Why Economics is an Impossible Science (In One Paragraph) — Marshall Sahlins

In a word, Economics is an Impossible Science because by its own definition the determining conditions of the economy are not economic: they are “exogenous.” Supposedly a science of things, it is by definition without substance, being rather a mode of behavior: the application of scarce means to alternative ends so as to achieve the greatest possible satisfaction—neither means, ends, nor satisfaction substantially specified. "Exogenous,” however, is the culture, all those meanings, values, institutions, and structures, from gender roles, race relations, food preferences, and ethnicities, to technical inventions, legal regulations, political parties, etc., etc. The effect is a never ending series of new theoretical breakthroughs, each an Economics du jour worthy of a Nobel prize, consisting of the discovery that some relevant little bit of the culture has something to do with it. Only to be soon superseded and forgotten since the continuous development and transformation of the culture, hence of the economy, leaves the Science in its wake. An impossible Science, by its own premises.

Counterpunch
Why Economics is an Impossible Science (In One Paragraph)
Marshall Sahlins | Charles F. Grey Distinguished Service Professor emeritus of anthropology at the University of Chicago

Lars P. Syll — Economics — too important to be left to economists

The problem with economics as a discipline, and this generally includes all forms of economics including heterodox economics to some extent, is "economics." That is is to say, economists assume that economics is chiefly or exclusively about economic behavior when economic behavior is embedded in social and political behavior and includes the entire "human condition."

The only "economist" that really grasped this in depth was Karl Marx, and he was a philosopher coming from a Hegelian background rather than being an "economist" in today's terminology. He understood and emphasized social embeddedness, as do the economic anthropologists, economic sociologists and institutionalists that followed. Even Keynes approached economics in terms of the existing neoclassical paradigm that prevailed, and he did it as a mathematician would since his background was it mathematics and his principle work was the Treatise on Probability.

Conversely, almost as a reaction to Marx, the economic profession got sidetracked by Alfred Marshall's emphasis on formalizing economics in an attempt to make it "scientific." This led to the presumption (hidden assumption) that economics is chiefly or even solely about economic behavior. The result was the assumption of homo economicus as a homogenous agent behaving "rationally" to maximize self-interest in economic dealings, principally in markets, which act as calculating machines to maintain economic equilibrium through adjustments in price based on supply and demand.

The problem is that this model is based on a generalizing from economic behavior at a micro level, irrespective of social embedding. Therefore the scope of application is limited by the extremely narrow scale. Unfortunately, most economists ignore this limitation of scope and the significance of scale.

Macroeconomics cannot be scaled up microeconomics because behavior at the individual level is not the foundation of behavior at the macro level as is conventionally assumed by those promoting microfoundations; for the simple reason that most people's behavior is not exclusively economic but includes social and political factors as will as ideological presumptions that differ temporally, geographically, by class and according to affiliation and personal disposition.

Economics is embedded in society just as are individuals and their behavior. Social networks (systems) are comprised of individuals as elements but networks (systems) also influence individuals that are related to them, either as members or those affected peripherally. A social system is not an aggregation of individuals acting independently but rather a system in which relationships are highly influential. Therefore, economic aggregates cannot tell the whole tale.

Individuals often have conflicting interests as well. People do not always prioritize their economic interest over their social and political interests as the assumption of homo economicus posits. Their choices are influenced by personal disposition, knowledge base, and cognitive-affective biases. At a most evident level, people that belong to different political parties and their factions think, feel, and act differently, including with respect to economic affairs and interests. For example, traditionalists regularly set tradition and traditional values above economic interests such that they act "irrationally" from the economic point of view while not being actually irrational. They view themselves as acting on the basis of higher reasons.

While homo economicus may have a place in the study of microeconomics, at the scale of macroeconomics and political economy, the agent is not homo economicus but homo socialis, and homo socialis is non-homogenous and not necessarily economically "rational." So game theory does not apply in this case.

The fact that societies are complex adaptive systems, especially at the national and international levels, means that model-building is challenged by tractability. Many conventional approaches are based on introducing conventions for inducing tractability at the expense of realism, which effects the usefulness of such models in pragmatic application.

This can result in social and political disarray that is serious enough to lead to conflict. But even if it does not, it can produce in anti-social consequences instead of the pro-social result that free markets, free trade and free capital flows promise based on the erroneous assumptions.

Many economist do not stay abreast of developments in economic anthropology, economic sociology, social science in general, evolutionary theory, and other fields that impact economics. Many do not even consider institutionalism as important, and even deprecate accounting, money & banking, and finance as relevant. Even in economic matters per se, many economists dismiss or deprecate externality, market imperfection, distributional factors, etc. as relevant to their field. Moreover, the insist that the methodological debate is over and they won it — end of discussion.

