Is Economics a Science?
project-syndicate.org
project-syndicate.org
It took us a long time to discover such basic things as the fact that the Earth goes around the sun despite the fact that people had been trying to figure it out for millenia. For much of that time, research was hampered by politics and the unwillingness of people to accept the consequences of possibilities beyond what was widely held as true, some of the same problems pinned by many on economics today.
Economics is a discipline that is really in its infancy. Like astronomy, it is going to rely on observation much more than experimentation. Like astronomy, it is still a science, and like astronomy, it always has been and always will be, even if we draw inconclusive, politically tainted, or wrong conclusions today.
It belongs to sociology, psychology, anthropology and so on.
Noting to be ashamed about but lets just call a spade a spade.
It wasn't hard for Galileo to show that the earth orbits the sun. His methods and results would still be acceptable to the scientific community if he did the experiments today. Just because the public didn't accept his work did not make it any less scientifically valid.
That doesn't make it invalid. There are other ways to discover truth; eg, reasoning, mathematical proof, or detective work. The latter applies the knowledge gained from science, but the crime itself isn't repeatable.
Then again, given how divided economists are on basic questions, there must be a lot of blarney in the field.
I actually don't think repeatable experiments is a necessary characteristic of science. I would argue that science is more about generating falsifiable hypotheses that can be tested through some method, whether through repeatable experimentation or through observation (what you call detective work).
There really isn't that much disagreement. Just alot of pundits masquerading as economists (who may have an undergrad degree) who use 'economics' to justify their absurd political idealism.
If you ask economists who actually make a difference (central bank economists, investment bank strategists), and make decisions that actually affect people, I bet there'd be alot more agreement.
Of course, disagreement in a field has nothing to do with the validity or science like nature of the field itself. Consider, for example, the disagreements between Gould and Dawkins in the field of biology. Does this mean biology is not a science?
I'm also sure that you'd find even more agreement between say, Ben Bernanke and Mark Carney.
A lot of psychology, for example, rests on experiments run on 19-year old college sophomores in Western countries. Are these actually universal human traits, or do they change depending on cultural trends?
True.
I'd rather know Shiller's ideas on how to throw out the bad ideas in the public consciousness than if his field of study will make it in the long term. Policy is too often treated more like a religion than an implementation of tested ideas.
I think that the verifiability problem in economics is, however, more pernicious than that for other sciences precisely because of the subject area which it addresses, namely the economy. The standard of evidence for the implementation of some economic policy is, quite generally speaking, vastly lower than for the application of other scientific advances, and the impacts of either can be large. This means that unverified or even unverifiable policies can quite easily be implemented in the real world, and then cause significant damage, as steauengeglase mentioned.
If we are incapable of verifying that a given policy might work, because the theory it is derived from is so incomplete as to ignore the things which might cause the policy to fail, then why should we consider that policy's adoption? It is surely far more sensible to generally apply well-tested ideas, and conduct small-scale policy trials to expand our knowledge.
The obvious problem with this latter approach is that the "well-tested ideas" are very often derived from distinctly inequitable modes of thinking. I would still contend that adopting and then adapting those ideas is preferable to applying radical ideas that ignore most of the system they purport to explain.
Economics is statistics mixed with political philosophy. Usually political philosophy using statistical regressions on historical data to advance their political claim.
Behavioral Economics is a field that attempts to do exactly this.
Additionally, repeatable experiments is one method of falsifying claims, but it is not the only method. Observational studies and prediction testing can serve as a means to falsify claims.
Here is a snippet from Episode 1, season 2:
----------------
Late in the evening PM at home. Bernard, PM’s personal secretary, enters the room:
PM: All the cabinets have got to make cuts in their spending plans.
PM’s wife: Bernard would you like a scotch?
Bernard: Yes, I can have a large one please!
PM’s wife: Another triple!
PM: Humphrey should have seen this coming and warn me.
Bernard: I don’t think Sir Humphrey understand economics prime minister. He did read the classics you know.
PM: Well that’s the thing. He is head of the treasury.
