According to Andrew Sullivan, I stand alone against an array of bloggers in arguing economics is not a science. At the level of semantics, I couldn’t care less what label is applied to economics. I think that the operational issue in front of us is what degree of rational deference we should give to propositions put forward by the economics profession. I believe that this question is not academic navel-gazing, but crucially important for our political economy. It goes to the heart of the case for broad-based freedom.
Ryan Avent makes the following argument in support of economics as a predictive science (and Matt Yglesias associates himself with it):
Economics is quite often effectively predictive. If the supply of one good is disrupted, economists can tell you with great certainty what will happen to demand for complementary goods and substitutes. If supply levels are known and research establishing elasticities has been done, they can tell you even more about what will happen. Their predictions will nearly always be right. And this is true for many aspects of economics. [Bold added]
I’ve done a lot of this. Suppose, to take a down-to-earth example of what Avent is describing, you wanted to predict the effect of “disrupting the supply” of Snickers bars on the sale of other candy in your chain of convenience stores. The “elasticities” here are how much more candy of what other types you would sell if you stopped selling Snickers. Once you know that, plus the costs of various kinds of candy, you can easily do the math to figure out how much more or less money you will make if you get rid of Snickers. The elasticities are the can opener — once you have them, the rest is just arithmetic.
The best, and most obvious, way to establish the elasticities, is to take a random sample of your stores, stop selling Snickers in them and measure what happens to other candy sales. This is the so-called scientific gold standard method for measuring them. Even this, of course, does not produce absolute philosophical certainty, but a series of replications of such experiments establishes what we mean by scientific validation. As I’ve gone into in detail elsewhere, even having correctly measured the elasticities for these stores on those dates, generalizing this into a reliable forward prediction rule remains much trickier for the convenience store chain than in physics or even biology, because of the extreme causal density of human social behavior.
But suppose you can’t run an experiment. As implied by Avent and Yglesias, you could go back into historical data for sales by product by store by minute for the past 36 months, and look at what happens to sales of other candy at stores that have stock-outs of Snickers. Unless you are very lucky, and happen to find a true natural experiment in which a near-random group of stores were cut off for Snickers but not other goods and not in conjunction with some other macro event — that is, unless the experiment as you would have done it occurred already — then you are left with some version of building a regression model to estimate the elasticity between Snickers availability and (to keep it simple) sales of all other candy as a group. You will include lots of “control” (there’s that word again) variables in your model, because there are lots of things — say, very bad weather or Halloween or weekend vs. weekdays — that might independently affect both Snickers availability and sales of all other candy. After you build an initial version of this model, it will occur to you that some specific other control variable might be important, so you get the data and include it. Even after you do this, you’ll still some stores for which the apparent effect goes the wrong way, that is, at the same time you see a Snickers stock-out, you see sales of other candy to go down. Let’s further say that you’re state-of-the-art about this, and build a Bayesian shrinkage model to try to adjust for this problem. These are examples; you will find yourself making a long series of such adjustments, inclusion and exclusion of potential control variables, model-tuning and so on.
Once you’re done with all of this, you have an estimate for elasticity — how do you know it’s right? You had to make all kinds of judgments and assumptions. Suppose you didn’t think of including a specific variable, or making some adjustment? How do we know we’re not slightly off, but way off?
The best way is to run a controlled experiment: take Snickers out of a random sample of stores, and see if the prediction made by your model is correct. If you don’t do that (or maybe at a higher level of abstraction, if you have not run many experiments that validate your modeling method within a tight class of application like elasticity estimates for stock availability in convenience stores that lets you avoid re-testing in this case), then you don’t know whether you’re right or not. All you have is a very sophisticated theory. The cash nexus is the experiment that tests the theory.
This is the fundamental difficulty with economists’ pronouncements about the predicted effects of various government programs — there is no reliable evidence at the foundation of the inferential edifice. We usually haven’t run a sufficient number of (or sometimes, any) real randomized experiments to build reliable predictive rules for the effects of the proposed government programs that are the issues of the day.
