Economics "is at Last a Science"

The subtitle on this article says:

The dismal science is at last a science—and the world is the beneficiary.

Here are a few parts of the article, though much is omitted, which is mostly an argument about the virtues of the market system:

Economics Does Not Lie, by Guy Sorman, City Journal: Though economics as a discipline arose in Great Britain and France at the end of the eighteenth century, it has taken two centuries to reach the threshold of scientific rationality. Previously, intuition, opinion, and conviction enjoyed equal status in economic thought; theories were vague, often unverifiable. Not so long ago, one could teach economics at prestigious universities without using equations and certainly without the complex algorithms, precise (though not infallible) mathematical models, and computers integral to the field today.

No wonder bad economic policies ravaged entire nations during the twentieth century, producing more victims than any epidemic did. ...

[Today] only one economic system exists: market capitalism. Virtually everywhere, the public sector has given ground to privatization; currency has escaped state control, to be governed by independent central banks; competition has taken wing, thanks to the deregulation of markets and the opening of borders; taxation has become less progressive, so as to encourage entrepreneurs and create jobs.

The results have been breathtaking. Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty. Even in Africa and the Arab Middle East, nations that have embraced capitalism have begun to escape from the terrible underdevelopment that has long plagued them.

Behind all this unprecedented growth is ... a scientific revolution in economics, as yet dimly understood by the public but increasingly embraced by policymakers around the globe. The revolution began during the sixties and has finally brought economists to a broad, well-founded consensus about what constitutes good policy. ...

If economics is finally a science, what, exactly, does it teach? With the help of Columbia University economist Pierre-André Chiappori, I have synthesized its findings into ten propositions. Almost all top economists—those who are recognized as such by their peers and who publish in the leading scientific journals—would endorse them (the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific). The more the public understands and embraces these propositions, the more prosperous the world will become.

1. The market economy is the most efficient of all economic systems. ...

2. Free trade helps economic development. ...

3. Good institutions help development. ...

4. The best measure of a good economy is its growth. ...

5. Creative destruction is the engine of economic growth. ...

6. Monetary stability, too, is necessary for growth; inflation is always harmful. ...

7. Unemployment among unskilled workers is largely determined by how much labor costs. ....

8. While the welfare state is necessary in some form, it isn’t always effective. ...

9. The creation of complex financial markets has brought about economic progress. ...

10. Competition is usually desirable. ...

These ten propositions should guide all economic policymaking, and to an increasing degree they do, worldwide. ...

Some critics charge that economics is not a science in the way that, say, physics is—after all, economists can’t make precise predictions, as an exact science can. But this isn’t quite true: economists can predict that certain bad policies will lead necessarily to catastrophe. If economics, a human science, lacks the precision of physics, a natural one, it advances the same way—evolving from one theory to the next, each approximating a reality that eludes our complete grasp. ...

[T]he complete realization, in practice, of the findings of economic science ... has not arrived. The free market still has enemies and critics, ranging from those who dream of a world more just, more spiritual, or transformed in some other utopian way to those who simply seek to defend their own narrow material interests to those legitimate researchers who try to look beyond the market. And we must not overlook ignorance: economic principles aren’t widely understood among the public or even among lawmakers. The indisputable fact that the world has experienced a long period of growth as global trade has expanded remains strangely unknown. Doubtless the news is too good.

In the future, the threat to the beneficent influence of economic science will come less from tired socialist revolutionary rhetoric than from new dangers, such as terrorism and epidemics. ... Terror and epidemics could both unleash political upheavals that would undermine the market order itself.

Then there’s the fear of ecological disturbances, which could result in incoherent policies that wouldn’t necessarily diminish risks to the environment but might prevent development and thus harm the interests of the poorest peoples. ...

Another danger is inseparable from the very nature of economic systems: growth is cyclical. Despite the present anxiety about a recession, the time of major global economic crises seems to have passed, in large part because the progress of economic science allows governments and economic actors to understand crises and manage them better. The Great Depression probably couldn’t happen again...: the Federal Reserve, the European Central Bank, and the Bank of England have demonstrated as much in the current mortgage crisis by supporting the banking system. But smaller crises are inevitable, bound up as they are with innovation—and as the new drives out the old in creative destruction and forces sometimes painful adaptations, we find these upheavals harder to bear as we grow more accustomed to perpetual growth.

Similarly, free trade means that some people will lose their jobs, as we all know; foreign competition can wipe out entire companies or even entire industries. We all know it because, as Friedman argued, layoffs and closings get disproportionate media coverage. Meanwhile, nobody talks about the ongoing reduction in prices for consumers and investors, scattered among a huge number of beneficiaries. That helps explain why politicians are prone to deride free trade and voters are too often ready to agree.

To help the losers in the free market, government shouldn’t back away from either free trade or creative destruction and start subsidizing doomed and obsolete activities, a protectionist course that guarantees only economic decline. Instead, it should help the losers change jobs more easily by improving educational opportunities and by facilitating new investment, which creates more employment. An essential task of democratic governments and opinion makers when confronting economic cycles and political pressure is to secure and protect the system that has served humanity so well, and not to change it for the worse on the pretext of its imperfection.

Still, this lesson is doubtless one of the hardest to translate into language that public opinion will accept. The best of all possible economic systems is indeed imperfect. Whatever the truths uncovered by economic science, the free market is finally only the reflection of human nature, itself hardly perfectible.

The place where this article appears, City Journal, is published by The Manhattan Institute:

The Mission of the Manhattan Institute is to develop and disseminate new ideas that foster greater economic choice and individual responsibility.

Since the Institute supports free market solutions to policy problems, you might think this article - which promotes the wonders of capitalism - would find a receptive audience among Libertarians. But Jeffery Tucker of the Ludwig von Mises Institute is unimpressed by this effort:

You call this capitalism?, by Jeffrey Tucker: Here is a huge piece in City Journal by Guy Sorman, the ostensible purpose of which is to herald the triumph of markets over socialism. He tells us that economics teaches this. Fair enough. But once you get into the article, you will find support for pollution trading permits, US imperial patrol of seas, central banking, bailouts of failing banks, patents, limited welfare, restrictions on insider trading, forced transparency rules, and a host of other interventions slyly mentioned in passing as somehow essential to markets. If this person were writing in say 1900, he would be considered a more socialist than capitalist in his thought, since his tendency is support every institution that was born of a market failure argument. Hey, I'm glad he is against wholesale nationalization but that's about all that can be said for this disguised treatise on behalf of the interventionist social-democratic state. If this writer ever confronted a real supporter of the market, he would probably recoil in horror and start talking like a post-Marxist: dog eat dog, the jungle, survivalist of the fittest, and all that.

