[This is from a larger piece -- the section is entitled, four ways in which economics is reflexive -- that I am composing.]
One way in which economics is reflexive is that the incentives of the economists qua economists as policy advisors deploying economic tools can be studied from within economics. In the opening lines of Book 1, (I.I.8, summarizing Book 4,) of Wealth of Nations, Adam Smith already noted this feature of economics prominently in his historical survey of economic theories prior to his own (in order to discredit alternative approaches to economics). More recently after spending time with Popper and reading Polanyi and Kuhn, Gordon Tullock stimulated research in the economics of economics. He points out that even if individual economists are truth-seekers, there are lots of incentives that favor other aims among policy scientists. (See here for an especially striking passage in The Organization of Inquiry, near the end of chapter 7.) In particular, it is by no means obvious that the ‘function’ of policy science is to speak truth to power rather than, for example, facilitate bargaining among elite policy makers (by providing a shared framework) or providing rhetorical cover for, say, pre-existing policy ends or disarming complaints against the (potential) effects of policy. (These are not mutually exclusive, of course.)
To give a stylized, but very real example: many countries have a bureau of economic planning or budget agency that offer detailed policy guidance to the executive and legislative branches. These often do so by providing a menu of options accompanied with probability or uncertainty ranges. These agencies do so while being fully aware that policy makers will focus on a single number from the whole menu offered to them. Yet, in their modeling they always pretend as if they do not know this (of course, in practice they often suggest all kinds of favored policies, but that is a different story).
Now this is not by itself an argument for the history of economics. But if one wants to understand the policy impact of economic theory then one must study simultaneously, the economic theories available and used by policy-experts and makers, the policy changes these facilitated, and the consequences of policy changes. This could be studied both i) comparatively (which might provide many so-called natural experiments), as well as ii) historically within a (reasonably) stable institutional framework. (These are not mutually exclusive, of course.) The second of these presupposes history of economics. Such study would be prerequisite if one were interested in building “a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances.”
As discerning readers would have realized, the last sentence is quoted from the most famous paper advocating and characterizing “The Methodology of Positive Economics." One might think that Milton Friedman’s very influential account of economics as a “positive” science was precisely intended to keep economics ‘pure.’ A quote from the second page of his 1953 essay, might suggest this reading: “Positive economics is in principle independent of any particular ethical position or normative judgments. As [John Neville] Keynes says, it deals with "what is," not with "what ought to be."” One might think that Milton Friedman is committed to the following analogy: positive economics should be more like pure astronomy and less like (social) engineering. Even so, Friedman’s essay does not hide the fact that even positive economics is a policy science. For the very next sentence following the two just quoted reads, “Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances.” With the rise of the modern Military-Industrial-Welfare state, the crucial change in circumstances is, in fact, changes in policy.
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