Sunday, August 1, 2010

Elizabeth Warren Disses the Use of Deductive Logic in Economics

More from a very dangerous woman. Elizabeth Warren wrote in 2006:

 What struck me, and the reason I bring it to this group, is how these very bright students seemed to believe that deductive logic produced a "fact" that they could not or would not challenge...If the deductive logic of economics is all-controling, then empirical work--indeed, empirical questions--will always remain at the intellectual and political margins


  1. How is one to interpret empirical work without some deductive framework that precedes it? It's like the DeLong idea of studying history for clues to economic truth-- what does history mean if you don't first have a theoretical framework with which to make sense of it?

  2. Note that most of the Austrian axioms are based upon what CANNOT be known by anyone. You cannot measure individual taste nor can a central authority possibly plan due to its necessary ignorance. The only way to get an approximate read on things is through free market prices. I submit that Austrian critics need to specifically criticize each Austrian axiom and attempt to prove that such knowledge is possible.

    However, no Austrian critic ever has the slightest familiarity with any of the Austrians axioms. Their criticism instead consists of "Eek a mouse! You have AXIOMS! You nutcases!"

    After 37 years of this, I find it pretty creepy.

  3. Her point is much simpler than you are making it. It's not a dismissal of deductive logic, which she employs like anyone else, but rather the observation that economic theory does not always predict commercial realities. If that shocks you, then perhaps you'd like to purchase a bridge I own in Brooklyn...

  4. Anon,

    Can you more specifically elaborate one what type of "commercial realities" economics is supposed to predict? Are you suggesting sound economic theory, according to those Warren is criticizing, can or should predict actual prices in the market?

    It seems like she is rather bluntly dismissing deductive logic. She's calling for empiricism to occupy a space with more priority than the margin. Where should deductive logic move to if empiricism is to come out of the margins?

    Furthermore, if she does not dismiss deductive logic, why does she advocate for policies that so strongly and obviously contradict the aforementioned "facts" of deductive economy theory?

  5. As the issue is framed by Warren, I'd say the question is an empirical question:

    This is the Supreme Court opinion holding that a forum selection clause in the fine print on the back of a cruise line ticket binds a customer who bought the ticket near her home in Washington state and was injured on the cruise to travel to Flordia to sue. As we discussed the opinion, a student explained that the clause is good for everyone (except the woman who was injured) because, quoting the Court, "passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys."

    Is this a question of fact or of law? "Fact, of course," said the students. So I asked how this fact could be proven.

    I would assume that most of the time, the cruise line enjoys some savings such a clause. As an attorney, I have insisted that all my Michigan business clients put such a local county in Michigan venue clause in the boilerplate of every written contract and purchase order.

    For this cruise line, we assume that they know what they are doing. We assume that they know they will get homer juries and judges in Florida and that potential remote plaintiffs are invariably scared off by the prospect of a local Florida court. But it is possible that they don't know what they are doing and that the local judges and juries have it out for them, however unlikely that is.

    The problem here with Warren is that the court was looking for an excuse to enforce freedom of contract so it made an assumption about a benefit to society (that's probably true, but we don't know for sure). Even if the cruise line lost money in the long run with these clauses, they wanted it in the contract and got it. I say that's irrelevant to whether the clause should be enforced. It should be enforced. I think Warren is looking for an excuse to void the venue clause absent some empirical proof that it really cuts tickets prices and thereby benefits "society".

  6. TYPO alert.

    I meant to say:

    I would assume that most of the time, the cruise line enjoys some savings FROM such a clause.

  7. Also, the idea of forum shopping for government courts is really a condemnation of government courts, not the free market.

    I've come to the conclusion that a major reason why consumers hate businesses is because the only way to possibly get justice for a breach of contract is in a government court, which are expensive, complicated and bass-ackwards.

  8. I wonder what the good professor thinks that she could prove with empirical data of before and after ticket prices? Does she really think that this information alone has any meaning and that could prove anything? Unless she applied the scientific method to acquiring her data, her empirical data is rather meaningless, and I would suggest that the only meaning it will have will be through the application of deductive reasoning.

  9. Sound deductive arguments - that is, deductive arguments with valid forms and true premises yield unarguably true conclusions. If sound deductive reasoning proceeds from axioms a la geometry, then the conclusions formed are true by necessity. So I don't know what Warren's problem is.