I'd think there's something in this article for just about everyone to object to. For example, I disagree that "Milton Friedman’s ... 'monetarism,' considered revolutionary when first proposed in the sixties, is now common wisdom." Not exactly, unless you push pretty hard on the definition of monetarism so that it includes interest rate targeting. further than Friedman would have been comfortable with.

As another example, the article also comments on stabilization policy (in a section of the article that is not quoted above):

Governments also have the capacity to intervene and create seemingly positive outcomes when it comes to short-term growth, which is subject to incessant fluctuation. Yet the eventual effects of such interventions, which are more likely to have political than economic motivations, are always costly...

If I thought the costs of intervention to stabilize the economy exceeded the benefits, I wouldn't support these policies, nor would anyone else. If things would be much worse without the polices - suppose we had managed to bring about a Great Depression type financial collapse by refusing to respond to the current financial crisis or by responding in ways that reinforced the crisis -  then the policies haven't cost us, they have saved us from something even worse.

Your turn. Comments?

Comments

[John V]

"If I thought the costs of intervention to stabilize the economy exceeded the benefits, I wouldn't support these policies, nor would anyone else. If things would be much worse without the polices - suppose we had managed to bring about a Great Depression type financial collapse by refusing to respond to the current financial crisis or by responding in ways that reinforced the crisis - then the policies haven't cost us, they have saved us from something even worse."

Fair enough, Dr. Thoma. I understand that you see benefits in intervening to stave off a worsening of events. Granted, it's debatable whether XYZ intervention actually does work in the abstract depending on the issue but that's another matter.

My question is this:

When you talk about the Great Depression in that quote or any current crisis or the prospect of worsening disaster, why isn't it seemingly ever a matter of discussion how these problems came about and how a lack of respect or consideration for fundamentals made these problems unavoidable if not outright predictable?

Being that you quoted Tucker from the LvMI, you must read or at least peruse their daily articles. Now I know you're not an Austrian (neither am I since I'm not even an economist) but they seem to be quite often right on the mark in a general sense in pointing out...often in real time...the problems we're inviting with our well-intended interventions and large scale programs. Granted, maybe it doesn't help much in coming with quick solutions but it does seem to serve as a constant "I told ya so" to mainstream Neo-Classicals and Neo-Keynesians when government plans go awry.

To me, it's like an ounce of prevention is worth a pound of cure and they seem like the wellness or "holistic doctors" in this analogy while the mainstream guys are like the doctors chasing symptoms with one drug or pill after another and then yet another when side effects from the previous pill cause more problems.

I dunno. It's just an impression. This doesn't mean I think they're infallible or always right but they do seem to be ironically ahead of the curve by never losing sight of their basic market principles. It's not like PhD economists grounded in Austrian foundations aren't schooled in the same PhD economics that you learned. They were.

Your thoughts?

[a]

The New York Times via Naked Capitalism:

“I cannot find a single convincing argument that tells me that astrologers won’t do better than economists,” Mr. [Nassim Nicholas] Taleb said last week by telephone from Lebanon, where he was mountain hiking.

“The problem is the arrogance of these economists,” he said. “They’re making people rely on theories that have not worked, do not work, and are really dangerous.”

[Mark P.]

The debate over whether or not economics is a science is not good use of our time but if we are going to go over it again, we have to address certain facts:

"The complex algorithms, precise (though not infallible) mathematical models, and computers integral to the field today" is not really an argument for being a science. Though not the norm, you can find current scientific research that uses relatively simple mathematics and you can easily find pseudo-sciences (astrology, for example) that use ridiculously complicated calculations.

Nor does "precise prediction" have anything to do with the exact sciences, at least 'precise' as Mr. Sorman seems to be using it here. Precision in these fields involves acceptable ranges, some of which are quite large. An important special case here is hypothesis testing -- the real heart of the exact sciences -- where the data has to fall in a predetermined range in order for the hypothesis to stand.

None of Sorman's principles have gone through that kind of hypothesis testing. Most of them can't. (How do you test the statement "The market economy is the most efficient of all economic systems"?) They may be true and we may all be better off following them, but invoking the word 'science' does not make them any more valid; it just highlights the author's need for validation.

[Anarcho]

"Milton Friedman’s ... 'monetarism,' considered revolutionary when first proposed in the sixties, is now common wisdom."

ROTFL! It is, what, 25 years since both Thatcher and Reagan gave up on Monetarism after trying, and failing, to control the money supply. The net effect of their attempts? Well, to help make a recession even deeper and make unemployment explode. This higher unemployment helped break the back of labour, so stopping workers maintaining their income in the face of price rises. Inflation fell, yes, but not because of controlling the money supply!

"The market economy is the most efficient of all economic systems"

Which assumes that making the most money is, by definition, the most efficient thing to do... In other words, by the criteria most favoured by the market system, its defenders discover it is the most efficient! Now, that IS a surprise...

"Free trade helps economic development. ..."

As proven by, say, the East-Asian tigers? Or by 19th century America? Really, if science means generalising from facts then the facts would suggest that protectionism helps economic development...

"Good institutions help development. ..."

Is that code for smashing unions? Or is it code a state intervention for the capitalist class?

"The best measure of a good economy is its growth..."

In which case it should be pointed out that growth has been slowing since the move to neo-liberalism, and that it was highest during Keynesian times. And it should be noted that 19th century America saw highest growth at the same time as the highest levels of protection...

"Unemployment among unskilled workers is largely determined by how much labor costs. ...."

Shame that the empirical evidence suggests that high wages are associated with low unemployment and low wages with high. Which makes perfect sense, as workers are more willing to take strike action when there is low unemployment! But why let mere facts get in the was of economic "science"!

"While the welfare state is necessary in some form, it isn’t always effective. ..."

Does that include the large and effective welfare state for capitalists? Or is welfare purely something for working class people and, by definition, any state aid for the capitalist class is not welfare ("good institutions", anyone?)

"The creation of complex financial markets has brought about economic progress. ..."

Would that be the current wave of state bail outs we have seen?

"These ten propositions should guide all economic policymaking, and to an increasing degree they do, worldwide. ..."

Just as neo-liberalism is going off the rails, someone writes an article proclaiming its success. Well timed... Yes, this is very "scientific"!

Nothing worse than ideology trying to pass itself off as "science"...

[Mark Thoma]

John V.: When you have a serious illness, or suspect you do, go to the holistic doctor if you want, but it's not where I'm heading.