Economics needs to expand its horizon to remain relevant. 

Lars P. Syll’s Blog
Economics — too important to be left to economists
Lars P. Syll | Professor, Malmo University

Lars P. Syll — The ergodicity problem in economics (wonkish)

Less wonkishly, the basic problem here can be viewed in terms of the logical fallacy of hasty generalization. Hasty generalization involves extending one's one's position, or that held by one's group, universally. In philosophy this result in claims of naturalism to humanity as a whole. For example, natural law is often reducible to a particular set of Western values that is generalized. The "laws" of economics are largely of this sort, and homo economicus as a rational agent that carries them out is basically a reflection of the economists that posited them, assuming all to be like them.

This fallacy has been a temptation from ancient times, but it culminated in the scientific age with the discovery of invariant laws of nature, in physics and astronomy in particular, in that these discoveries could be rendered universally using mathematical expressions. Subsequently, this formalism became a criterion of truth that prevailed for formalists above empirical observation. Owing to the success and prestige of the natural sciences, would-be scientists in other fields, and philosophers as well, sought to emulate the formalism of the natural sciences.

However, the great success of the natural sciences in discovering invariant lays in the ergodicity of the subject matter, which is rendered the mathematical expressions and formal models time-invariant. Lacking ergodicity of subject matter, this would not apply strictly. There is a significant difference between a general case and specific cases. In Economics Rules: The Rights and Wrongs of The Dismal Science, Dani Rodrik argues that of the art or craft of economics is being able to discern which model applies in which case. The natural sciences are not concerned with this kind of decision in the same way. There is a clear difference among theoretical science, experimental science, and engineering.

There is an old joke about some engineers and an economist shipwrecked with nothing to eat other than canned food. The engineers set about trying to figure out how to open the cans by applying their theoretical expertise and practical experience. The economist chimed with, "Let's just assume a can opener."

This actually happened in a less dramatic way. In effecting his synthesis of Keynesian and neoclassical thought, Paul Samuelson was confronted with Keynes having posited future uncertainty at the foundation of the "moral sciences," which we now call social science, including economics.

Samuelson solved the difficulty by assuming ergodicity as a methodological convenience for tractability, as had neoclassical economics in assuming equilibrium. This view became orthodox in conventional economics. The follow-up retort to heterodox objections then became, "The methodological debated is already settled." As Paul Krugman asserted, equilibrium and maximization as a framework.

This doesn't mean that economics or the other social sciences are not scientific or cannot be scientific. It just means that they are not the same as natural sciences and that making claims that approach this are unjustified.

Moreover, there is a difference between the meaning of being a science and being scientific. Being scientific just means observing the scientific method. Engineering is scientific in its approach, but this is applied science.

Being a science assumes a framework in terms of which theories can be compete. For example, the framework of physics includes the conservation laws, which are universal and independent. Of course, there is change over time in physics owing to motion and entropy, for example. But these phenomena are explained using models that data supports. The explanation (formula) is time-invariant, even though the data change.

Economics has no such framework, which is why there are competing views of how to approach economics in the first place. "The law of supply and demand" is not the same as the conservation laws in physics, and the assumption of equilibrium is not ergodicity.

Not being ergodic, economics is not a natural science, which is not the same as saying that economics cannot discover universal invariances that data support regardless of time series, economics, like the other social sciences, being historical. Moreover, social systems are complex adaptive system subject to reflexivity (learning from feedback) and emergence (change that is unforeseeable based on priors).

So the next time someone says, "Where's your model," ask them, "Which one?" 😀

Not one in business or finance takes forecasts as the same as or similar to the physics, and no one confuses weather forecasts to astronomical invariances. But economic forecasts and the reasoning which they are based are often treated as dogma in policy circles. That's a problem.

Lars P. Syll’s Blog
The ergodicity problem in economics (wonkish)
Lars P. Syll | Professor, Malmo University

Bringing science into economics must necessarily entail measurements in the scientific units. Ikonoclast

...Bringing science into economics must necessarily entail measurements in the scientific units above (plus the utilization of taxonomic schemes for biota). Thus if we assess by scientific studies and measurements that we are causing the 6th mass extinction and forcing dangerous climate change by releasing CO2 from our fossil fuels, then we have assessed that we should stop using fossil fuels. How we stop is the next matter for consideration and then we must examine energy transitions, energy saving and consumption curtailment, all in scientific and technological feasibility terms. Only real resource considerations are meaningful. Money considerations are completely meaningless. This is if we are being entirely logical and scientific.

MMT begins with availability of real resources. 