This is why I think Avent is missing the point when he then says:
It’s important to note that because economists can’t always run their own experiments, there will tend to be more confidence about theories that focus on things which occur very often. Prices shift constantly, and economists consequently know a LOT about prices. Massive, global economic recessions occur about once a century. There is obviously a lot more uncertainty regarding the theories that describe these events.
As is Yglesias, when he says something very similar:
The fact that the economics profession can offer so little in the way of consensus guidance about dramatic, crucially important events like the panic of 2007-2008 is a huge problem and a very legitimate knock on the enterprise, but it doesn’t actually undermine the overall epistemic status of the discipline. The hope is that over time things improve. And, indeed, for all the horrors of the current recession it’s been managed much better than the Great Depression of the 1930s was. Progress is happening. The only way to make more rapid progress on the science of macroeconomic stabilization would be to have many more recessions so as to gather better data.
Having more data points doesn’t cure the problem. It only provides the opportunity to do so, not (or more precisely, not only) because we can then build more sophisticated regression models, but because this makes experimentation practical. Lots of sequential price transactions, for example, are repeated events that comprise an intuitive reference class within which we can run experiments to test theories and generalize them into practically-useful decision rules.
Both Avent (and by extension Yglesias) associate themselves with Adam Ozimek’s additional very different comments about the implications of being consistent about this kind of epistemic humility. I broadly agree with what Ozimek has to say on this score.
First, he says that consistency implies skepticism about global climate models. I agree, and have written about precisely this point. (Separately, I think that there is a firm scientific foundation for concern about AGW, not because of climate models, but because we know through replicated experiments and other means that CO2 redirects IR radiation. Ironically, once you accept that premise, the more uncertain you are about the precision of climate models, the more you ought to worry about AGW.)
Second, he says that this should imply skepticism about John Lott’s claims about gun ownership and crime. I agree. In fact, based on precisely this thinking, I wrote a very critical review of one of Lott’s books in which he used the same method that he employed in the guns-and-crime analysis to argue that abortion legalization increased crime. (I was equally critical in the same review of the opposite conclusion, using similar methods, in Freakonomics.)
I think that Ozimek’s demand for consistency is fair, and as I said at the start of this post, important. My upcoming book is focused on (i) making the case that this kind of epistemic humility is justified on the evidence, and (ii) trying to work out some of the practical implications of this observation.
First of all I have a lot of trouble seeing these image verification things, bring back the math problems.
Yes economics is a science, but it is where we were in the 13th century with medicine. But sometimes I ask myself: Is economics witchcraft?
Reply to this commentLinkReport AbuseEconomics is in many ways a behavioral science. Like most other behavioral sciences, a fair bit behind the physical sciences (not that those are quite as far along as some like to suggest).
Reply to this commentLinkReport Abuse"According to Andrew Sullivan, I stand alone against an array of bloggers in arguing economics is not a science."
So what? The validity of an idea should be determined by logical reasoning, rather than by the number or prestige of those who affirm that idea.
Social science is not science, no matter how many bloggers, journolists, professors, presidents, kings, etc claim it is.
Jim, your arguments are too clever by half. You dont need big words that sound smart. Theres a million ways to win. Ask your opponents to name a single economic truth. Find an exception to that "truth". Voila, you win. The findings of natural science are universally true (we assume). The speed of light today is the same yesterday. Not so with "economic truths". The only "truths" that economists discover are common sense like "people respond to incentives". That is not and will never be a "scientific" observation.
Reply to this commentLinkReport AbuseYou are correct that economics is not a "science". "Politcal Science" and "Social Science" are not "science" either! Folk think if they use a mathematical formula in their papers that makes it science. Not so, just makes the obfuscation more "high falutin'".
