Causal Reasoning in Economics A Selective Exploration of Semantic, Epistemic and Dynamical Aspects Causaal redeneren in de economische wetenschap Een selectieve studie naar semantische, epistemische en dynamische aspecten Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by command of the rector magnificus Prof.dr. H.G. Schmidt and in accordance with the decision of the Doctorate Board The public defence shall be held on Thursday the 13th of December 2012 at 15.30 hours by François Simon Claveau born in Dolbeau, Canada Doctoral Committee Promotors: Prof.dr. J.J. Vromen Prof.dr. K.D. Hoover Other members: Prof.dr. H.C.M. de Swart Prof.dr. J. de Koning Prof.dr. J. Williamson Copromotor: Dr. J. Reiss Contents List of Figures . iv List of Tables . v Acknowledgments . vii Introduction 1 I Semantics 19 1 Semantic Analysis of Causal Generalizations in Policy- Oriented Social Sciences 21 1.1 Introduction . 21 1.2 On the meaning of causal generalizations: a referentialist approach . 24 1.2.1 The meaning of the causal relata . 27 1.2.2 The relevant units . 30 1.2.3 Which causal relation? . 31 1.2.4 Truth-conditions of the generalizations . 41 1.3 A challenge for the referentialist procedure . 42 1.4 On the meaning of causal generalizations: an inferentialist approach . 46 1.4.1 Elements of an inferentialist semantics . 48 1.4.2 OECD Jobs Study: An inferentialist analysis . 50 1.4.3 Discussion . 60 1.5 Conclusion . 63 II Epistemology 65 Preliminaries 67 ii Causal Reasoning in Economics 2 Evidential Variety as a Source of Credibility for Causal Inference 73 2.1 Introduction . 73 2.2 A concrete inferential problem: institutional causes of un- employment . 75 2.3 Two conflicting approaches . 78 2.3.1 The design-based approach . 78 2.3.2 The structural approach . 81 2.4 Initial doubts about the applicability to macro-level questions 83 2.4.1 Sharp designs? . 84 2.4.2 Credible theory? . 86 2.5 A third source of credibility: evidential variety . 87 2.5.1 Evidential variety in the macroeconomics of unem- ployment . 91 2.6 Conclusion . 98 3 The Russo-Williamson Theses in the Social Sciences: Causal Inference Drawing on Two Types of Evidence 101 3.1 Introduction . 101 3.2 The counterfactual-manipulationist account . 103 3.3 Establishing causal claims . 105 3.4 Being precise about the claims . 106 3.5 Two types of evidence . 109 3.5.1 Difference-making evidence . 110 3.5.2 Mechanistic evidence . 113 3.6 Evidential variety and the RW Theses . 117 3.7 Conclusion . 120 4 The Independence Condition in the Variety-of-Evidence Thesis 123 4.1 Introduction . 123 4.2 Bovens and Hartmann’s result . 125 4.3 Questioning Bovens and Hartmann’s result . 131 4.4 First modification to the model . 133 4.5 Degrees of independence . 137 4.6 Conclusion . 142 Contents iii III The Dynamics of an Eclectic Science 145 5 Deviant Cases in an Eclectic Science: Considerations from Recent Economics 147 5.1 Introduction . 147 5.2 Deviant cases for the vending-machine view . 149 5.3 What makes a case deviant? . 152 5.3.1 The role of empirical patterns . 153 5.3.2 The role of model worlds . 158 5.3.3 Dual-source expectation formation . 163 5.4 What is the epistemic goal? . 164 5.5 How should research proceed? . 166 5.5.1 Filling in the causal relata . 167 5.5.2 Justifying the causal claim . 169 5.6 Conclusion . 176 Conclusion 179 Appendices 185 A Proofs for Chapter 4 187 B Samenvatting (Dutch Summary) 195 C Curriculum Vitae 199 Bibliography 207 List of Figures 1 Unemployment rates in the United States and in the Eu- ropean Union . 4 2 Recent unemployment trajectories of selected countries . 5 1.1 Simplified semantic network of the OECD’s main general- ization . 59 2.1 The unobserved C confounds the causal effect of X on Y . 79 2.2 Two identification strategies with potential sources of error 92 4.1 Two cases of partially reliable evidential sources . 126 4.2 Parameter space showing when shared reliability is more confirmatory than independent reliability . 130 4.3 Extended model with degrees of independence . 137 4.4 Non-monotonicity is possible . 140 5.1 Okun’s law is a strong relationship . 157 5.2 The DMP model . 161 5.3 The German deviance . 164 5.4 Justifying the description in Boysen-Hogrefe and Groll (2010)172 List of Tables 4.1 Probability of a positive report given the values of H and Ri 128 4.2 Probability of a positive report given the values of H and Ri 135 4.3 Joint probabilities for the reliability variables (assuming symmetry) . 