Bernard: Well prime minister, I’m afraid he is in even greater disadvantage understanding economics. He is an economist.
----------------
I never heard of a more accurate description of an economist.
If it's a science, which is ridiculous to believe so, what good has done to the human kind?
Competing chemistry and physics or engineering to math is hilarious. The logistics of a large magazine can be easily handled by someone who has never has no idea about "economics". Would trust a non-architect to build you a house? Or a physician who has no idea about chemistry? A cryptographer that doesn't know what a prime is?
Blah...
And of course, large investment banks derive alot of benefit from the study of economics. Was just listening to Abby Joseph Cohen on Bloomberg radio yesterday - she's an economist and a senior investment strategist at Goldman Sachs - they obviously make alot of money through understanding economics and making correct predictions. While you can argue about the benefit to society, it's clear that economics can produce prediction models that work.
The proof is in the proverbial pudding - they trade on their prediction models, and make money.
If I predict you are going to get a nosebleed, and then punch you in the face, it's a bit disingenuous for me to claim that I have gained insight into the general causes of nosebleeds, isn't it?
The idea that firms move entire markets is pure fantasy. Depending on liquidity they might move a single security one way or another (some stocks trade such little volume that YOU can move their price on your own), but not entire sectors, never mind the entire economy.
Secondly: The economist Stimuli to which you are referring, and the effects of international trade can be read up-down-sideways depending on which part of the Earth you live. They are not universally good as a huge part of the USA-EU middle class believes. If the USA were not imposing rules that give an extremely unfair advantage to USA (oil for example) corps, they may not be so omnipotent.
That said, Goldman Sachs is really the worst example I can think of. Even in Lehman's case, the USA gov let Lehman fail but GS was too big to fail. Paulson (ex-GS) called Blackfain (Goldman Sachs CEO) in order to examine Lehman's book because he knew better. Of course Blackfain and Paulson (who had huge amounts of stock of at GS) decided to let Lehman fail and create a huge gap at the market, while saving AIG who owed money to GS and GS of course. Indirectly, they ensured huge profits for GS by killing the competition and that...
Now, what economics have to do with GS and the financial sector is beyond me. I don't see any theories applied there... It's all monopoly, a win-win situation: You buy high-ROI financial products and if things get out of hand, don't worry: You're too big to fail ;-) that's one hell of an economic theory. Too bad you can't apply it elsewhere... (oh yes, there are no laws that can be bend in chemistry or physics...)
> the USA gov let Lehman fail but GS was too big to fail
GS made a killing by short selling mortgage-backed securities right before the housing crisis. They made 11 billion in 2007, 2 billion in 2008, and 13 billion in 2009.
> Paulson (ex-GS) called Blackfain (Goldman Sachs CEO)... decided to let Lehman fail....
First, it's Blankfein. Second, GS did short Lehman shares because they knew the business was in trouble...
> Now, what economics have to do with GS and the financial sector is beyond me.
Economics is the science that people in the finance sector use to create predictive models about the worldwide economy, so that they can predict company earnings, eventually leading to predictions concerning securities pricing, leading to trading strategies.
Investment banks employ more economists than any other sector. That's why it matters. Your conspiracy theories are interesting, but nonsensical.
Anyhow, I used Goldman Sachs as an example because I listened to one of their economists talk on the radio last night. Just happened to be on my mind.
[1] How Paulson Gave Goldman the Lehman Heads-Up [2] The Great American Bubble Machine [3] The Joy of Sachs - P. Krugman (Stiglitz has also commented on this)
You are confusing finance with economics (in general) here but even in finance the entire establishment is based in some kind of universal rationality and auto-regulation when clearly that's not the case. Moody's should be out of business (along with the other 2 rating agencies) for giving triple A's to Lehman a couple of minutes before the collapse went public. Why are they still in business? The market apparently didn't hammer them :-) ...
Can you give a sample of a pure economic theory applied in any section of finance? I see pure math there, and a lot of inside trading and not economic theories...
[1] http://economistsview.typepad.com/economistsview/2009/10/how...