If your results are not consistent and verifiable for a specific process, it isn't "science." That is the rub with much of the global warming "science". If the models were able to take past data and accurately match current phenomena then the "Warmista's" might have a leg to stand on. But their models don't work that way, so when they predict oceans rising by 30 feet or whatever, they are more snake oil salesmen than objective "scientist."
Reply to this commentLinkReport AbuseMyKu:
Economics is
a science when you're correct;
an art when you're not.
-------------
Isn't that convenient?
The majority of the educated guessers would probably do just as well to base their views on tarot card readings.
Reply to this commentLinkReport AbuseGoing back to the AGW analogy. Let's say that currently the sales of other candies are increasing. We know that Snickers have run out. Then we create a model that says that running out of Snickers is the primary reason for the sales of other candies to increase.
The problem is that we have historical data that shows that the sales of other candies have gone up in the past, many times much more than they are going up now, without running out of Snickers.
This makes it very difficult to claim with any degree of certainty that the current changes in the sales of other candies has anything to do with the presence or absence of Snickers.
Reply to this commentLinkReport AbuseI used to think that economics is a science, but after seeing policy after policy based on simplistic notions such as "if we give banks $700 billion it will save a $23 trillion financial market from destruction" and "if we spending $800 billion it will keep unemployment below 8%" and "if we spend $1.6 trillion we can ensure good, affordable, accessible healthcare for all" and "if we simply spend $1 trillion a year we can curtail global warming" and "if we spend...er...'invest' more money in education we can ensure every child gets the quality education he needs" and "if we simply tax the 'rich' more we can actually balance Social Security and Medicare" (two programs which was created out of political necessity, not any "science") I decided that economics is simply one side's political attempt to take away more people's freedoms.
Economics has nothing to do with science and that has been the greatest error ever made in the field. Economics is more philosophical and practical and can never be quantified and verified. Indeed, all of what has been listed above has been tried time and time again with the exact same results, but if economics were a science then everyone and I mean EVERYONE would have rejected the hypothesis that government can spend money with impunity a long time ago. Alas, to this day the only economics that is being rejected is the one that actually leads to long-term growth and wealth: saving, investing, and delaying instant gratification. In other words, capitalism is the only one that is being rejected the world round while socialism and its variants stay to true to the original intent of man.
Reply to this commentLinkReport AbuseFirst, I agree with Richard. Bring back the math (I could always use the practice) The image thingamajigs are sometimes too difficult to read.
Secondly, Economics is the most science-like of a social science but it is not science.
Economics is too entwined and reliant on human behaviour and many, many, other variables to be absolute in it's "predictions."
Economics is like psychology. In the candy bar example, economics can't explain "fads" nor can it predict individual behaviour. Snickers may be sold out but it doesn't necessarily mean that other candy will be bought in its stead. It MAY mean that some other candy will be bought at that time, like Milky Way candy bars but it also could mean that some x % of people will not buy any other candy. The model is about trends and with enough data, most trends can be predicted and seem absolute but it is not 100% accurate or even entire replicable at exact numbers. Afterall, there could be a belief or Fad at the time that people think eating peanuts with chocolate is very, very, very healthy for you. This fad belief drives sales of snickers tot he point they are out of stock but because the other candy present doesn't have peanutty goodness, they remain unsold. Models that don't take in that temporary fad (drive in my human psychology) won't predict the languishing of other candies. The new model based on this data would indicate that if snickers are nor available there are no other candy substitutes...so make sure you stock up on Snickers. Just as the stores have a back room full of Snickers waiting to replenish the shelves, the healthy peanut fad is over and the "no snickers" model is no longer valid.
Yes, I am oversimplifying.
Once human behaviour is fully understood and can be predicted with 100% accuracy down to the individual then we can talk about economics as a science.
That's my story and I'm sticking to it.
Reply to this commentLinkReport AbuseAs a professional mathematician, I am convinced that in 200 years, school children will be taught about economics the way we were taught about alchemy.