I have been arguing that the challenge presented by climate change is not so much economic issue as a matter of science and engineering. First the design problem has to be delineated based on scientific research involving measurement that conform to best practice in science. Then, a design solution, or alternatives with tradeoffs, must be proposed in engineering terms. Some of those tradeoffs may involve nominal cost, but in design problems that are regarded as existential challenges, like war, nominal cost is mostly irrelevant to purpose. 

Real-World Economics Review Blog
Bringing science into economics must necessarily entail measurements in the scientific units.
Ikonoclast

Lars P. Syll — Well-regarded economics journals publishing rubbish

Oh, my.

Science?

Lars P. Syll’s Blog
Well-regarded economics journals publishing rubbish
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Wren-Lewis insults medical science

Medicine is to science (biology) as public policy is to economics, that is, an application. Medicine based on evidence-based science is relatively successful in diagnosis, etiology and treatment of disease. Public policy based on conventional macroeconomics is nothing like that in approach or outcomes. If there were an economic science that proves itself relative to public policy, there would not be opposing political factions offering economic arguments to rationalize their conflicting positions.

If the science were "decided" as claimed, the optimal policy would be demonstrable by theory and confirmed by evidence. That is far from the case. For example, the central bank is charged chiefly with maintaining monetary stability. Janet Yellen, the former Fed chair, recently admitted that there is no satisfactory theory of inflation, so the central bank must operate based on discretion rather than a rule. 

As a result there is seldom agreement among the committee or the economists it relies on regarding setting the policy rate. They make an "informed decision" (guess) after joint inquiry and deliberation (although the committee generally follows the lead of the chair). This is the command system that purportedly sets the most important factor in economic policy according to conventional economics. 

Given the dismal record of the central bank continuously hitting its targeted policy rate while also maintaining growth, price stability and full employment (even defined down) seriously questions the so-called science behind the process. This is wizardry rather than science, prediction rather than forecasting.

Simon Wren-Lewis doesn't understand this?

If medicine were like economics, seeking medical treatment would be like going to a witchdoctor.

Lars P. Syll’s Blog
Wren-Lewis insults medical science
Lars P. Syll | Professor, Malmo University

Lars P. Syll — What’s the use of economics?

The economists' dilemma: If economic methodology doesn't base itself on assumptions common to the hard sciences, like homogeneity, additivity, transitivity, etc, then it won't be considered a real science. On the other hand, if economists ignore reflexivity, downward causation in systems, synergy, and other factors that affect individuals who are socially embedded, its output will not fit reality and it will appear lack empirical foundation, not to mention disappointing raised expectations resulting from the claim of being a "hard" science distinct from "soft" science like social science.

Maybe quit being hypocritical and 'fess up to the actual situation?

Lars P. Syll’s Blog
What’s the use of economics?
Lars P. Syll | Professor, Malmo University

J. W. Mason — The Wit and Wisdom of Trygve Haavelmo

More philosophy of economics, or foundations, if you prefer. Good read if you are into this. It runes along the lines of what amateur economist and working physicist Jason Smith has been saying about foundations.

J. W. Mason's Blog
The Wit and Wisdom of Trygve Haavelmo
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Brian Romanchuk — Can We Falsify Models With Time-Varying Parameters?

In a previous article, I argued that having unknown fixed parameters within many economic models does not create much in the way of uncertainty: just extend the range of historical data available, and we can pin down the parameter values. This article covers a related case: what if we allow parameters to vary with time? This possibility will make it impossible to make reliable forecasts with the model. However, such models have another defect: they can be fitted to practically any data set, making the model non-falsifiable. This can be illustrated by thinking about the simplest model of stock index returns. My argument that the apparent success of mainstream macro modelling techniques relies on the use of such non-falsifiable models….

Bond Economics
Can We Falsify Models With Time-Varying Parameters?
Brian Romanchuk

Model tractability. Scientific?

More on the raging debate over tractability begun by Beatrice Cherrier, if you are following it.

Lars P. Syll’s Blog
Tractability hoax redux​
Lars P. Syll | Professor, Malmo University

Information Transfer Economics
Tractability for tractability's sake?
Jason Smith

Oleg Komlik — What is Economics? Read Keynes’ definition

Keeper Keynes' quotes.

Economic Sociology and Political Economy
What is Economics? Read Keynes’ definition
Oleg Komlik | founder and editor-in-chief of the ES/PE, Chairman of the Junior Sociologists Network at the International Sociological Association, a PhD Candidate in Economic Sociology in the Department of Sociology and Anthropology at Ben-Gurion University, and a Lecturer in the School of Behavioral Sciences at the College of Management Academic Studies

Lars P. Syll — Is economics — really — a science?

