Academic journal article Journal of Australian Political Economy

Paradigms and Framing in Applied Economics: Methodological Issues

Academic journal article Journal of Australian Political Economy

Paradigms and Framing in Applied Economics: Methodological Issues

Article excerpt

An international student call for pluralism in economics was released on 5th May 2014 (International Student Initiative for Pluralism in Economics, 2014). It referred to three forms of pluralism--theoretical, methodological (1) and interdisciplinary. The call was highly critical of both the narrow range of theory being covered and the overriding emphasis on quantitative methods in mainstream economics. It argued for inclusion of more theoretical perspectives and for qualitative analysis.

Thomas Kuhn's (1970) influential book, The Structure of Scientific Revolutions, emphasised paradigms (2) as determinants of our understanding, and paradigm shifts as descriptors of significant changes in understanding. His interpretation suggests that one paradigm will predominate until circumstances are such that it is replaced. This has been influential in defining the nature of debate between alternative schools of thought. For heterodox and pluralist economists, the concept of paradigms frames the issue in terms of a 'mainstream paradigm' and the need for alternative(s). Pluralism emphasises the co-existence of alternatives, attempting to draw from the 'set of alternative paradigms'. Pluralist economics courses commonly cover a number of options, such as neoclassical, post-Keynesian, Marxist, institutional, Austrian, and behavioural (Chang, 2014, Ch. 4 outlines nine different schools).

This article takes a step back from debates within and between schools of thought and on empirical methods to give a different framing of the problem. J. M. Keynes (2007: 297) talked of additional reserves, qualifications and adjustments needed when applying formal analysis to the real world. Consideration of these requirements provides an alternative framing of the issues. The requirements are important, but are frequently overlooked or understated. (3)

A structure presented here focuses on three transitions or 'paths', namely those between theory and the real world, theory and empirical formulations, and empirical results and policy decisions. This provides a basis for critical assessment. By attempting to explicitly recognise the constraints of conventional analyses (seeming application of paradigms), it provides numerous questions which should be considered if research

findings are to be viewed in a real world context. In the following sections I present the general structure, then illustrate points relevant for each path, before drawing general conclusions. (4)

A General Structure--Three Paths

In a discussion on the structure of argumentation in economics, Aijo Klamer refers to gaps in the reasoning:

Gaps between the theoretical and empirical arguments have not been bridged, policy implications do not necessarily follow and methodological arguments are, for the most part, seriously flawed (Klamer, 2007: 106).

I have constructed Figure 1 to make broadly similar points, focusing on the application of economic studies to real world decisions. It highlights three areas that have received too little attention. There are potential difficulties in the translation of results from one area of analysis to another as described by paths A, B and C. In each of these moves across areas, unrecognised errors are likely to arise. The diagram could be modified to include feedback from the real world impacting on theory and empirical analysis, or from empirical analysis to theory where findings appear to be inconsistent with a theory. This raises further issues about the political and institutional environment in which theories and techniques evolve. They are important, and feedbacks will occur. However, as below, there may be barriers to change when this involves challenges to established positions (5).

The arrows shown in Figure 1 direct attention to a range of problems. Theoretical findings, based on specific assumptions, may not translate directly to the real world (path A). The relationships or theoretical findings may also not be accurately or uniquely described in empirical analyses (path B). …

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