Reply to this commentLinkReport AbuseEconomics is a science, but much more like psychology as opposed to medical science involving actual treatment of a physical ailment. Economics is as accurate and effective in treating our massive financial problems today as psychology is in curing all of our populations medical conditions such as cancer, lung disease, brain injuries, and broken bones in hospitals across the country.
Some of the main problems are the strong dependence on proven failures such as Keynesian economics. In a general sense, it is sound economics, but the problems arise with unintended consequences that it fails to factor in to conclusion. Economics does not care if government is spending money of which 40% is borrowed and interest is due on an already massive and increasing amount, or if private sector is. There is a massive difference of course, as private sector is the true measure, whereas government is simply creating a future bubble and or problem that must be dealt with at a later date.
Economics would have one believe the good created by government increasing growth by spending raises all boats and the growth would outweigh the expense, thus increase jobs, revenues, profits etc. and really get a recession to cease and good times rolling rather quickly and simply. Reality shows that adding $5 trillion in debt beyond the already massive trillions of annual government spending is actually compounding all current fiscal and productivity problems like a financial beast of which the private sector can no longer sustain. 46% of our GDP is money spent by government, and they must then raise taxes and cut spending to get back to reality, not because it was smart and increased growth as predicted by economics, but because it failed and we must get back to reality and fiscal responsibility.
Common sense says you can't fix a broken arm with psychology, and you can't pay off debt by borrowing more money to pay the balance plus interest on a debt you borrowed to pay of a prior existing debt. Economics does not utilize NEED into its science, as it thinks if you create or remove a product, it will affect existing demand as such. If you create a terrible car, it won't affect demand, it will simply hurt the investors that created it, and disappear from the market. Economics would state that this venture would decrease demand in the marketplace of all other car makers, but it wouldn't if it was not a needed or wanted product.
Likewise, if you remove Snickers bar, it would not necessarily increase sales for the entire other candy market, as if candy revenues is a fixed value and dismissing a popular product from the mix would redistribute a fixed dollar spent onto other less demanded products, thus increasing their value and sales. People that want a Snickers and find it not available will often forgo buying another product at all.
But if government was buying the low quality car (Chevy Volt) and/or Snickers substitutes, economics would claim victory as the marketplace validated their science. In reality the marketplace became less healthy, more in debt, and sustained an inferior product artificially or distributed vast amounts of money (debt) irresponsibly as once the government stops supporting the Volt or Snickers alternatives, they collapse on their own and now a bubble exists that must pop and be corrected.
Economics would do itself and the rest of us a favor if it treated the economy as separate from the government. Until then, it is predictable what economics will say, spend spend spend as that drives the economy and growth, regardless of that spending being money you don't have, even though you are already over $14 trillion in debt and adding more than $1 trillion a year of new debt beyond revenues.
No business would survive doing that for very long as they can't print dollars out of thin air, and would quickly be unable to pay employees or buy materials or pay their taxes etc. Economics doesn't care, so long as printing of dollars is possible, keep spending, it raises all boats. Yeah right! Until economics rids itself of this lack of common sense, it is like psychology, where husbands in divorce are rejected as capable of having custody of their children in 85% of all cases, which is a statistical farce on its face. However, it is justified so that they can be held liable for child support at a rate of 85% as well, funny how economics seems to be the driving factor of that outcome as well, regardless of all other factors 85% of the time. Rocket science, these two are not, junk science at best.
Reply to this commentLinkReport AbuseThis article reminds me why I enjoyed getting a BS in Economics, but had no interest in a higher degree. Undergraduate work was mostly abstract theory that taught me little that had a practical application. I could tell you what would happen if you provide the price elasticity of a widget in a ceteris parabus (sp?) world. Once I got into regression analysis and other mathematical gymnastics trying to develop data to apply the theory I lost all interest. Instead I went for the big money and got my Masters in Political Science.
Reply to this commentLinkReport AbuseI haven't studied enough economics to know whether it is truly a science or not. But I have read enough total nonsense coming from economists to find it highly doubtful that they qualify as scientists.
