Tuesday, February 27, 2018

Alan Y. Wang - No, Economics Is Not a Science

Can economics ever be a hard science, like physics, chemistry, or biology, or is it a soft science, like psychology or sociology as it is about human behaviour, desires, wants and wishes? Should economists just stick to just pure economics as a pure science without politics, or desires, wishes, and concentrate instead on the perfect economy? 

What would the perfect economy look like, would it provide welfare to the poor, and would it see this welfare as an investment into a country's future because human resources are the most productive? Can economist factor this investment into their equations?  What about a national health service which can help stop businessmen from going bust because of crippling health care cost so their their companies can stay in business helping the economy to thrive? Have economists developed equations for this? 

What about quality of life, like early retirement, or less time spent at work, which could make a person more productive and happy when at work? Where's the maths for this? Or what about having time to go back to college or university to learn a new skill or get a degree which could help people to start new businesses helping the economy? Is there any maths for any of this?

Or do we just have pure capitalism as science without emotion, where people are just workers in an highly productive system, like animals in a factory farm, where output is set for maximum profits? We know how to increase milk production by using the most cruelest methods, and how to produce the most chickens or eggs. But is there room in economics for a humane system of farming and can this be put into equations as well? 

Is it best just to have pure economics as a science producing maximum profits, a pure scientific capitalism, or can economists design systems that improve quality of life and happiness for the general public? If such a system is soft science, like psychology or sociology, does it matter?  KV

Alan Y Wang, an opinion. 

Economists have faced a deluge of negative press in the past few years, ranging from criticisms over the failure to forecast the financial crisis, to the more recent disbelief over the granting of the Nobel Prize in Economics to three economists, two of whom hold views that can be said to be polar opposites. Indeed, the reputation of mainstream economics—specifically macroeconomics—is arguably at its worst since the formation of the field in the 1930s, with the advent of the Great Depression. This state of affairs prompted Raj Chetty, a professor of economics at Harvard, to author a defense of the field in ‘The New York Times,’ titled “Yes, Economics Is a Science.”

It seems as though economics is fighting for its right to stay in the exclusive group of fields deemed worthy enough to be called “science,” where subjects such as physics, chemistry, and molecular biology reside comfortably. Some instead opt to call economics, along with psychology and sociology, a “social science”—a vague term, often blurred with humanities, which is neither here nor there. Nevertheless, the underlying implication behind this battle is that to be a “science” is to be credible.

I don’t agree.

First and foremost, I don’t agree at all that economics is a science. Let me preface this by saying that I am concentrating in economics, and have the utmost respect for the field. Let me also clarify that when I say “economics” throughout this article, I primarily mean macroeconomics—microeconomics is an entirely different beast. While the two are intrinsically related, the methods of experimentation are so drastically different that the two can hardly be subject to the same criticisms.

Merriam-Webster’s definition of science is “a study of the natural world based on facts learned through experiments and observation.” What physics and chemistry and molecular biology have in common is that the building blocks of what they observe and experiment with don’t change. Such is the natural world. But what is the building block of economics? People. Economics does not study any unit smaller than a collection of people. And human behavior can never be absolutely predicted or explained—not if we wish to believe in free will, at any rate.

In fact, in a strict sense, economics does not even follow the scientific method. Engrained in the scientific method is the process of testing hypotheses with repeatable, falsifiable, and parameter-controlled experiments. Unfortunately for the field of economics, there are certain non-trivial barriers to experimentally tanking the Czechoslovakian economy over and over while controlling for interest rate levels. Oftentimes, the best economists can do is sit back and pore through the data given to them—data that is muddled by changing cultural standards, changing technological innovations, and changing time periods, among other factors.

All of this is not to say that I disapprove of economics, or think it illegitimate in any way—quite the opposite, actually. I believe that economics is a crucial field that directly impacts most everyone on this planet, perhaps more so than any other subject. The discovery of the Higgs-Boson made headline news around the world and has been heralded as one of the greatest triumphs of mankind’s collective intellect in history, but the Higgs-Boson has very little bearing, if any, on the daily lives of people. On the on the other hand, ill-timed economic austerity measures in Britain caused a very real, and very noticeable effect nearly immediately, setting the backdrop for the 2011 London riots.

This direct influence economics has on the individual lives of people stems from the fact that economics is, at its heart, a very person-centered and normative field of study. It is unique in the sense that economics fuses quantitative data and modeling with qualitative judgments; unlike in physics or chemistry, economics appends an implied “therefore…” statement to its conclusions. Economists’ findings that expanded insurance coverage increased lifespans and reduced costs lent implicit support to the Affordable Care Act—a law that will affect tens of millions of Americans.

Economics is not a science in the way that physics or chemistry is a science. Yet, this is not something to be lamented. Economics is not, and will never be, at the stage where models can precisely predict the day on which a financial crisis will start before it happens, but this is not due to the lack of legitimacy of the field; instead, it is due to the inherently unpredictable sphere of study in which economics operates. People are not atoms—and this is exactly why economics is immediately relevant.

What this means is that all of us—and the press in particular—should cease treating economics as though it were a science. We need to understand that economics is attempting to neatly model a very messy world.Do not expect clean answers.

Alan Y. Wang ’16, a Crimson editorial writer, is an economics concentrator in Kirkland House.


Anonymous said...

A Law springs out of the nature of Existence. A Rule is something we make up in order to guide us in fulfilling Law. Economics is a set of Rules, currently based on selfishness. Here’s the first Rule of Economics: ‘Superficial existence brings superficial joy’. Ha! We know this Rule but haven’t really absorbed it yet.

And superficial priests of selfishness. There’s the dividing line between economists et al ....