[2] http://www.rollingstone.com/politics/news/the-great-american...
[3] http://www.nytimes.com/2009/07/17/opinion/17krugman.html?_r=...
I'm not talking about abuse of the system, or trading. I know HN likes to talk about HFT (understandably so, lots of math and technology) and finance conspiracies and inside trading, but those are relatively minor in the grand scheme of things. Steven A Cohen's firm is getting dismantled, and life goes on.
How economics relates is this: where I decide to put my money (and I DO invest my personal funds) depends on what's happening in the world at large. Do I invest on the HKSE, or in Tokyo, the NYSE or the Bourse de Paris? Do I invest in bonds, equities, or hold cash? Do I buy commodities, and if so, what? Do I want to bother with physical commodities, or futures? Etc...
Deciding where to put money requires us to build a coherent model of what's going on in the world. What is household debt, what is GDP growth, what are interest rates and inflation likely to move to? What is the prospect for firms in the US vs. China vs. Africa? What are the prospects for consumer spending? This is all economics.
After forming that view, then you can look at financial details. Valuations, company balances, technical indicators, etc...
I could go on, but needless to say, anyone who ever allocates capital anywhere should have, if not an understanding of economics, at the very least an economic model of their market/the world...
BTW, here's a job posting list from the American Economic Association. http://www.aeaweb.org/joe/listings.php You'll see alot of job postings for banks and commercial enterprises (Amazon is looking for an economist!).
At its root, science is about testing, observing, forming conclusions, and retesting. It just so happens that in the subject of economics you have an extremely large number of variables because of human behavior.
While concrete conclusions are difficult to come by, we should absolutely continue trying to understand things that we do not currently. Consider a future where the entire human brain could be mapped, and we entirely understood behavior. In this case studying economics and decision making would be much more realistic.
Just because our tools are extremely limited doesn't mean we should stop observing, and that very act is true science.
The issue comes with the "testing" portion of the method. One is unable to setup economic experiments to perform these tests. Economists can make claims about historical events but they must a priori decide which data to ignore and which to include in their analysis. Things like this lead to two seemingly cogent, logical analysis of the great depression with one concluding that the Fed was the cause of the depression and another claiming it to be the savior. They both may have sound logic but their a priori assumptions were different.
In physics, you rarely have this scenario as experimentalists can setup artificial testing situation where they have control over how variables change. They can systematically change variables and observe the effects. A great deal of the work in physics goes into the explanation of the magnitude of effect variables have on results, largely to justify why certain effects can be ignored.
Ludwig von Mises wrote extensively about the problem attempting to apply the scientific method economics. He felt economics was fundamentally different from a field of study such as physics. I tend to agree with this. Side note, I have a Ph.D. in physics and am just an amateur economist. :)
ps. If concrete conclusions were not found the last 5,500 years, I don't believe we will find them in the next 5,500.
Gains from trade between two countries even if one of them has an absolute advantage in producing every good.
Well, two centuries later, how did that wind up? As Joan Robinson pointed out "the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution".
In science, theories have to follow the data, the real world, reality. In economics, the examples and data have to be twisted to fit the theories. The OP article said the author article has a Nobel Prize in economics which of course if false, Nobel's bequeath to his prize foundation included Physiology/Medicine, Peace, Chemistry etc. but not economics - after he died people invented an economics prize and stuck Nobel's name on it so to try to give it the allure given to the other prizes. Economics uses to be called in more honest times political economy, that it was given the more scientific name economics or economic sciences was a sign of it becoming less scientific - Ricardo may have been wrong about comparative advantage, but at least he tried to take an honest look at the economy. Nowadays the theories he made which were disproved by history are held up as models, while his better ideas have been supposedly "debunked".