The debate goes on.

Lars P. Syll’s Blog
Is economics — really — a science?
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Dani Rodrik’s Ten Commandments

Longish and detained, but worth a read if you are following this debate.

Lars P. Syll’s Blog
Dani Rodrik’s Ten Commandments
Lars P. Syll | Professor, Malmo University

Gavin Kennedy — More Criticism Of Mathematical Economic Theorising

Why economics is not a science and how it is being used prescriptively rather than descriptively.

Adam Smith's Lost Legacy

More Criticism Of Mathematical Economic Theorising

Gavin Kennedy | Professor Emeritus, Heriot Watt University

Diane Coyle — Economic observation

On Friday all the researchers in the new Economic Statistics Centre of Excellence(ESCoE) met at its home in the National Institute to catch up on the range of projects and it was terrific to hear about the progress and challenges across the entire span of the research programme.

One of the projects is concerned with measuring uncertainty in economic statistics and communicating that uncertainty. The discussion sent me back to Oskar Morgenstern’s 1950 On the Accuracy of Economic Observations (I have the 2nd, 1963, edition). It’s a brilliant book, too little remembered. Morgenstern is somewhat pessimistic about both how meaningful economic statistics can be and whether people will ever get their heads around the inherent uncertainty.

“The indisputable fact that our final gross national product or national income data cannot possibly be free of error raises the question whether the computation of growth rates has any value whatsoever,” he writes, after showing that even small errors in levels data imply big margins of error in growth rates.

This is a huge problem scientifically and one that is acute in economics since data are evidence that tested hypotheses generated as theorems from the axioms of a theory.

There are two foundational issues in economics. The first is data collection and processing in specific cases. The second is the worth of historical data.

Even using contemporary methods there is a lot of uncertainty and fuzziness. But when it comes to historical data and its use comparatively, questions arise whether this "data" has any actual value at all.

A big problem arises from the rationalistic bent of conventional economics that places great emphasis on formal modeling when formal consistency has no bearing on semantic truth. Scientific models have to be tethered to reality through definitions and then tested against evidence. This requires accurate data.

Output can be no more accurate than the precision and reliability of measurement. This requires replicability of empirical testing.

Big Data might held overcome this and in real time, but Big Data doesn't generate theory. Without theory there is no predictive capacity based on understanding in terms of causal explanation, which is considered to be a necessary condition in scientific explanation.

The Enlightened Economist
Economic observation

Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Simon Wren-Lewis — Economists: too much ideology, too little craft

One of the features of mainstream economics today is the huge diversity of models that are around. Academic prestige tends to come to those who add to that number. But how do you decide which model to use when investigating a particular problem? The answer is by looking at evidence about applicability. That is not a trivial task because of the probabilistic and diverse nature of economic evidence, and Dani Rodrik describes that process as more of a craft than a science....

Mainly Macro
Economists: too much ideology, too little craft
Simon Wren-Lewis | Professor of Economics, Oxford University

Lars P. Syll — Damon Runyon’s Law

Robert Solow destroys economics as a hard science. Of course, he is not alone in this. Heterodox economists have been pointing this out for a long time, and so have observers from other disciplines looking in. And this is not the only reason. For example, key terms are poorly specified as shown by the Cambridge capital controversy that Solow was involved in with Samuelson on the losing side.

Business schools figure this out some time ago and switched to the case method.

Lars P. Syll’s Blog
Damon Runyon’s Law
Lars P. Syll | Professor, Malmo University

See also

Adam Curtis video

Economics — nothing but an ideological paranoia

Robert Paul Wolff — Mathematics in Economics

I think it is a mistake to ask whether economists should use mathematics. That is like asking whether an electrician should use a Philips screwdriver. The obvious reply is, For what? The really interesting foundational questions in economics can never be answered by introducing more sophisticated mathematical techniques, fun though they are. Before all else, one must decide what questions economics should be trying to answer.

Fir the tool to the job, not the job to the tool. Or to put it another way, if all you have is a hammer, every problem looks like a nail.

The Philosopher's Stone
Mathematics in Economics
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Brian Romanchuk — Science And Economics

I had largely managed to avoid writing about the latest angst in the economics blogosphere regarding mathematics, science, and economics. I am not a fan of mainstream economics, but at the same time, I question some of the broad brush attacks on economics. The quest to pretend that economics can be a science like physics is doomed, and does not take into account the nature of what is being studied.

Bond Economics
Science And Economics
Brian Romanchuk

Jason Smith — Theory and evidence in science versus economics

Basic and not wonkish.

Information Transfer Economics
Theory and evidence in science versus economics
Jason Smith