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A Critique of Black Box Economicsmises.org/mises-wire/critique-black-box-economics
393 sats \ 10 comments \ @Rothbardian_fanatic 12h econ
A central debate in the philosophy of science concerns the purpose of scientific theories: should they aim to represent the world as accurately as possible or is it sufficient for them to produce useful predictions? Milton Friedman’s influential essay The Methodology of Positive Economics argues for the latter, suggesting that the primary goal of a theory is to generate accurate predictions, regardless of whether its assumptions reflect reality. This instrumentalist-empiricist view has had a profound impact on economics, encouraging the development of models that may not be true in their assumptions, but are judged primarily on their predictive success.
However, this approach risks reducing economics to a mere “black box” tool for prediction, devoid of genuine insight into the underlying mechanisms that drive economic phenomena. From the perspective of scientific realism, which holds that a theory should aim to represent the world as accurately as possible, Friedman’s instrumentalism-empiricism neglects the deeper task of understanding the economy’s workings.
The insight comes from realizing that it is humans that act, not homo economicus and not a set of mathematical equations. Economics is not a physical scientist, it is a social science and should be treated as such.
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10 sats \ 3 replies \ @Solomonsatoshi 8h
Of course its not always easy to build economic models which include all real world variables. One of the biggest variables being government policies and strategies. Government policy effects upon economic outcomes is a significant factor but hard to build reliable models upon. For example you can predict that placing tariffs upon Chinese EV imports will reduce Chinese EV sales and increase those of domestic producers but it is more difficult to quantify the subsequent net benefits/costs. It is even harder to know what response the Chinese government might make- imposing higher costs on supply chains providing US EV manufacturers for example.
Ultimately any economic model will have to simplify the real world variables down to those which can be fitted into a model and give some approximation whether it is Austrian, Monetarist, Keynesian, Communist or other ideology behind its thesis.
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7 sats \ 2 replies \ @Rothbardian_fanatic OP 8h
Models are not always the way to understand economics. It is sometimes better to use deductive logic on these problems.
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0 sats \ 1 reply \ @Solomonsatoshi 8h
Good point. Can agree 100%. Stick to logical deductive reasoning rather then placing reliance upon models where the underlying reasoning (if any) is not transparent. Trouble is there will always be a market for convenient models (dogma) which presume to give convenient solutions and remove the need for constant thought, reflection and debate.
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0 sats \ 0 replies \ @Rothbardian_fanatic OP 7h
Yes, the market for such models is either the state or very closely aligned to state banks, bourses and brokerages.
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10 sats \ 5 replies \ @SimpleStacker 11h
My problem is with any kind of absolutism in claims regarding methodology. Methodology should be chosen to suit the task. Whether you want accurate predictions, interpretability, or something else, depends entirely on the task
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0 sats \ 4 replies \ @Rothbardian_fanatic OP 11h
What happens when your chosen task fails when a new situation arises for the black box test? Do you just say, oh, that didn’t work well, we need a new black box model? It looks like you agree with Friedman, empiricism is an adequate method.
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0 sats \ 3 replies \ @SimpleStacker 11h
No, because any analyst worth their salt understands that black box predictive models aren't going to be as accurate or useful in scenarios not seen in the training data. Thus, when faced with entirely new situations you'll rely less on a black box predictive model and more on deductive reasoning.
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0 sats \ 2 replies \ @Rothbardian_fanatic OP 11h
OK, but it seems there are not a lot of analysts that are worth their salt, now-a-days in the state apparatus, which is our overlord. If their models were working worth a sh*t, we wouldn’t be having the problems we are having now. Especially, in the economic control agencies like the Fed and all of the other regulators.
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0 sats \ 1 reply \ @SimpleStacker 11h
I'd argue though that the incompetence of government workers has less to do with their methodology and more to do with the incentive structures inside government
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0 sats \ 0 replies \ @Rothbardian_fanatic OP 10h
Hmmm…… I would argue that the incompetence is due to BOTH their methods and their incentives. It is a systematic failure of all they are involved in. They were chosen specifically because they conform best to the criteria of the state.
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