Economics is not a science. In its normal form it's mostly a propaganda arm for some force in society trying to justify its actions. I suppose in some sense economics could be a science, but only in the sense of being a branch of anthropology dealing with political goings on - a branch of anthropology the study of which would itself be highly politicized. One reason science works is that no astronomist gains or loses by saying the next nearest star than the sun is Proxima Centauri. It is light years away, and has little effect on things, and thus objective observation and scientific consensus are easy to achieve. If a star closer than Proxima Centauri were observed, after some time needed for verification, surely the entire astronomical and scientific community would get behind the idea that the newly observed is now the second closest star to earth. Economics fundamentally deals with the question of how the pie gets divided up, in which case scientific consensus is impossible and objectivity goes out the window. It is one of the rare subjects on which you're better off reading the material from two centuries ago - Adam Smith, David Ricardo, Benjamin Franklin, Jean-Baptiste Say, John Stuart Mill etc. - then that of today, because they were generally objective and fair, while most economic writing today is either partisan, or written under the influence of highly partisan ideas.
Well said, I don't think there's more to add to your comment.
And what does this has to do economics being a science anyway? Do you think that if you will apply the same economic policies in two different nations, you will get the same result? Please, don't make me laugh. Theories are made to explain outcomes and every school (Austrians, Socialists, Communists) justify their failures by trying to explain things that they totally don't understand.
First, a science tests and explains natural phenomena. I'll draw from all walks of life to display the good it's done for human kind:
- Personal Finance: How do we know diversifying your investments gives you the optimal risk-reward in a given timeline? - Public Policy: Why do governments prevent monopolies from forming? - Jobs: Why do you have a specific job title instead of being a Jack of All Trades? - (American) Football: Why do most coaches punt on fourth down, even when they shouldn't? (risk aversion) - Population: Why has the birth rate been declining?
Second, your analogies make little sense. The architect doesn't build the house, the construction crew does. Regardless, each specialty (hmm, that specialization again?) plays an important role in building a house.
Blah...
You mean that you have to study in order to to come with a straight answer right? Study economics OR do the math?
Public policy: I don't know why monopolies should not be formed. But I guess you do, right? :-) Care to explain?
> Jobs: Why do you have a specific job title instead of being a Jack of All Trades?
You probably see a connection among Jack-of-All-Trades and economics as a scientific field, which I do not. Enlighten moi please.
> Population: Why has the birth rate been declining?
Because they apply policies based on things that politicians and other ignorants (economists) think they understand, when the examples we have at hand shows they clearly DO NOT understand the how and the why. All they offer is a translation after their policy had failed miserably for the n-th time.
> Second, your analogies make little sense. The architect doesn't build the house, the construction crew does. Regardless, each specialty (hmm, that specialization again?) plays an important role in building a house.
Really? Have you take a closer look at Wall Street to see how many % of the population working there (financial sector) studied economics and not physics or some other math-intensive science?
How many doctors do you know without a degree in medicine but with a degree in physics?
(Of course not all economists are scientists, and not everything an economic scientist says is a scientific result or conclusion, but these disclaimers shouldn't be necessary.)
It is not a Nobel Prize. It's deliberately misnamed to make it look like it is.
"Any headline which ends in a question mark can be answered by the word no."
People keep saying this like it's some profound insight or knock against economics.
The Nobel Memorial Prize is still one of the highest possible awards in the field. It doesn't diminish Schiller's standing just because it wasn't one of the original Nobel Prizes.
It's sort of like pointing out that "Best Animated Feature" is not a real Oscar because they only started awarding it in 2001.
Your analogy with the Oscars is spurious. If Nobel wanted a prize in economics, tiddlywinks, synchronised swimming, aromatherapy or anything else he probably would have mentioned it in his will. Economics existed in the days before he popped his clogs so he could have had a prize for it if he wanted, but he didn't. Sometimes you have got to respect a man's will, not twist it into something it isn't. That is dishonourable.
As for the Oscars, technology changes and the "Best Animated Feature" award is there to recognise those CGI extravaganzas - nobody can really argue with that. They haven't branched out and given an extra Oscar for "Best Economist in a Government Think Tank" or anything weird like that, have they?
Allegedly members of the Nobel family have called for the joke that is the "Nobel Memorial Prize in Economic Sciences" to be stopped, I guess they have had a bit longer to think about it than you have.