Is Economics a Science?

LD Saunders

I was just skimming through an economics text the other day on international trade, and was amazed at how many differential equations there were in the text. The text had numerous theorems laid out with accompanying equations, and then, just like in an engineering subject, the equations were manipulated to give new insights into what the theorem was about. Now, although the text contained a lot of mathematical equations, it did strike me that this was more of a pretense to knowledge than legitimate knowledge. After all, economists completely missed the 2007-2008 financial breakdown. Sure, there were a handful of economists who predicted some major problems, but none predicted the actual major meltdown we faced. Top economists, throughout history, have made some embarrassingly timed public speeches, claiming to have actually solved the business cycle problem, right before another major crash. In fact, the then president of the American Economics Association gave such a speech shortly before the 2007 crash as I recall.

In my opinion, economics is a valuable discipline, but not a science. After all, in an introductory economics class one is shown a supply and a demand curve. The demand curve is typically downward sloping, representing less demand as prices of a good rises, and more demand as the price falls. Now, how can this be empirically verified? It can't be. If a price shift occurs, how can one know this is the result of a movement along the demand curve, as opposed to a shift in the curve, or in the supply curve? One can figure out how many goods are selling at specific market prices, but one cannot construct a demand curve from this information. Yet, despite not being able to empirically establish the existence of such curves, the economic text I reviewed had all sorts of intricate curves in boxes supposedly illustrating the ideas behind some theory that was supposedly scientific. I view this as nothing more than smoke and mirrors or bullshit on steroids.

And why do we have to refer to economics as an actual science anyway? After all, history, literature, mathematics, and logic are of great value, and not one of these disciplines is a science. It's as if economists are so insecure that they have to hide behind a cloak of "science" rather than just admit that their knowledge of the economy is at such a beginning stage that it's too early to call economics a science.

thatoneguy

You can estimate curves with a regression analysis, it is a common practice in many fields of science and it is based on empirical sampling methods.

Wayfarer

And why do we have to refer to economics as an actual science anyway? — LD Saunders

Mainly it's a consequence of positivism - not the specific and very narrow doctrine of 'logical positivism', but the underlying notion that science is the ne plus ultra of all human knowledge, originating with the work of Auguste Comte, 'father' of social science. In this schema, all significant knowledge is progressing towards the status of 'science' through historical phases:

Auguste Comte first described the epistemological perspective of positivism in The Course in Positive Philosophy, a series of texts published between 1830 and 1842. These texts were followed by the 1848 work, A General View of Positivism (published in English in 1865). The first three volumes of the Course dealt chiefly with the physical sciences already in existence (mathematics, astronomy, physics, chemistry, biology), whereas the latter two emphasised the inevitable coming of social science. Observing the circular dependence of theory and observation in science, and classifying the sciences in this way, Comte may be regarded as the first philosopher of science in the modern sense of the term. Comte was also the first to distinguish natural philosophy from science explicitly. For him, the physical sciences had necessarily to arrive first, before humanity could adequately channel its efforts into the most challenging and complex "Queen science" of human society itself. His work View of Positivism would therefore set out to define, in more detail, the empirical goals of sociological method.

Comte offered an account of social evolution, proposing that society undergoes three phases in its quest for the truth according to a general 'law of three stages'.

Comte's stages were (1) the theological stage, (2) the metaphysical stage, and (3) the positive stage.

Wikipedia entry on Comte.

Kippo

If you attribute "rational" economic motives to individuals, where rationality = maximising money, then it is possible to generate all sorts of theoretical equations as to how people should behave economically. Strange as it may seem, it has only recently been recognised that people do not behave in such a "rational" way. They have all sorts of motives, some hidden some explicit.