The idea, implicit in your question, that cycles only arise from, or are set up by, government intervention is not something I agree with. We have a fundamental difference in how we see the economy. You think if government just gets out of the way, everything will be great. I don't, not in every instance - sometimes government is necessary to improve the outcome. Since I disagree with your premise, and since I disagree with your characterization of how often the libertarian economists you so admire are correct in their prognostications, the question you ask is hard to address (I'm not even sure where the admiration of their forecasting abilities is coming from - it's lack of government intervention, the failure to regulate that was the problem in this crisis, unless you want to argue that these markets did not suffer from any significant departures from the competitive ideals needed for effective self-regulation -- also, your statement that nobody ever talks about the causes of the Great Depression or any other downturn is just wrong - how else can you design policy if you don't understand the cause? Of course people study this intensely). Even the phrase "never losing sight of market principles" is fairly meaningless. If you are going to intervene, you'd better know market principles inside out. How can you possibly design an effective policy if you lose sight of the underlying market principles? Sitting back and chirping government is bad, get government out of the way to every problem is easy. Blaming every problem on government is easy. You don't actually need a Ph.D. to do that, you just say supply and demand, supply and demand to everything (and then add, to be sophisticated, that we must allow p to move as fast as possible to the point of intersection - of course - government is always the problem here too according to this point of view). I often wish that's all I had to argue, it would be so easy, but markets aren't that simple. The purely competitive model is not adequate to capture what we see out there in every individual market or in aggregate. So we are stuck with the harder task of intervening to reduce inefficiencies, and using monetary, fiscal, and regulatory policies to generate both a high mean (growth policy), and a low variance (stabilization policy) over time.

Finally, a question for you. If markets work, and Austrians are always right, or nearly so, how come Austrians are such a small group in the profession? All the market incentives are there, there's no reason at all they couldn't take over, so why don't they dominate, or even make up a significant part of the mainstream of economics? Is it the evil government? Or the quality of the goods they are selling?

[reason]

Pride comes before the fall. I don't see anything in this article explaining why economics is now a science. The respect for evidence is failing. His argument seems to be that it now uses mathematics (so does astrology).

The problems then get worse starting with point 1.

1. The market economy is the most efficient of all economic systems.

(ALL? Has he an exhaustive list at hand. - And what would happen after the singularity?) Has he defined "market" economy, or efficient for that matter?

[reason]

And point 4 is unspeakably evil. That is REALLY putting the cart before the horse. It is saying that the SIZE of an economy is a measure of its VALUE. Poppycock!

[James Battin]

This article is a parody of itself. If you needed any further proof that economics is not a science and that many economists apparently don't even understand what science is, this is it. Consider the last sentence of the first paragraph, "Not so long ago, one could teach economics at prestigious universities without using equations and certainly without the complex algorithms, precise (though not infallible) mathematical models, and computers integral to the field today." Contrary to what the author apparently believes, science and mathematics are not the same thing. Science is a method of inquiry that involves the development of alternative hypotheses about the subject being studied and subsequent amassing of evidence to refute or support those hypotheses. Such empirical investigations are fairly rare in modern economics. Instead, mainstream economists generally use advanced mathematics to enshrine their ideologies and unexamined assumptions. I think (and hope) this is changing. There seems to be more and more empirical work being done in economics, but none of this work is actually mentioned by this author, who seems to believe that Calculus and the ability (unsupported by any evidence) to identify some "disastrous" policies makes his discipline a science. Economics is very long on theory but very short on the rigorous empirical study that is the heart of scientific inquiry. Until that changes, I won't be willing to think of it as a serious science.

[reason]

The correct way to state point 4 would be:

All other things being equal an economy whose GDP per head is growing is better than one whose GDP per head is not. But there are important shortcomings in GDP that need to be considered.

[reason]

Basically,
this article demonstrates a great problem with the economic profession. They think the ECONOMY is what is important, rather than the welfare of the people who make up the economy. The economy has become an end in itself. It is not clear to me that an economy that makes a few people very rich but most poorer is preferable to one that makes most people somewhat better off. Somehow Mr Sorman thinks it is clear.

[reason]

As Nobel Prize winner Edward Prescott has shown, long-term growth—in the West, roughly 2 percent per capita per year over the last century—results from capital accumulation and, above all, technological innovation, which makes labor ever more productive. States have few ways to promote this long-term trend, but those they do have are key: improving the rule of law, securing property, developing infrastructure, and enhancing the quality of education

ummm... Investment in education and science?

[reason]

Creative destruction is the engine of economic growth.

But ... you just said it was technological innovation. The creative destruction is a SIDE EFFECT.

[reason]

Unemployment among unskilled workers is largely determined by how much labor costs.

I thought it was because they were unskilled in a world that is becoming more complex. And this is just a theoretical result, the evidence is ambiguous - back to economics being a science and what that means.

Economics may be moving towards becoming more scientific, but it seems to me that is happening IN SPITE of people like Mr Sorman, not because of people like him.

[reason]

Actually, reading the footnote to the article, I wonder if the writer is even an economist. If he isn't it should be treated as slander by the profession. A non-professional claiming his view of the output of carefully hedged results from the profession as binding dogma.

[Steven Pavett]

Where is the science?

"The best of all possible economic systems is indeed imperfect. Whatever the truths uncovered by economic science, the free market is finally only the reflection of human nature, itself hardly perfectible."

His own (unscientific) reasoning is so against what he champions as to make free-marketeers, socialists and 3rd way proponents cringe together.

While liberally name dropping the greats the author shows little appreciation of their texts. He would do well to reread the books he quotes, and add some omissions such as The Great Transformation (Polanyi, 1944) and some work on the development of “human nature” such as Prehistory (Renfrew, 2008) to his reading list before putting pen to paper again and not embarrass himself further with pronouncements about what is and isn't science.

[Walker]

I second what James Battin said. All this article does is demonstrate that the author has no idea what the word "science" means. I can use the same arguments of this article to claim that numerology is a science.

[Alex Tolley]

As other commentators have said, "where is the science"? There is clearly a confusion about what science is, and certainly there is nothing in the article that offers up a example of how economics has become a science.

Just last week, New Scientist ran an article "Why economic theory is out of whack" about how the very basis of economic models - supply/demand curves might be incorrect descriptions of reality.

Just because you can describe a phenomenon with a mathematical formula, doesn't mean that the formula is describing the underlying reality. Planetary orbits could be described quite well with superimposed circles (epi-cycles), but they did not describe the true cause of orbits - gravitation. It is certainly arguable that economics works very similarly - describing phenomena with platonic mathematical ideals, rather than reality. A classic example is the use of mathematical logic of game theory to describe phenomena, yet experiments with real people show different outcomes from theory. If economics was science, the elegant maths would be discarded in favor of the experimental data which would become the test for new hypotheses and models.

Novels may offer quite realistic depictions of human behavior, but now one would argue that literature is science. Economists light like to consider themselves as scientists, but only a tiny subset are actually doing science in a way that scientists would recognize.

[odograph]

I missed the part where he showed economics was a science.

("Behavoral" might be, but only as it stays close to the study of human behavior, and does not make great untestable leaps to prediction or recommendation.)

