice have hearts. I mess around with the mouse and learn/know what happens to its heart. I now have a hypothesis--NEITHER an assumption, NOR knowledge--about the human heart. That's a scientific model.

That is NOT what the word model means in economics. Most of the time "model" means "analytic model" which is absolutely synonymous with the word "analogy" as understood by Hook and Kuznets above.

Unfortunately, give 'em an inch and they will take a mile. Once you say that the critical use of analogy is ok, you've invited the vampire into your house.

Thornton Hall said...

The above understates the role of the mouse model. Results are actual evidence that the human organism functions in a particular way. The strength of the evidence depends on past knowledge of which particular systems are more or less likely to work the same way in both organisms.

Sandwichman said...

" Once you say that the critical use of analogy is ok, you've invited the vampire into your house."

Ah, but Thornton, the vampire insists it is HIS house and doesn't wait for invitations.