So maybe economics has been overblown as a science. But as an art form, with the aid of some faiirly basic stats and logical analysis in conjunction with an inquisitive mind, freakonomics is the way to go!

fdrake

The most damning indictment I can think of for economics (which, surprising anyone who regularly reads my posts, includes Marxist perspectives on it) is that analysis which uses theory interpretively is typically consigned to be retrospective, and even when central tenets (like rational agents having symmetry of loss functions around zero) are strongly contradicted (just a link to prospect theory in general, Kahneman and Tversky are highly productive authors on the topic), the theories which use those strongly contradicted statements rarely change. For 'balance', you can see Marxists using the results of his value theory without the labour theory of value or an eye for updating it. Stiglitz famously said he predicted the 2008 recession despite saying it would occur far later prior to it. Apparently saying 'there is a housing bubble which will burst at some point' is sufficient to predict 'the housing bubble will burst fully in 2008 and begin in late 2007', despite the first being a much larger composite hypothesis.

The focus on retrojection rather than projection in economics and how central tenets and predictions can be contradicted but derived models using those tenets are still used in the circumstances we know they don't represent well suggest that economic research programs are typically degenerate; fitting fact to theory where it's important rather than theory to fact.

This isn't to say everything produced in economics is wrong, just that predictions by theoreticians and applied practitioners (the aggregate skill of skilled investors produces a coin flip on gain vs loss and 0 net gains, so much for their savvy intuitions) are rarely seen as important when wrong, just important when right.

ssu

And why do we have to refer to economics as an actual science anyway? — LD Saunders

I don't think it is referred to be a science. Or at least anything close to natural sciences. If someone refers it to a science, then he or she defines political science, sociology or even history as a "science".

Please give a reference where someone believes economics is more of a "hard science" than other social sciences. (And as they are indeed called 'social sciences', you can see the use of the term doesn't point out economics.)

Wayfarer

Economics is frequently referred to as 'the dismal science', a saying coined by Thomas Carlyle. The term drew a contrast with the then-familiar use of the phrase "gay science" to refer to song and verse writing.

LD Saunders

ssu: I never stated that anyone claimed economics was more of a science than a natural science, but they certainly claim it is a science. Milton Friedman constantly referred to economics as a science and himself as a scientist. This is commonly done by economists.

LD Saunders

thatoneguy: I definitely disagree with your statement that regression analysis can determine the actual shape of a demand curve. It can't. Even the Economist magazine had an article about a year ago on the very topic of economics not being able to empirically verify the existence of demand and supply curves.

Not to mention that when the situation involves investment assets, we definitely do not have downward sloping demand curves. If a person buys gold at $300.00 an ounce, and by the end of the year, the price rises to $400.00 an ounce, will the person now buy less gold? He's likely to buy more, as are other people, who think that gold is a great investment. Hence the formation of asset bubbles, including the infamous tulip bulb bubble. The point being that not only is there no way to confirm the existence of a demand curve, we can easily think of situations where the downward sloping demand curve would definitely not exist, which makes it that much more difficult to empirically verify the existence of a demand curve, as its shape is not necessarily of a specific preconceived shape, so we don't even have that as a guide.

LD Saunders

Wayfarer: I never thought of the Comte angle. Thanks for mentioning it.

Wayfarer

↪LD Saunders

You’re welcome. It’s a powerful undercurrent in Post-Enlightenment thinking.

BC

↪LD Saunders

If economics is a science, it's not a very good one.

Lots of people understood that the run-up of house prices in our own neighborhoods was abnormal in 2003-2007. $75,000 of value gained (without so much as washing the windows) in a 4 year period of time is a sign of speculation, or a bubble. We homeowners didn't know when things would change, either, but a lot of us understood that there was no point in selling our inflated houses and using the profit to buy a more expensive houses. Then the bubble burst. People who sold and bought up in the market got screwed royally when housing prices dropped dramatically (not for lack of demand, but for lack of financing and liquidity).

But it wasn't just too much speculation in housing. It was the rampant corruption in the finance industry that caused so much trouble: the credit default swaps, the mortgages to people whose main asset was a regular pulse, and the packaging of very dubious mortgages into bundles of "high grade" securities.

Economists didn't see it coming. Neither did regulators. Same thing applies to the tech bubble at the end of the 20th century, and the 1987 recession. (Some disruption was expected after the OPEC oil boycott in 1973, and then after 9/11.)