[paine]

mark

the ten flat footed points

like a herd of pure ...red raw meat

each one a pompously served up
tenderloin of wall street

and after all this elk's club agit prop
all this trumpeting
the chumbo ends it with what ???

this ...this tender footed
humble pie
modest to the point of bathos
apologia viva
for the wall street tri-century project

"Still, this lesson
( that the best economy
is a market economy
and the best markets
are fresh raw
self grown markets
and
the best fresh raw self grown markets
the one's that burst
with juicey opportunity rich jobs ...
are ...
filled with free booting
borderless all seas sailing
capital ships
the type that without regad to anything but
their very own private profit max
make raw fesh open markets
sing like Gods choir )
YUP

(THIS LESSON)"...is doubtless one of the hardest to translate into language that public opinion will accept."

peerless understatement EH ???

"The best of all possible economic systems is indeed imperfect."
yes indeed
its a supportable proposition
that in the last 30 years
we have achieved
the highest form of institutional imperfection
in human history

"Whatever the truths uncovered by economic science, the free market is finally only the reflection of human nature, itself hardly perfectible."

and citizens of earth
is that so wroooongah ????

unbeatable

thanks for providing us
once again
with a delicious and so easily
savage-able feast

and for dessert ??

u give us

-- that is
those of us who
recall with joy
such scenes
as the charmer in kubrik's Sparticus
where the captured slave masters
are forced to grotesquely
battle each other to the death
in the training arena ---

what else but ..
the proper fate
for this corporate welfare blimp
after he's phillipicated
a thrashing by
none other then the baron wiener snitzel ...
and in high dudgeon too

note well his attack

filled with rubbery wacks at all things
big and corporate ...
all things intrinsic
to our glass tower fiends'
ruthless violations
of the planet's spontaneously grown
and otherwise virgin .....market forces

well...tis a sundae special

in particular i note with glee
this dagwood sandwitch of libertarian horrors

constructed of
new speak inversions
layered between
slices of the usual hands off bologne
and
--for the piquancy of it all--

flashs of full circle brilliance

".. .pollution trading permits (new speak)

US imperial patrol of seas (piquant 360 )

central banking (new speak)

bailouts of failing banks (old meat loaf)

patents (piquant 360 AND new speak)

limited welfare (again with the lunch spread)

restrictions on insider trading (new speak)

forced transparency rules (super new speak)

culiminating in this catch all
omnibus slab of composte

" ... a host of other interventions
slyly mentioned in passing
as somehow essential to markets"

ahhh fellow earth riders
i implore u
enjoy the self satire of it all
before the reality it implies consumes
your fleshy soul

the fatuous boss hired flack
dancing the big crow trumph dance
and for it he gets what ??
a medley of mighty odd and silly blows
from der lone ranger
zee baron WS

againthanx mark
t'is
unbeatable entertainment

[robertdfeinman]

I think the article is an excellent summary of what we might call mainstream capitalist dogma.

What are listed are the axioms of this system of belief. If you treat them as axioms then capitalist "economics" becomes a deductive form of philosophy, not a science. This gets into an interesting area, studied recently by Daniel Dennett is his anti-religous book "Breaking the Spell". He discusses the need to believe as something seen as desirable in itself.

A typical remark by a parent might be along the lines of "I don't much believe myself, but I think a good religious education is important for my children". He calls this belief in belief. I think there is some of the same psychological need seen in the dogmatic capitalists.

Now there is an alternative approach which is to consider the ten points as postulates, not axioms. In this case one needs to do testing to see if they are true or not. This testing has, of course, been going on for centuries and, unfortunately, the jury is still out. Sometimes, and in some places, certain policies based upon these ideas produce beneficial results for some group of people. Sometimes they simultaneously harm others.

Lately I've been writing (elsewhere) about comparative advantage in trade. This is a hot area right now where there is much disagreement over who benefits over trade and how these deals need to be structured, so postulate two is taking a beating. It is obviously not a truism at the present time.

I've recast it into a moral argument. If we trade and you gain a dollar and I gain a dime we are both better off, but is it a good deal? This is not a scientific question and using data will not answer it.

Then there are the points about growth being good. Herman Daly put it best many decades ago. When these ideas were formulated we lived in an "empty" world, we now live in a "full" one. I've been disappointed that there has been so little thought given to what a post-capitalist system would look like, one which is constrained by resource limits and must forgo the traditional ideas of "growth". It would seem a perfect space for French philosophers to explore, especially since they were responsible for much of Enlightenment thought in the first place. In an earlier age I guess Sorman would have been called a royalist.

[Mark]

Like other observational sciences (e.g., epidemiology and ecology), economics will never satisfy the culture of the experimental sciences. On the other hand, generalizing from controlled experimental conditions to the messy real world can be unsatisfying too.

[ken melvin]

Ancient Greece, so Shakespeare, were afore my time but lo I do remember tent meetings by Elmer's spawn and Jones' koolaid crowd and this is more mindful of those than any semblance to science or perhaps even economics.

[reason]

Mark,
but economics very often does uncontrolled experiments. And we are the guinea pigs. The trouble is, sensible measurement methods are missing, so it is all a waste.

[Mark]

Reason says "it is all a waste."

I'm not ready to turn my back on economics and other observational sciences. Arguably the greatest public health discovery in history was performed not by any scientist in a laboratory but by John Snow during the 1854 London cholera epidemic. Based purely on observational data from this "uncontrolled experiment" and without any clue as to the underlying biological causal agent, Snow removed the handle from the Broad Street pump and halted the epidemic. From this simple intervention, we discovered the need to keep feces out of the drinking water supply.

[reason]

Mark,
I meant the uncontrolled experiments that are made on us based on economic ideology, without proper tools for scientifically validating the effects.

[paine]

john v

how did the great D come about
if the keynesian diagnosis
inadequate effetcive demand is a result not a cause
what is the cause ???

wrong fed policy circa 1929-1932 ??
that is part of the mutually inconsistent convention causation narrative

whats your take ??

more along the lines of ....

the very existence of state institutions
that can create and manipulate money and its credit flows ??

give us a hint or at least a progess report
on research you buy into

[paine]

"Like other observational sciences (e.g., epidemiology and ecology), economics will never satisfy the culture of the experimental sciences. On the other hand, generalizing from controlled experimental conditions to the messy real world can be unsatisfying too."

exactly and well understated

i might at economics purports to being
a clinical science as well as observational
and its that side
the side that cries
"the point is to change it "
side
that causes most of the fuss

[Jrossi]

This article can be dismissed out of hand. It is propaganda. But is economics a science? Of course it is. It seeks to understand the world using scientific methods. It's just a very immature science--although it's getting better with the slow but sure breaking up of the assumption-of-rationality logjam. And then there is the problem of over-confidence on the part of many economists (at least the ones with the loudest public voices). Who came up with the idea of a "Nobel" for economics anyway? Premature at best. Perhaps over-confidence is inevitable given the political and salesmanish nature of the subject, but it does have the unfortunate side effect of inducing smirks among biological and physical scientists.