138 Acknowledgments I came to the Erasmus Institute for Philosophy and Economics (EIPE) four years ago because I was looking for people with whom to have in- telligent discussions over topics at the intersection of philosophy and eco- nomics. My desire has been amply fulfilled. I have an immense intellec- tual debt to the EIPE community; to the faculty members, to my fellow students, and to all the ones who visited us during my four years in Rot- terdam. I write these lines away from Rotterdam, back at my origin in Montreal. I am fully aware that a main challenge for me in the months and year to come will be to find a community here able to supply me with a dose of intellectual stimulation which rivals the one I was steadily receiving in Holland. Among all the people with whom I have been interacting in the last four years, Julian Reiss is without doubt the one to whom I owe the most. Julian introduced me to serious thinking about causality and he enormously influenced my approach to philosophy of economics. He has been a great supervisor, not only by abundantly commenting on my work but also by being a source of inspiration for me. I realize now that many of my ideas have been (unwittingly, I assure you) stolen from him. I also much benefited from all the seminars that Julian ran in the last years (on causality, current affairs, and the foundations of statistics) and from his active engagement in our EIPE Reading Group. Thanks Julian. My second greatest debt go to my other supervisor, Kevin Hoover, who kindly accepted to direct me at a distance. In the last two years, I have mostly lived under the fear of receiving one of his lengthy reports on my work. This fear has been extremely productive. I knew that Kevin would not accept mediocrity, and the expectation of his critical eye made me strive for excellence (though I certainly fall quite short of the goal). It is only a pity that I could not have more face-to-face discussions with him; there is so much more I could learn from Kevin. I sincerely hope (and implicitly ask him now) that our relationship survives my PhD. Among the other established academics with whom I have had the viii Causal Reasoning in Economics chance to interact, special thanks go to the director of EIPE, Jack Vromen. Jack has been the supervisor of my Research Master thesis, and he gen- erously accepted, in spite of tragic personal circumstances and due to the caprice of academic bureaucracy, the role of official supervisor of my PhD research. I have had many enriching discussions with Jack throughout the years and I am grateful to him for having given me such an enjoyable position at EIPE. I attended a big bunch of classes during the last four years, all of them by interest, and only a few to also get a grade. I thank all the ones responsible for these classes for accepting me even though I was rarely registered, and especially for their patience regarding my talkativeness. The ones not already mentioned are Roger Backhouse, John Davis, John Groenewegen, Alain Guay, Conrad Heilmann, Geoffrey Hodgson, Arjo Klamer, Rogier de Langhe, Fred Muller, Jan van Ours, Matteo Picchio, Michael Sampson and Harrie de Swart. EIPE would be nothing without its graduate students. I much enjoyed and benefited from the countless discussions I have had with my fellow travelers. I have been especially lucky to sit next to two other PhD candidates, Luis Mireles-Flores and Attilia Ruzzene, working on topics highly related to mine. I also want to thank Sine Bagatur for being such a great office mate; Tyler DesRoches, Tom Wells and Luis for making me join the editorial team of the Erasmus Journal for Philosophy and Economics; and David Bassett, Marion Collewet (though not an EIPE student), Deren Olgun, Johanna Thoma, Melissa Vergara Fernández and Philippe Verreault-Julien for especially rewarding discussions. I am also grateful to all the scholars who commented on my work throughout the years at conferences, due to journal submissions or out of pure generosity. The scholars not already mentioned include: Nancy Cartwright, Stephan Hartmann, Harold Kincaid, Conor Mayo-Wilson, Phyllis McKay Illari, Luca Moretti, Peter Rodenburg, Federica Russo, anonymous referees for and the editors of Erasmus Journal for Philosophy and Economics, Journal of Economic Methodology, Philosophy of Science, Philosophy of the Social Sciences, Studies in History and Philosophy of Biological and Biomedical Sciences, and many more scholars attending the numerous conferences to which I participated. Thanks also to James Kelleher for proofreading chapter 4, to Roebin Lijnis Huffenreuter for translating in Dutch my “samenvatting”, and to Myriam Van Neste for the beautiful cover art. In the last four years, I have also been living the Dutch life. For making this experience enjoyable, I thank Ticia Herold who prepared Acknowledgments ix the ground for my family and advised me throughout my stay, Stella Maaswinkel-Thoeng who taught me Dutch, the whole team at my kids’ school and daycare which made it so easy for them to become real Dutch children, and the members of my rowing team (Alfons, Douwe, Fokke, Karel, Wiebe) with whom I could pretend (and feel like) being Dutch while sporting.