Clearly, immensely complex behavior is involved in economics: 7 billion+ agents acting alone and in various combinations all trying to make the best of their situation at any given time. All of the behavior is too complex to track, capture, and predict. In addition, some agents (very wealthy people, corporations, and governments) also have mixed agendas and the wherewithal to affect aspects of life for hundreds of millions or billions of people.

For all of that, we should keep trying to improve our understanding of economic activity. We don't have to call it a science to do that.

Rank Amateur

Love this Greenspan quote

"We really can't forecast all that well, and yet we pretend that we can, but we really can't."

Economics is an important field of study, and that study is and should be as analytic as possible, whether or not you call it "science " or not, seems like some sort of very unimportant personal value judgment.

Just another goat brought to be burned at the altar of science

CarlosDiaz

↪Bitter Crank

yes, economics is not a very good science but, which one is good? Physics which doesn't know what is made of 90% of the universe? Medicine, which can't find a cure for the common cold and many other diseases after decades trying?... Your comment seems to be not so much about economics as to politics.

CarlosDiaz

↪LD Saunders

You asked everybody "is Economics a science?" and then added "why do we have to refer to economics as an actual science anyway?", answering and closing yourself the debate.

LD Saunders

CarlosDiaz: Your last comment is rather comical, since it is self-refuting. So, by me asking a question, I "closed" the debate? Well, if I closed the debate, then how come you've entered into the debate? By doing so, you have confirmed that I have not "closed" the debate. I wouldn't even know how to do that, but certainly, asking a question would not close a debate.

As far as your other point, I'm not sure what your point is? Is it that there are no sciences at all, including physics, because we don't have all the answers? And who said medicine was a science? It's based on science, but it's somewhat like engineering, applying science as opposed to being an independent science itself.

In any event, you indicated that economics is a science, just not a very good one. What is your basis for stating that economics is a science? After all, the stock market just got crushed, and how many economists saw that coming? As far as comparing the predictions in economics to physics, they aren't even remotely comparable, with physics far in the lead. A physicist can calculate how much farther away the moon will be from the Earth a year from now, based on conservation of angular momentum, and be extremely accurate in the prediction. There is nothing comparable to that in all of economics.

BrianW

I think, ideally, economics is or should be the science of utility. However, there are too many deviations due to flawed human practices (competitions and conflicts) such that its empirical value is almost always distorted. It's kind of like how it was when science was restrained by politics such that scientists could only share what was acceptable to the governing authority. It's the same right now - human practices are in defiance with the objective principles governing utility because we are too self-serving in our trade relations such that we have redefined the term satisfaction. Stupid ideas like 'everybody has a number', thanks to wall street and their ilk, have now got everybody thinking their number is 'more'.

LD Saunders

Brian: Well, how would you, in an ideal world, make economics a science of utility? How would you be able to objectively measure utility? Let's say someone goes into a grocery store, and buys some chicken and some wheat bread. Did they maximize their utility as opposed to all the other combinations of items they could have bought for the same amount of money, and how would one know? Or, do you have something else in mind? I'm just curious. I may agree with you upon hearing more from you.

BrianW

↪LD Saunders

It's not about comparisons but ends. The kind of ends which should determine means. Science tells us that there's an average amount of calories that the average person needs. Some may argue that they need more or less than that but the question is why would a person need more or less than what is within the acceptable range? The answer can only be necessity and it can only be employed through discipline, simplicity and moderation, yet, what we observe in the world is the opposite.
Nature is the best way to determine the measure of anything. It does not exaggerate. Humans don't need to be overweight or underweight; we do not need millions or tens, hundreds or thousands of millions in currency when others have almost nothing; we do not need habits that yield little to no value in knowledge; we do not need to distort information, etc, etc.
We've become blind to the objective because we're too busy trying to be different from others of our kind. How much sense is in doing that? Jimmy Cliff (in the song 'I'm gonna live, I'm gonna love') says, "it's not nice to be all by yourself, it's not wise to see heaven through one eye,...". That's economics right there!