[paine]

robertdfeinman

"I've been disappointed that there has been so little thought given to what a post-capitalist system would look like, one which is constrained by resource limits and must forgo the traditional ideas of "growth". "

your green teeth are showing rf

one dogma tastes like another
after the first three squares
day two of an all reen diet
seems ..unbalanced

selling a workable majority
of american voters
on voluntary acts of negative growth
"less for us is more for the earth "
vis a vis
a planet where there's still rapidly growing
sets of south worlders

seems beyond unlikely eh ??

so now what ??

[paine]

btw
the whole fear of non science
creates its own non science
in the up front
academic retreat from social reality
into the eternal certainty of pure models

[paine]

"the unfortunate side effect of inducing smirks among biological and physical scientists."

who cares about the "smirks"
of
those solid state egg heads
black board astronauts
blue print bombers
buterfly netters
and tube washers

[roger]

Anarcho, that was beautiful shooting. 10 out of 10.

I think of economics as a form of conjectural history, which is how Dugald Stewart described Adam Smith's The Wealth of Nations. It is never going to be a natural science, and when it takes the aspiration to be too seriously - when, for instance, economists pretend that Say's law is a "natural" law - economics becomes pure ideological pap.

Wassily Leontieff, in 1982, wrote a letter to Science in which he surveyed 9 years worth of the American Economic Review. He found that only one percent of the economics journals used data collected by the author; half were discussions of models that used no empirical data at all, while 15 percent more were discussions that didn't use models or empirical data. In Mark Blaug's The Methodology of Economics, there is a handy chart.

Leontief is periodically replied to in economics journals, in where one can find, beneath the indignation, the full comedy of the view that economics is a science, rather than an art. This is from an article entitled, What is the critique of the mathematization of economics?

"One criticism of mathematical economics is that the axioms on which much of it rests have dubious descriptive or empirical validity (e.g., LEONTIEF [1971,1982]). The stricture then proceeds to allege that since the descriptive validity of the assumptions may be questionable, deduction from the axioms cannot have empirical validity either. Strictly, this criticism is equally applicable to non-mathematical reasonings (verbal and geometric) that follow a similar procedure rather than to mathematical deduction per se. However, since the mathematics may heighten focus on the axioms and the chains of reasoning, the issue is considered here.

The point is contentious on two main grounds. First, to what extent are the axioms of mathematical economics unreal? Second, even if they are, does this matter? In FRIEDMAN'S [1953] view, for example, the descriptive unreality of assumptions of a theory is immaterial to the theory's value."

The Friedman, of course, is the same one whose monetarism, an exploded theory if there ever was one, is hailed as a scientist in the Manhattan institute's article. Milton Friedman's dictum is well known in economics, although it would be laughed at in the natural sciences. It is one reason economists look askance at any attempt to apply falsification to economics. The reply is always: who cares?

On the other hand, economists can point to the fact that most of the times, the assumptions do converge. They converge on the idea that economics justifies the wealthy. In fact, most of the time, economics is the rhetoric used to justify unequal results and ward off any discussion of egalitarianism, and that is all it is.

There's a timely book coming out from James Galbraith - The Predatory State - that deals a nice series of blows to every item listed in the article Thoma quotes. I've just finished reviewing it for a newspaper. I'm hoping that it gets discussed on this blog.

[Lee A. Arnold]

Paine, your excellent repast omitted:

"...(the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific)."

Scientific response: Whaa? Huh?

[Mark]

JRossi: "Perhaps over-confidence is inevitable given the political and salesmanish nature of the subject, but it does have the unfortunate side effect of inducing smirks among biological and physical scientists."

A consistent finding in the expert elicitation literature is the tendency of scientists and experts of all stripes to be over-confident (i.e., to underestimate uncertainty and/or variability). For example, see Max Henrion and Baruch Fischoff (1986, American Journal of Physics, 54(9): 791-798) regarding the estimation of the speed of light between 1875 and 1960.

[Invisible Hand]

I wish I could believe that economics had arrived as a science, but I try to be an honest economist, and I can't pretend it with a straight face.

I am annually embarrassed when the Nobel Prizes are announced. The awards for medicine, chemistry, biology, etc are usually for important and impressive achievements, while the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work.

[paine]

la confidential

you be way right

that is worth a belly roar
the stigster may have advanced THE SCIENCE
more then any feller under 70 alive today

[James Battin]

Mark,
I don't think the problem is that economics is an observational science. It's that economics as a discipline (and there are certainly exceptions to this) doesn't do much observing. Good science can be done with observational data. It's hard, especially when dealing with human subjects, but it can be done. Sometime early in its development, economics took the road of revering mathematically expressed theoretical models and eschewing data collection and experimentation. As of today, the institutional culture of the discipline values math skills over scientific skills. Interestingly, the science that is being done in economics often undermines the assumptions of those lovely mathematical models. (Are people rational actors? In many cases, no.) Is it any wonder there's resistance to doing more economic science?

[paine]

nice post roger

ole dug stewart indeed !!!!!

might suggest
a social science
has its artful applicator- practitioners
and its
rationalizing system redesigners

my touch stone

mao's 'on practice '

[SGC]

My view: Sorman left out all the qualifiers that make his statements ones that economists would actually agree with:

1. The market economy [combined with regulation/taxes to address natural monopoly and externalities] is the most efficient of all economic systems [developed to date]. ...

2. Free trade [can] help economic development [but there are always exceptions]. ...

3. Good institutions help development. ...
{This one's correct, but circular, since presumably good institutions are those that help development.}

4. [We don't have a better] measure of a [healthy] economy [than] its growth [rate]. ...
{If he can find any economist to endorse the accuracy of a sentence that includes the word "good", I'd be surprised. Econ 101: positive vs. normative.}

5. Creative destruction is [an important] engine of economic growth. ...

6. [Some] monetary stability is necessary for growth; [excessive] inflation is always harmful. ...
{Now I've gone and made the logic circular. Aside from the gold bugs, I don't know of many who think 2% inflation is a problem.}

7. {Huh! He's trying to get at the idea that a minimum wage generates unemployment, but this statement is not the way to do this.}

Unemployment among unskilled workers is largely determined by how much labor costs. ....

8. While the welfare state is necessary in some form, it isn’t always effective. ...
{Of course, not much is always effective.}

9. Complex financial markets [are an important infrastructure underlying] economic progress. ...
{That we couldn't have the growth we do without the financial structure we have, most would agree with. That the creation of financial institutions caused the growth, no way. A heck of a lot of economists believe either that growth caused the insitutions to develop or that there's no way to determine the causality from one to the other.

