Economics Is Not A Natural Science
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edge.org
The notion that the market isn't reflecting our values is silly it seems to be the only reflection of our values. The title of this article is correct in that economics is not a science on the level of physics or chemistry but it's not exactly something you can just disregard entirely either.
That's about the size of it. I usually see it raised in a political context, where someone doesn't like the implication that some desired program isn't budgetary feasible or has any conceivable economic drawbacks. It's a sort of foot-stamping rejection of problems that reminds me a lot of global-warming denialism.
As for the global warming example, everyone, especially those interested in OB or LW, should read The Deniers (http://www.amazon.com/Deniers-Renowned-Scientists-Political-...). The author still believes in agw even after assembling all the evidence in the book. Every one of the experts still accepts global warming, they apparently believe that only the information they are personally and professionally acquainted with was misused by the zealots and everything else was accurately reported by the media.
I don't think the "stupidity" here is mine, and I am gratified to avoid your up-vote.
The issue here is one of vocabulary, but it's an important issue nonetheless. Perhaps if we stop treating calling non-sciences "sciences," the credibility of real science will be improved, and the formerly unassailable opinions of economists will come under more scrutiny. I think that would be a good thing.
On the other hand, the Chicago school is certainly empirical, and to this extent, theories can (frequently) be investigated for proof or disproof.
That said, I tend to subscribe to the Austrian school, which I believe we can agree does not qualify as a science.
It's simply not possible for Chicagoans (is that the word?) to test all their ideas. There are plenty of theories for which no real-world data exists, so they must remain as speculation for now.
And I'm extremely sympathetic to the Austrian ideas. I love Mises' Human Action (at least the parts of it I've been able to get through so far). At the same time, I must acknowledge that the deeper one goes into such reasoning, the greater the chance for failing to notice that you made an assumption, one that may be wrong. So there's a necessity to get back to a touchstone of the real world occasionally.
It may not seem so, but it's easy for pure logic to go astray. Mathematicians pride themselves on logical rigor, but the fact is that many modern-day mathematical proofs are so complex that no one is really sure that they're correct.
And I'm dismayed that the Keynesians have been crowing about multipliers of late, when all of our experience during the 70s has shown us fundamental flaws in the Keynesian philosophy (yes, you can easily have high inflation and high employment at the same time!).
Unfortunately, scarcity is, and always will be, a reality. And that is a fact hard-wired to natural science. Sure it may be possible to create an economic system that delivers "free software to everybody," but it could never go much further than that. We still need to live in houses and wear clothes and even build the computers that will be used to write all this software. All of these goods are made from scarce natural resources and no amount of tinkering with the rules of the economy will change that fact.
I still remember when I was a kid growing up in communism, there would be days with no potatoes in any store in the city, but there were heaps of rotting oranges that nobody wanted, while the store was not allowed to lower their price. Butchers and gas station operators were among the richest citizens, since those jobs allowed for the easiest cheating on both customers and the state.
While economics is nowhere near an exact science, some people would do better to learn about its very foundations, rather than write lengthy, post-modern-sounding, uninformed criticisms of it.
I am a sloppy thinker. When I read the word science in a casual setting, like the news, I think of men in white lab coats and rocket ships, rather than the messy unreliable quest for truth that is really going on. This usually leads me to conferring the predictive power of physics on whatever science is being discussed. Everyone's job is hard, but the predictive power is the thing that makes my life easier, and as a consequence the thing i remember instead of the struggle against the unknown.
I don't think I am alone in making this mistake. Furthermore, i doubt that most people who make this mistake ever become aware of the error. I think articles like this are the result of the exact same error. Rather than accepting economics as a science this particular guy went back and redefined terms, and wants us to do the same.
If only there was some way to replace "a scientist said x about science" with "an expert in a field that requires a confidence interval this big (big number) for theories to be taken seriously, said x about something in his field"
The, "economists predictive power sucks so they aren't scientists" is a trap.
It's true that scarcity is a reality. It is far from certain that scarcity always will be a reality. Unless of course you define scarcity to mean that not everyone in the solar system can have exclusive use of more than 50% of the mass of the sun.
There are some fascinating studies that have come out in the past few years demonstrating that many of our economic intuitions and biases as humans actually have an evolutionary basis--basically, that the same behavior can be reliably elicited from chimps, birds, etc. Another thing that comes to mind is Tversky & Kanheman's work on prospect theory, which showed that humans are irrational in very predictable ways. Anyways, my point is that the essay's main argument, which is that the laws of economics are not universal or immutable, is only true in a limited sense. There is no universal truth about economics, but as long as it's us humans who are doing the creating and spending of wealth, we're going to continue to act according to some very deep-seated principles. It's these patterns of behavior that have resulted in markets, selfishness, and all the rest. So things are going to continue to look very much the same. It's sort of like the way a few axioms can give rise to an entire geometry.
It is based on a set of hopelessly outdated assumptions about the world, and its current toolset is easier to throw away than to modernize. Especially since the economic academic establishment is focused more on self-defence and self-support than on the pursuit of knowledge.
Here is the list of things that are central to modern mainstream economics but are proven wrong.
- the concept of equilibrium
- efficient market hypothesis
- modern portfolio theory
None of core economic concepts is supported by experimental evidence, so it is as much a science, as the "scientific Marxism" was.
EDIT: My position is more on the economics side. I'm working on a grad degree in financial engineering.
The biggest issue is that modern mainstream economics is modelling the world as Gaussian. There is no room for 'fat tails' in econometrics, for example, every time you see 'regression' mentioned somewhere -- this should raise alarm. The world is not-linear.
Same applies to other concepts mentioned above. This one issue of crude inefficient approximation (stochastic world rather than the world as a complex nonlinear system) is enough to undermine most of modern economics. This is because a lot of this so called 'science' consists of many very elaborate and intellectually beautiful rigorous constructs, which are unfortunately built on an obsolete base.
Linear models had their place, maybe, 20 year ago, because there was nothing better. But now we have a very solid body of knowledge on which to build further scientific advances, most of it achieved through experiments (with computers), and not though some cute 'mental experiments'.
So, let's not be too sensitive, there is science that is supported by experiments, and there is a kind of abstract sophism which is modern economics. The sooner the public sees that this emperor has no clothes, the better.
Time delay embedding is a common method to estimate hidden structure in the system. You can make short-term predictions about future state of the system if you look at its previous states and find ones that are similar to current one. You can analyse transitional probabilities between these states. You can also study scale-invariant properties of the system such as fractal dimension or log-time scaling. There is a separate discipline called 'chaos control' that looks at certain unstable moments when the system can be manipulated by a small external signal (very relevant for dealing with heart attacks, should be interesting for central banks as well).
So, most categorically, current mainstream economic models are by far not the best we can do with at the time. They are grossly inaccurate representation of reality. There is of course emerging field of 'complexity economics' but it is not even close to being accepted in the mainstream.
Some (more or less) fair ways to do that would be to give the goods to those that pay more, or work harder, or wait longer. There are other ways - stealing, cheating, haveing influential friends.
In any case, the scarcity simply won't go away by declaring economics unscientific.
DOUGLAS RUSHKOFF is a media analyst; documentary filmmaker, and author. His latest book is Life Inc.: How the World Became a Corporation and How to Take It Back.
How the world became a corporation? WTF?
They lost me as a reader right there.