Relativist

Is economica a science? It depends on how you define science. Merriam-Webster thinks it is, because there is systematuzed knowledge.

ssu

ssu: I never stated that anyone claimed economics was more of a science than a natural science, but they certainly claim it is a science. Milton Friedman constantly referred to economics as a science and himself as a scientist. This is commonly done by economists. — LD Saunders

Well, at least here political science is called that and it is taken as an academic research area. Yeah, that field either hasn't solved all the political problems in the World, so one can argue it's not as successfull as Physics. So economics, or political economy as it was used to call, isn't all alone there.

Perhaps the argument ought to be then are the social sciences sciences?

LD Saunders

ssu: I agree that we could extend the post to cover the issue of whether social sciences are sciences. That's certainly consistent with the question I asked regarding economics. My position is the same for economics. I think the social sciences are valuable disciplines and do add some insights, but, I do not see how they are sciences. The first thing about a science is that it has to have an objective way to conduct measurements, and I'm not sure how one can do that in the field of political science, sociology, economics, psychology. Probably the closest any social science comes to a science is psychology, as it somewhat overlaps with neuroscience, and it's easier to do controlled experiments in that field than with sociology or political science.

Now, I may simply be biased on this issue, as my undergraduate major was in physics. However, even as an undergraduate I did take upper division classes in economics, psychology and sociology, so I am not against people studying these subjects. It's just that they do not seem even remotely scientific in the same sense that physics is a science.

Wayfarer

It's just that they do not seem even remotely scientific in the same sense that physics is a science. — LD Saunders

That is at least partially due to the definition of modern science, in particular. It’s here that the emphasis on precisely quantifiable data becomes. fundamental. But it’s also worth recalling that Newton referred to his own work as ‘philosophy’, as the sharp distinction betweeen science and philosophy was not drawn until much later. (In fact Walter Isaacson says in his book The Innovators that the designation ‘sciientist’ originated in the salon of Charles Babbage, in London, in the 1830’s.)

Modern science emerged in the seventeenth century with two fundamental ideas: planned experiments (Francis Bacon) and the mathematical representation of relations among phenomena (Galileo). This basic experimental-mathematical epistemology evolved until, in the first half of the twentieth century, it took a stringent form involving (1) a mathematical theory constituting scientific knowledge, (2) a formal operational correspondence between the theory and quantitative empirical measurements, and (3) predictions of future measurements based on the theory. The “truth” (validity) of the theory is judged based on the concordance between the predictions and the observations. While the epistemological details are subtle and require expertise relating to experimental protocol, mathematical modeling, and statistical analysis, the general notion of scientific knowledge is expressed in these three requirements.

Science is neither rationalism nor empiricism. It includes both in a particular way. In demanding quantitative predictions of future experience, science requires formulation of mathematical models whose relations can be tested against future observations. Prediction is a product of reason, but reason grounded in the empirical. Hans Reichenbach summarizes the connection: “Observation informs us about the past and the present, reason foretells the future.” 1 — Edward Dougherty

The social sciences wish to emulate this approach, with the salient difficulty being that it involves the study of subects, not the objects of physics.

LD Saunders

Wayfarer: Those are valid points, and I would emphasize the point you brought up that when we are studying ourselves in the social sciences, it makes it difficult to be objective, in the same way we can be objective in studying electrons, or even biochemistry. Jonathan Marks, a biological anthropologist, mentions this in his textbook, titled something like an alternative introduction to biological anthropology. Marks himself has studied graduate level genetics and much of his work would seem to be scientific, but, he readily admits that when it comes to looking at people as a whole that it's doubtful what he is doing is science in the same sense that physics, chemistry and molecular biology can be considered to be sciences.

ssu

Now, I may simply be biased on this issue, as my undergraduate major was in physics. However, even as an undergraduate I did take upper division classes in economics, psychology and sociology, so I am not against people studying these subjects. It's just that they do not seem even remotely scientific in the same sense that physics is a science. — LD Saunders

I think one thing is quite clear: these areas of academic research are not young or making any step of turning into a "hard" science.

First and foremost, as you studied physics you do understand how difficult everything turns into when a measurement has an effect on what is measured, even if it is a totally classical system. Well, that's the basic problem in social sciences. Because they become also subjective: social sciences themselves have an effect how we view ourselves and our societies.