Furthermore, there's this little issue of what Sorman means by complex. Modern derivatives are something most economists don't understand well enough to have an opinion about.}

10. Competition is usually desirable. ...
{He remembered to include the qualifiers in this one.}

[paine]

"As of today, the institutional culture of the discipline values math skills over scientific skills"

model construction requires no necessary confrontation with social reality
ivory towers are fairly feeble sources
of policy advance

but then again there are always
"the never so few "
who often not only pre figure much
(pigou and i hope soon lerner-vickrey)
but
actually make real time policy
and even on rare occasions
atlas like revolve the entire social planet (keynes)

[paine]

"the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work"

that line is total horse shit ....
at least one third of the time

[Bruce Wilder]

Mark: ". . . we discovered the need to keep feces out of the drinking water supply"

Not, we might add sardonically, for the first time.

Human beings are natural story-tellers and belief machines. We had doctors before we had medicine, and scientists before we had science: astrologers before astronomers, alcemists before chemists, magicians before engineers -- we even had the physiocrats and the mercantilists before the economists. Before physics assumed her throne, theology claimed to be the Queen of the Philosophical Sciences.

If we could just fill our blank slate with discovered knowledge, bit by bit, that would be one thing, but that's not what we do. Our slate is full -- we fill it up compulsively and keep it full, no matter what.

I could say that science struggles to emerge out of the swamp of religion, if I wanted to insult religion. But, that metaphor does not quite capture the dynamic, demonstrated in Guy Sorman's article, or our perennial discussions.

Analysis and fact struggle to survive and expand their range in the over-crowded psychic ecology of human story-telling and belief. We need our fables and parables, and moral imperatives.

My point is that arguing about how far economics may have progressed as a discipline toward becoming a "science" distracts us from recognizing the important ways in which economics is, and must be (!), a religion.

Sorman's Ten Propositions, like Mankiw's, are religious admonitions. This is economics as religion, a call for shared devotion to common adherance, in the imperatives of a public ethics, with the expectation of worldly reward in common.

I don't doubt that Sorman is right about one thing. A majority of economists do want to adhere to a common Orthodoxy, and to inform the world with imperatives for right thinking and right action. And, maybe the world does need a political religion (or several), enriched with the insights of economic science.

In our current banking crisis, people (including me) argue with religious fervor and righteousness, for a well-directed wrath. Isn't that economics as religion?

What should the relation of economics as a body of logical analysis and factual knowledge, be to economics as a religion or ideology of public policy imperatives?

[paine]

sgc
you effectively neutered
the manhattan prostitute's list

thanx
he was wantonly passing around
MTMMDs
media transmited market meme deseases

[paine]

BW
do u choose to call
the good ole econ con system
a religion vs
the more generic word ideology
because of the analogous quality
of econ con's institutional and personal "practice" ???

[anne]

Economics is a science and long has been, only not the sort of science that physics or chemistry is or the other sort of science, biology. As a philosophy of biology was needed to describe the nature of the science, rather than leaving it as a conjectural sort of physics, so too a philosophy of the social studies clarifies that natures of the social sciences.

Though I am not going to bother looking up the term "dismal science," I believe the term is highly regrettable in origin and should not be used. Was it Carlyle, possibly? I am always ill-disposed to any writer who uses the term.

[robertdfeinman]

OK, paine it is time to discuss "green".

There is a school of thought that says the world is already over consuming. Either you believe this or you don't. I tend to believe it because a) I've seen their studies, b) the population has exploded and is continuing to do so and c) we are currently in a panic about running out of resources.

So, let's be prudent and assume we are over consuming. First we have to define who "we" is. As I've cited many times the US is 5% of the population and consumes 40% of the resources. So simple math will show that the US is a significant part of the problem. Then we can add in the rest of the developed countries and those pockets elsewhere where the consumption is at western levels.

This means not that "China" is over consuming, but that the newly prosperous class within China is. The same goes for oil sheiks and oligarchs elsewhere.

So now that we know who is over consuming the question is what to do about it. Once again there are two possibilities. Those doing well at present favor doing nothing. The excuse that they give is some variation of Malthus was wrong before, so neo-Mathusians will be wrong as well. This is, of course, an elementary logical failure, but it sells well at the WSJ.

The other reason given for doing nothing is a variant - technology will find a way. Perhaps it will, but it's like the fable of the grasshopper and the ant. Prudent people (societies or even the world) plan for winter, the rest fiddle during the summer and hope for the best or die.

So, since the technology does not yet exist and the population is not projected to decline anytime soon there is only one thing that can be done - consume less. Now your opinion is that Lexus drivers won't be willing to sacrifice and neither will those driving Fords. At the present time, with the pandering type of leadership we have, that would seem to be a reasonable assumption, but I'm an optimist.

I claim that the people are starving for real leadership and not just "change", but leaders that will demand things of the public. The British were just as complacent and living just as superficial a lifestyle before the wars, but their leaders told them to sacrifice and they did. It even made society feel better about itself.

If the leaders ask people to sacrifice for the sake of the future they will, all they need to do is ask.

If you like we can discuss what form this sacrifice may take, but that is probably a discussion for another day or place.

[paine]

a revealed non demonstrable set of truths
and a persevering faith
aren't they both necessary
to say
"i got religion" real religion
not merely an external compliance

but faith in a undemonstrable revealation is
not necessary for
certain political ideological convictions

the two properly oughta start
with a leap ...a conversion...a born again moment
where a whole is taken on the evidence of a part

but faith demands no back sliding
all doubt must be sublated

i suspect unlike believer to his toes me
you can't ever sublate your doubt

[paine]

anne
claims economics is not
a physical or a life science
but a social science (the substitution
of the word study for science at te last step
reveals her dismal scenics....her harvard back drop)

[paine]

"If our leaders ask us to sacrifice for the sake of the future we will, all they need to do is ask us"

in this modified form i agree completely

and your brit example
of collective material sacrifice
is well taken and could be multiplied by
the addition of many more

but the why
of the sacrifice
is the problematic here
ain't it ??

the rits sacrificed for their empire at worse
and their green and good england at best

your why behind the sacrifice
is a very different fish indeed

more like wilson's
make the world safe for democracy
now i ask you
that fateful spring
could our proposed entry
into the great war
have won a national referendum ???

absent a pearl harbor ....

what's the green goes brown pearl harbor here ???

[john v]

Dr. Thoma,

Thaanks for your response (sorta). I was hoping you would have transcended the temptation to intentionally weaken my point by taking it as a business cycle generality pushed to black and white absolutes for easy dismissal.

But I guess I should have cited some specific real time examples of what I meant by getting to the root of the problem.

Take my question and apply it to the housing bubble and the current financial crisis with Freddie and Fannie. I'm sure you know the arguments. After reading some critiques about the nature Freddie and Fannie and the similarities with the S&L crisis, this current problem seemed entirely predictable.