Reply to this commentLinkReport AbuseEconomic is an academic discipline. It can be practiced either quantitatively and using models or it can be practiced more qualitatively and empirically. It goes from practice to theory and back again. Its claim to being a science is longstanding, but it came to be made much more prominently during the 1950s and 1960s when it was prestigious to be identified with science. Many other fields (e.g. anthropological archaeology) also started calling themselves sciences at this time, although many have swung back the other way in more recent decades.
Reply to this commentLinkReport AbuseRead The Black Swan by N.N. Taleb.
Reply to this commentLinkReport AbuseFor those of us who have realized economics is not a science - that it cannot reveal universal truths - what should replace economics?
My answer: morality, logic, and accounting.
If economics cannot discover universal truths, it cannot be used as the basis for making law and state spending decisions.
State spending decisions should be based on widely agreed moral principles (for example, ideas of property rights and contract rights). Economics seeks to compromise these ideas with theories like "Mr. Smith's property could be used much more efficiently by central planners, and thereby benefit more people. Therefore let us dispossess Mr. Smith".
Rulers should reason deductively from moral principles, using logic, to make simple and fair laws.
Economics is ultimately a quest to "scientifically" discover principles surrounding the behavior of wealth, resources and labour. But it cannot discover such principles. The only other way to get them is to assume them. This is an unsatisfactory answer for most thinking people nowadays, who want to empirically discover morality. That is impossible and only leads to mistake after mistake until our society ultimately bankrupts itself.
If economics really worked, economic scientists would never have let our country come to the brink of bankruptcy, where we are today.
Reply to this commentLinkReport AbuseMy take on the article is that, yes, economics is a science. It's just a bad one (in the same way that being a bad dentist does not mean you are not a dentist).
Reply to this commentLinkReport AbuseFeynman had it right when he derided "cargo cult science". Too many economists use math to mimic real scientists.
Of course, they could all think the Foundation series was non-fiction...I wannabe Hari Seldon one day!
Reply to this commentLinkReport AbuseJim's explanation of how economic problems are addressed is excellent. Very similarly, actually, to the way climatology works.
Let's take many bits of data and estimate (guess) how they affect each other. Then we recognize we don't have all the data we need, so we put in estimates (guesses) for various adjustments.
Then run all this through a highly sophisticated computer analysis and see what comes out the other end.
People look at the sophistication of the analysis and forget the input is to a very great extent an estimate (guess). I don't care how excellent your analysis of a guess is, it remains a guess and is generally not a great deal more reliable than just going with an unanalyzed guess.
Reply to this commentLinkReport AbuseEconomics is not a science, but it IS scientific. Ditto Political Science.
Meaning, there are many marginal theoretical and predictive benefits by applying mathematical rigor to both fields, particularly at the macro level.
Sure, I'd put more faith into gravity than the Laffer Curve, but the latter *is* explanatory and predictive. Ditto the broken windows fallacy, the Law of Supply & Demand, and many other facets of economics.
Saying that economics isn't a science is true, but then... what *is* it if it's not a science? It's not religion, it's not mumbo-jumbo, there *IS* value in economics that go beyond the value derived from historical study.
I guess the English language appears to lack the right word to define what economics is. Thus, leading economists (like political "scientists") the leeway to call themselves something they are not-- scientists-- in order to distinguish themselves from something they are ALSO not-- voodoo-worshipping charlatans.
Both economics and political science have tremendous applied value, in *certain* cases. Alas, the danger is that value gets oversold by thin-skinned academics who feel both can go further than they actually can.
Reply to this commentLinkReport AbuseRead Thomas Sowell's Basic Economic, 4th edition.
>Ask your opponents to name a single economic truth.
There ain't no such thing as a free lunch.
Rent controls destroy cities.
Socialism is a bad thing.
Economics is the study of the use of scarce resources which have alternative uses.
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