Think about it. Assume that the economic and investment decisions you make could be modelled extremely accurately and made into a mathematical model. Now if we could then model everyones decision making process similarly and the interactions between everyone, at first glance someone might think from this we could get an accurate estimation of the aggregate. But there's a glitch, which isn't so easy to disregard. Because if this model would tell so well what people think, wouldn't the results of what it says be very useful when making investment decisions? But if you start to decide your investment decisions on the model, how does the model take itself into the equation? Just like Wittgenstein said in his Tractatus: A function cannot be its own argument. The problem won't go away just using some kind of dynamic model, because these models have to "behave" well and not go into infinite regress.

Remember when Milton Friedman (or Richard Nixon) declared "We are all Keynesians now"? When the heads of state believe in an economic model or idea, how much subjective weight that model then has? In Physics it's different. If we would use just Newtonian Physics with our GPS systems, the system simply would be less accurate than when we take into account relativity. But when the study is itself human behaviour, it's totally different..

The next obvious issue is the uniqueness of what we call history. And that uniqueness might just happen because we do learn from history. At least not to make exactly the same mistakes. Hence our society that we have created and our views of that society are allways unique and will change as it has changed in the Centuries that have gone.

Wayfarer

↪LD Saunders

It’s a tremendously important point. The whole notion of objectivity and exactness is basic to the success of science. But it’s the attempt to extend those capabilities to the human sphere that often results in ‘scientism’. But it doesn’t have to - there are all kinds of ways in which the insights from statistical science and data can be used to good effect - for instance the discipline of ‘behavioural economics’ which won the Nobel last year.

LD Saunders

Wayfarer: I always think of behavioral economics as psychology. I'm not sure what the difference is between that and psychology. Even with behavioral economics, look how many times the explanation for some observed behavior relies upon the "scientist" using introspection? And I don't see how we can get around that, and I think you and I are in agreement on that. I think what psychologists and economists do is beneficial, and I'm not knocking these fields in anyway. I'm just having trouble seeing them as sciences. They seem to me to be humanities more than sciences. So, in a way, I'm also saying something positive about humanities --- that they are at least as relevant as the social sciences are.

ssu

I always think of behavioral economics as psychology. I'm not sure what the difference is between that and psychology. — LD Saunders

How groups behave is different from how an individual behaves, even if groups are made of individuals. Just like a metallurgist cannot design an airplane even if he knows everything about the nuts and bolts it's made of. A thing like aerodynamics of the whole plane comes into play.

DiegoT

↪LD Saunders

Economics is not Science. A scientific approach requires research to make predictions, and to be able to connect the phenomena studied to the greater picture of the scientific paradigm; Economics can not do this becouse economists refuse to base their work in the theories contributed by relevant disciplines, such as Physics, Biology or Anthropology. Economics is a pseudo-science, like Astrology; Astrologers, like economists, also make nice calculations, have a lot to say about how to interpret the past, and make predictions about the future hoping that they will become self-fulfilling prophecies.

ssu

Economics can not do this becouse economists refuse to base their work in the theories contributed by relevant disciplines, such as Physics, Biology or Anthropology. — DiegoT

Refuse?

These connections are so obvious that economists have to refuse from acknowledging them?

The idea that you could 'base' economics on theories of Physics or Biology is a most vulgar reductionist and pseudoscientific idea I've heard in a long time. Of course I might be wrong here, so if you would give us an example of such a relevant theory in Physics or Biology that could be a base for economics...

DiegoT

↪ssu

If are not an economist, surely I can explain myself better. To bear in mind what findings in other sciences mean for your field is not reductionist; it is reductionist NOT to take those theories into account, and even particular studies. The texts produced by a branch of Science are meaningless, until the relationship among those ideas and ideas in other disciplines are explained.
For example, economists have real issues with the idea that Nature is not really best described in economical terms: species, resources, competence, predation and partnership, leading to "evolution" or cumulative capital. Nature is just a market yet to be exploited by man, so nothing can be learnt from Ecology or Biology that should be applied to Economics. It´s economics that explain nature, in this pseudo-scientific view, very much like gender theory enthusiasts think that human nature is best explained by Judith Butler and not by anthropologists.

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