[paine]

john v
you get to the threshold and once again stop

as you're about to get wacked for
take a concrete position
you squirk ink like a squid
and dart back into your reef hole
at least if you are ultimately
ready to hide out in eternal dusk
admit it
admit you're just grey on grey
there's nothing you'll stick to
stop gesturing like you
are going to take a real position
and defend it
and then for the nth time pull the squit exit

i appreciate the delight you must take
in feeling you've tossed in a monkey wrench here and there
you know lured us into
your play pen of quick sand

will the naked john v please stand up

[piglet]

"The results have been breathtaking. Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty."

What is breathtaking is the deliberate dishonesty of that author. "Opening economies" in Eastern Europe caused unprecedented misery in many of the concerned countries. Russian GDP was cut in half, poverty became rampant. Yes, economics has proven itself to be a science - on the level of alchemy and astrology.

[piglet]

Mark P. has made an excellent point that I wish to reinforce. The author, apart from being blatantly dishonest, shows that he doesn't adequately grasp the concept of science. He produces a number of economic maxims that could best be described as rules of thumb ("Competition is usually desirable"; "Good institutions help development.") and presents them as scientific "propositions". They aren't, because they aren't falsifiable. No statement can claim to be rigorously scientific unless there is a way to put it to a scientific test. Vague rules of thumb do not fall into that category, and in fact they are a characteristic of a lack of scientific rigour.

With friends like that, economists don't need enemies.

[piglet]

reason: "The correct way to state point 4 would be: All other things being equal an economy whose GDP per head is growing is better than one whose GDP per head is not."

You could state it that way but it would still not be true. The trouble starts with the fact that there is not, and cannot be, a generally accepted, exact definition of the terms "good" and "better". And even if you had such a definition, there is no way that it would coincide with GDP growth *unless you define it that way to begin with*, which would constitute a circular definition. And the "all other things being equal" clause is either impossible or self-defeating - if all other things really were equal, then GDP growth wouldn't make a noticable difference so why bother?

Actually, it is a waste of time to try to save these absurdly vague rules of thumb. Let's all agree that this is an embarassing article and move on to something more productive.

[robertdfeinman]

Paine:
I believe (notice that word) that people are programmed to want to do things for the sake of their descendants. Of course the closer generations are worth more psychically.

We have plenty of evidence, the most common being immigrants who endure horrible conditions (viz US right now, for example) and when asked why they say "I want my children to have a better life then I did".

It's a powerful appeal and doesn't require Pearl Harbor or a Nazi menace to bring out the best in people.

I'll cite another example, the appeals of JFK and others of the era. There is no reward to joining the Peace Corp or VISTA or any of a number of similar projects except the psychic one of feeling you are helping make the world a better place.

Selfishness is now the state religion and people are substituting tangential social concerns because they have no avenues to help with the big issues. This is why gay issues, or phonics for teaching reading, or posting the ten commandments get so heated. People want to make a statement that they care, but are forced into narrow areas to do this.

I think we have reached a high peak now with the two candidates looking at everything from the color of one's shoelaces up, rather than address policies. Mediocre politicians run mediocre institutions.

[piglet]

Mark: "Arguably the greatest public health discovery in history was performed not by any scientist in a laboratory but by John Snow during the 1854 London cholera epidemic. Based purely on observational data from this "uncontrolled experiment" and without any clue as to the underlying biological causal agent, Snow removed the handle from the Broad Street pump and halted the epidemic."

That is a nice example but observe that it can be interpreted as successful scientific hypothesis testing. If the epidemy had become worse after removing that handle (and this can be measured unambiguously), the test would have failed.

Now what would be an economics analogue to that example? The example that comes to my mind is economists recommending that developing countries slash their public health budgets in order to stay solvent and keep up debt service. How did that experiment fare? Cholera epidemics reappeared in several countries. What did the economics profession take from that experiment? "The market economy is the most efficient of all economic systems." "Creative destruction is the engine of economic growth." Etc.

[paine]

"People want to make a statement that they care, but are forced into narrow areas to do this"

really really good point

in fact a platform
for re evaluating
the stolid post nam
white masses of amerika

[Bruce Wilder]

"faith in a undemonstrable revealation"(paine) is to take religion on science's most crabbed terms.

It is not the revelation, and certainly not the lack of demonstration, which grounds the personal and social necessity of religion. Religion, on its own terms, isn't grounded in a faith in the unverifiable; religion on its own terms, finds its ground in the certainty of death. (I trust you feel no compulsion to verify that any time soon.)

The mythos of religion is an attempt to give a meaningful moral order to chaotic inner experience.

Economics has a quasi-religious aspect, in that economists are asked to interpret a chaotic public, shared experience of economic life -- a shared experience that seems as inexplicable and unpredicable as the weather. Inflation, housing bubbles, unemployment -- these are all beyond the individual's control and full understanding. And, economists are asked to explain, and to reinforce moral shibboleths.

Marx's Hegelian evolution through class conflict was as clearly a religious mythos as any ever proposed, and functioned to give people a mission, making meaningful the structured habit of daily life of striving, in relation to the life of the larger civilization.

Sorman's proclamation that the One Catholic and Smithian faith has emerged triumphant and militant is pretty thin soup. But, it is a religious, not a scientific soup. If economics is going to have a religious function, perhaps we should work at making it a better, more functionally satisfactory religion.

[Bruce Wilder]

I should amend the above to say, "death and suffering", for it is the meaning of suffering that is the preoccupation of religion.

The importance of "sacrifice" is another preoccupation.

The "idea" of sacrifice as a means to an end, I would guess, has a genetic basis. "Sacrifice" is instinctual for humans. We have no idea why we want to "sacrifice". But, religion tries to make good use of that instinct. Ditto, economics, qua religion.

[Mark]

Piglet: "That is a nice example but observe that it can be interpreted as successful scientific hypothesis testing. If the epidemy had become worse after removing that handle (and this can be measured unambiguously), the test would have failed."

Purists would reject drawing any firm conclusion from Snow's intervention due to the lack of a control group, much as they reject drawing conclusions from other "naturally occurring" experiments.

"Practical men proceeded to preserve foods while the savants continued to dispute spontaneous generation."
--Davis et al. 1967. Microbiology.

[Mark]

I should qualify the above. Assignment to the "treatment" and "control" groups (different drinking water supplies) was not random or complete.

[Alex Tolley]

BW: "The "idea" of sacrifice as a means to an end, I would guess, has a genetic basis. "Sacrifice" is instinctual for humans. We have no idea why we want to "sacrifice". But, religion tries to make good use of that instinct."

What is instinctual about "sacrifice"? My understanding that one value of religion was to try to get a group to believe in a common idea in such a way that the individual would potentially risk death to preserve the group. This makes sense in wars when fighting together will be more successful that individuals escaping to save themselves while others fight. Of course you don't need religion to do that, but religions seem to have taken on that role.

