Paul Krugman's definition of economics assumes the form of the theory
Assume a can opener ... [wikimedia commons]
I was reminded of Paul Krugman's piece on evolution in an especially good comment here (I wrote about this subject here):
Caution, however. [David Sloan Wilson] himself is considered heterodox within evolutionary biology, being a vocal and triumphalist advocate of group selection and multi-level selection. Mainstream evolutionary biology is still largely individual-selectionist or gene-level selectionist (their equivalent of methodological individualism). So we have a case of a heterodox biologist egging economics on to heterodoxy.
I'm not going to re-hash the evolution argument (which, as with any methodology, is always a question of "what is it good for?"). I do think discussion of Krugman's definition of economics is worthy of a post, though. Here's Krugman:
Let me give you my own personal definition of the basic method of economic theory. To me, it seems that what we know as economics is the study of those phenomena that can be understood as emerging from the interactions among intelligent, self-interested individuals. Notice that there are really four parts to this definition. Let's read from right to left.Â
Economics is about what individuals do: not classes, not "correlations of forces", but individual actors. This is not to deny the relevance of higher levels of analysis, but they must be grounded in individual behavior. Methodological individualism is of the essence.
The individuals are self-interested. There is nothing in economics that inherently prevents us from allowing people to derive satisfaction from others' consumption, but the predictive power of economic theory comes from the presumption that normally people care about themselves.
The individuals are intelligent: obvious opportunities for gain are not neglected. Hundred-dollar bills do not lie unattended in the street for very long.
We are concerned with the interaction of such individuals: Most interesting economic theory, from supply and demand on, is about "invisible hand" processes in which the collective outcome is not what individuals intended.
Emphasis in the original. The problem is that Krugman essentially assumes the form of the solution to the problem. Talk about assuming a can opener.
We do not know for a fact that there is little dimensional reduction in macroeconomic theory. We also do not know for a fact that all macro statistical regularities directly relate to micro agent parameters -- this presumes there are no macroscopic "entropic forces" that arise from properties of the distributions of agents. Essentially, this kind of approach, if applied in thermodynamics, would not correctly describe the stickiness of glue or osmosis ... because of an assumption. I think there is a lot of dimensional reduction and micro agent parameters tend to have little importance (these are kind of the same things) -- but I don't know for sure.
This oddly assumes both a) aggregation of self-interested behavior has macro consequences, and b) aggregation of deviations from self-interested behavior has no macro consequences. It's especially odd since we don't know the answer to either question either way. No one has successfully aggregated agents that successfully describe a macroeconomy empirically where the details of the agents matter.
Phase space added to an ideal gas is quickly occupied. Is the gas intelligent? A model where humans are randomly wandering (dither) through an economic state space space predicts a certain occupation of economic states (grabbing those 100-dollar bills). Maybe real humans occupy those states faster than dither would predict. That would constitute an empirical test of the role of intelligence. As yet, we have no answer ... so why assume one?
Supply and demand can arise from properties of the opportunity set (economic state space) alone with random ("irrational") agents. The invisible hand seems amenable to treatment as an entropic force. Why assume it comes from the detailed parameters in the interaction of agents?
So you can see -- Krugman's definition of economics presumes a particular form for the answer. My opinion is that Lee Smolin's definition is better, and doesn't presume as much:
[Statistical] economics is the study of the collective behavior of large numbers of economic agents.
I'd like to give an even better definition:
Economics is the study of simplifications in the collective behavior of a large number of agents.
The invisible hand is just such a simplification. I think interest rates, inflation and output might be similar simplifications -- leading to real predictive power in economic theory.
And I'd add: The study of the complexities in the collective behavior of a large number of agents is sociology.
...
Update 1/21/2016
This result is hard to square with Krugman's assumption of intelligence:
We found that many of the so-called conditional cooperators are confused and do not seem to understand the public-goods game