Most people live for themselves. This ‘self’ slowly expands to include the family, tribe, nation – then the whole of humanity and all Existence. Such is the Law of consciousness. Our Rules are the best we have been able to manage so far, as we emerge from the animal life to become human. It’s a long and painful journey ....

Psychology is a science but it needs to probe consciousness deeper, rather than focus on aberrations of the human personality. This is the art of self-knowledge (knowledge of the energy - 'true self' - that causes the above expansion in the limited horizon of the personality). In the Ageless Wisdom, this knowledge is known as Raj Vidya - the king of all knowledges.

AXEC / E.K-H said...

Economics: When the scientifically unfit blather about science
Comment on Alan Y. Wang on ‘No, Economics Is Not a Science’

It is absurd in the extreme when proto-scientific morons who have not gotten the foundational concepts of their own discipline right and fail at the elementary mathematics of accounting waffle about advanced physics and mathematics.#1

Fact is that the four main economic approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong. This is the actual state: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S/IS-LM), since 80+ years.

Economics is a science without scientists. Feynman called this phenomenon cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing among economists is an understanding of what science is all about. Allyn Wang is no exception. He is just repeating all the silly excuses that have already been refuted one-by-one.#2

And exactly this is the modus operandi of economics as Morgenstern observed back in 1942: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

Economics is the senseless repetition of false and refuted theories/models/arguments. Economics is still at the proto-scientific level because:
• The whole subject matter is ill-defined. Economics is NOT a so-called social science but a system science.#3
• The foundational concepts of the subject matter are ill-defined. There is no proper axiomatization. The representative economist cannot tell the difference between profit and income. This is like medieval physics before the concept of energy was properly defined and fully understood.
• Theories/models contain blatant nonentities, e.g. utility, equilibrium, rational expectations. This results in pointless dancing-angels-on-a-pinpoint debates.#4
• Economists violate scientific standards on a daily basis.

Economics claims to be a science since Adam Smith/Karl Marx. The economics Nobel bears the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Fact is that economics is the worst fraud in the history of modern science.

Egmont Kakarot-Handtke

#1 For details of the big picture see cross-references Failed/Fake Scientists

#2 Failed economics: The losers’ long list of lame excuses

#3 For details of the big picture see cross-references Not a Science of Behavior

#4 Economics: communication without content

Matt Franko said...

"So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

They are missing three things:


2. TRAINING, and last


They have never been rigorously TRAINED for years where they put in a lot of work in the exercise and yet get ZERO CREDIT for being WRONG in the answer...

They don't ever train this way ...STEM fields train this way...

These people get "partial credit" in every exercise even if they are WRONG... they never develop an appreciation for being CORRECT this way...

Tom Hickey said...

In my calculus class, you could get the wrong answer and still get a high grade since the prof marked on the basis of the whole work rather than placing all emphasis on the arithmetic. The penalty for making a mistake in arithmetic was fairly minor in comparison to approaching the problem in a wrong way or not knowing how to proceed.

It's been a long time since then. Now that students can use calculators and most of the basic calculation is done by computers, things may be different now.

Tom Hickey said...

BTW, this was not calculus for liberal arts either. I was a Chem major at the time.

Matt Franko said...

“Chem major at the time.”

Aha holding out on us Tom?

Stoichiometry is 100% appropriate training in this imo .... a year or two of that training and the cognitive effects remain...

Tom Hickey said...

I switched majors when I decided I like philosophy better and was really good at it, where as I was only a B student in science and didn't like working with numbers as much as with words. Not unusual. My favorite philosophy prof in grad school and my girlfriend who was also a PHD candidate in philosophy where both physics grads who had switched to philosophy in grad school.

Philosophical logic is as rigorous as math and a lot trickier and more demanding than doing math problems with well-defined parameters. The trick in science is getting the measurements right, as well as clarifying the concepts involved. Samuelson and Solow were better mathematicians than Sraffa and Robinson but they lost in the Cambridge capital controversy. Robinson and Sraffa were very good at economic philosophy, a key aspect of which is clarifying concepts.

AXEC / E.K-H said...

Tom Hickey

You say: “The trick in science is getting the measurements right, as well as clarifying the concepts involved. Samuelson and Solow were better mathematicians than Sraffa and Robinson but they lost in the Cambridge capital controversy. Robinson and Sraffa were very good at economic philosophy, a key aspect of which is clarifying concepts.”

The fact of the matter is that neither Samuelson, nor Solow, nor Sraffa, nor Robinson got the foundational concepts right and ever rose above the level of proto-scientific blather. They had the blunder fresh before their eyes but realized nothing.

Keynes wrote in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This is utter conceptual crap but Post- and After- and Anti-Keynesians up to MMT and the philosopher Tom Hickey swallowed it without turning an eyelid. Here is the strictly formal proof of the scientific incompetence of the representative economist.

In the elementary production-consumption economy, which consists of the household and the business sector,#1 three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O.
In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It always holds Qm+Sm=0 or Qm=−Sm. The business sector makes a profit only if consumption expenditures C are greater than wage income Yw, that is, if the household sector dissaves, that is, if household sector debt increases. In this case, the value of output is greater than income and this CONTRADICTS Keynes’ premise Income = value of output.

So, the premise of macro is false and the whole bunch of intellectually challenged economists from Keynes onward did not spot the blunder until this day.#2 The point to grasp is that economics is still at the proto-scientific stage because economists lack the most elementary logical capacities.

That these Trump University scientists are awarded faux Nobel Prizes completes the picture of progressive delirium harmoniously.

Egmont Kakarot-Handtke

#1 The elementary production-consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start holds X=O.

#2 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It