The rise of quasi-experimental methods shows that the ground has fundamentally shifted in economics - so much that the whole notion of what "economics" means is undergoing a dramatic change. In the mid-20th century, economics changed from a literary to a mathematical discipline. Now it's changing from a deductive, philosophical field to an inductive, scientific field. The intricacies of how we imagine the world must work are taking a backseat to the evidence about what is actually happening in the world.
This trend would make economics more like psychology and sociology, and also more like the case method adopted by business schools.
The driver is information technology. This does for econ something similar to what the laboratory did for chemistry - it provides an endless source of data, and it allows (some) controls.
Now, no paradigm gets things completely right, and no set of methods is always and universally the best. In a paper called "Tantalus on the Road to Asymptopia," reknowned skeptic Ed Leamer cautions against careless, lazy application of quasi-experimental methods. And there are some things that quasi-experimental methods just can't do, such as evaluating counterfactuals far away from current conditions. The bolder the predictions you want to make, the more you need a theory of how the world actually works. (To make an analogy, it's useful to catalogue chemical reactions, but it's more generally useful to have a periodic table, a theory of ionic and covalent bonds, etc.)
But just because you want a structural theory doesn't mean you can always produce one. In the mid-80s, Ed Prescott declared that theory was "ahead" of measurement. With the "credibility revolution" of quasi-experimental methods, measurement appears to have retaken the lead.
This would be a recognition that economics is not chiefly a theoretical science that empirical science then tests, like physics, but rather more like social sciences that lack an overarching theoretical basis owing to the subject matter, which is heavily influenced by human action and there is not overarching theory that explains this in a way remotely like the natural sciences account for observed regularities in physical change. Moreover, unlike other sciences that deal with measurement of the real, economics must take into consideration not only measurement of the real (data) but also nominal (price).
The aim of Positivism to develop a unified science as an objective theory of everything that is built on physics is unfulfilled, and there is no use in pretending otherwise. The gaps between natural science, life science and social science remain large.
Noahpinion
A paradigm shift in empirical economics?Noah Smith | Assistant Professor of Finance, Stony Brook University
4 comments:
Perhaps there are ways to look at macro economics more scientifically if examined at the proper scale, where individual human decision making isn't very important; perhaps in the same way that very few properties of individual atoms is important in formulating the ideal gas law: all that's important is that the molecules have a number of degrees of freedom of movement, and at the scale of a container filled with vast quantities of gas molecules, we can assume all these modes are being excited. At the macro scale the gas can be said to have a pressure which has a mathematical relationship to the volume, temperature and number of degrees of freedom. An individual molecule though has no "pressure." Here's a guy who's trying to do what I describe (if you're interested):
http://informationtransfereconomics.blogspot.com/2015/06/falsifiabilite-simplicite-succes-ou-la.html
Thanks, Tom. I had already posted that link here at MNE on June 5. I follow Jason and often link to his posts here.
From an outsiders perspective it seems to me that conventional economists are resistance to considering methodology, considering the debate settled. What seldom works is just making shit up, which is what ideologues do when they generalize their own views.
There has long been a strong influence of physics on economics and econophysics is also a discipline. But as a result many conventional economics have tended to pass over relevant findings in psychology and sociology, and regard doing so as heterodox. Evolutionary biologists like David Sloan Wilson have also suggested that biological models may be useful in economics, for example in his Economics and Evolution as Different Paradigms series
Let a hundred flowers bloom. But they have to pass the smell test. That requires empirics to be scientific. But it's theory that provides the overarching explanation, and to the degree that a theory can be developed that meets scientific criteria, great. Again, my perception is that conventional economics has been trying to force this. That's ideology not science.
Tom Brown, while that methodological approach to macro seems appropriate in theory, I believe in practice it has been a gigantic failure.
There are in the end very few useful and robust causal regularities that can be pulled out of the empirical phenomena at the macro level. There are conceptual or definitional identities that hold good universally and impose constraints on any coherent macroeconomic description, but everything having to do with causal relations is in an ongoing evolutionary flux and is subject to variability and context sensitivity. Perhaps that is because, unlike the molecules of a gas whose individual differences are relatively insignificant and can be treated statistically looking at only a few degrees of freedom, human beings and their institutions and behavior patterns are highly variable. And unlike molecules, human beings are constantly interpreting, reacting to, deliberately modifying and overturning the very same patterns that economists attempt to study.
These shortcoming will be re-created by a new generation of enthusiastic geeks: people from biology, physics or computer science with some interesting general ideas about dynamic systems, but who understand very little about human behavior, human institutions and their history, or human nature and desires, and who mistakenly think there is some royal abstract road to the understanding of aggregate human behavior that doesn't pass through a keen understanding of human beings themselves.
Clarity .... "who mistakenly think there is some royal abstract road to the understanding of aggregate human behavior that doesn't pass through a keen understanding of human beings themselves". [DanK]
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