Organized religion, especially Christianity, has promulgated teh idea that earthly suffering is OK, because the afterlife will reward you. This is a clever control mechanism to ensure that order does not break down. I can certainly identify with BW's suggestion that some economic propositions are almost religious in their definition and that governments or plutocrats might wish to inculcate them in the general population. Suggesting that there are winners and losers, that the economic rules should be obeyed for the benefit of the greater society sounds like a familiar refrain from the medieval church.

[piglet]

Mark: "Purists would reject drawing any firm conclusion from Snow's intervention"

Scientists, in general, reject drawing firm conclusions from any small set of observations. That doesn't make observations either worthless or "nonpuristic"; it just means that scientists understand that observations alone don't make a successful scientific theory, although they are indispensable for hypothesis testing. Moreover, scientists stress that even a theory supported by a large body of observation may be refuted by just one more observation, although this "puristic", Popperian concept is not necessarily the way science advances in the real world.

Now, what was your point again? Do you mean to say that informal trial and error is a more productive way towards understanding the world than the meticulous work of rigorous scientists? If that is your point, I would respond that this is a false and unproductive dichotomy. In any case, this digression appears to offer little insight into the question of the scientific status of economics.

[Alex Tolley]

anne: "Economics is a science and long has been, only not the sort of science that physics or chemistry is or the other sort of science, biology."

Could you elaborate. Could you make clearer the features of economic study that either adhere to what we call natural science, or the type of science that economics is? Good idea to not talk past each other by defining terms that all sides can agree on.

[Alex Tolley]

Mark P: "The debate over whether or not economics is a science is not good use of our time".

If economics is a religion (I wouldn't go that far), then it would be very worth the time to determine if we are following a scientific process or a religious one.

[Alex Tolley]

The issue of what economics can be useful for (and maybe where it isn't) is illustrated in yet another piece by Bjorn Lomborg in today's WSJ. Yet again he uses economics to suggest the best ways to allocate resources for global issues (In this piece he thankfully has abandoned GW as a waste of time, but does advocate R&D on new non GHG energy technologies).

However, economics cannot necessarily talk about which issues to allocate resources to. If we ignore GW, we might spend resources for more immediate benefit, but lose the planet as a human habitat. Very much in the rearranging deck chairs on the Titanic scenario.

It is still very much worth asking the question whether maximizing wealth/productivity/pick your econ. term is most desirable goal for humans. maybe it is something else entirely and a different culture might value something else as the most important goals for society.

[paine]

bruce w

the timber she grow mighty tall here

but i suspect i only wish you'd use the generic notion of ideology
for such shared characteristics
as systems such as calvinism and leninism share

a religion is a faith based ideology indeed

example
any claim to
an after death after life
clearly must be a revealed truth eh ???

example
leninism an ideology
but not a religion
because by your def
leninism as a historic mission type claim
has no need
to directly
confront what might exist
for each of us
"beyond deaths door "

okay Karl i know
THE L TEAMS stateless society
and
THE C TEAMS'S second coming

bring both of these ideological systems
to A MOMENT OR PERIOD OF ..demonstration....

but one that is postponeable by unlimited epicycles

[ken melvin]

philosophíaeconomics

[john v]

Paine,

I'm merely rephrasing my question to Dr. Thoma. And yes, it is a genuine question. There's no need to believe that I'm trying to throw a wrench in anything and I'm not avoiding taking positions. I'm asking questions. You too fixated on whether or not I take a clear position every time or any time I post something.

[ken melvin]

Sacrifice is an offer; a form of trade.

[Mark]

Piglet,

First, the size of the data set is entirely separate from whether experimental control is present. Second, regarding my point, as I stated earlier, economics and other observational sciences will never satisfy the culture of the experimental sciences. However, despite the physics envy and other symptoms of self-loathing commonly exhibited in the social sciences, experimental science (where I received my training) has no unique claim to truth and virtue. In the end, whether economics satisfies an arbitrary definition of science is irrelevant. We need the insights from economics to help guide our decisionmaking.

[paine]

john v
i shan't trouble you after this
cause it eems i got thru

take a position and stick to it
go ahead ask your gadfly questions
till the sky falls in

but just once take a position and hold it
till it gets the scrutiny and critique it deserves
mark t
did not black and white your position
on the great D
in Your comment
the big D is a star in quest of a causal origin
so by your own outline
what causes BIG D's is on point
and the austrian view is briefly and orrectly outlined by mt

so just what are you claiming you know

will you take a position on what caused the big D
uncovered by the neoclacks or the keynes kids
that is played a signifigant causal part
if not in whole

re read your comment and his reply
you simply evaded
that part of his answer
that addressed a big chunk of your comment
and hid behind the lesser points

again
just for once take
a position clear enough
it will surely provoke a counter position

[John]

Those list of propositions don't make economics a science, they make it an ideology. Economics will never become a science as long as economics persists in making pronouncements of what is good and bad. Economics will only become a science when it restricts itself to examining and understanding how economic systems behave.

Science never makes pronouncements about what is good or bad. Science observes what is, not what ought to be. When a scientist talks about averting global warming or preventing nuclear war, he simply uses his knowledge of the facts (the science) and (hopefully) ordinary common sense (separate from science) of right and wrong.

Is economic growth really a good measure of how the economy is doing? How about waste? Consumption of nonrenewable resources? Leaving our grandchildren a wasteland? If economics is competently done, it should be informed by the laws of physics and the facts of nature.

The free market as the most efficient economic system? That's a very strong claim -- an extraordinary claim, in fact. For that matter, what is the free market? I think that if the free market is objectively viewed, it will be seen as a form of ecology wherein everything begins as anarchy but coalesces into competing warring tribes and eventually government.

[Alex Tolley]

Mark: "However, despite the physics envy and other symptoms of self-loathing commonly exhibited in the social sciences, experimental science (where I received my training) has no unique claim to truth and virtue. In the end, whether economics satisfies an arbitrary definition of science is irrelevant. We need the insights from economics to help guide our decision making."

Experimental science may not be the be and end all, but it one of the few self-correcting methods we have. Even astronomers needed the experimental data of atomic physics to model stars. The absence of previous experimental data is one of the reasons for the surprise of "dark energy" which appears to have emerged from observations of the expansion of the universe.

When you decouple your explanations of nature from experiments to guide you, you end up with an intellectual framework built on sand. My sense of economic di8scussions is that they often are grounded in idealogy, not data or tested models as a bedrock.

To take a simple example. Supply/Demand curves are taken as given, but they are a formalism based on the underlying nature of the availability of profitable opportunities for the supplier and the preferences of the consumer.s Change that fundamentals, and the shape of the supply/demand curves changes. So we end up with a zoo of curves depicting different scenarios. Let's take the current oil price. The assumption is that the high price should generate new supply, but that completely misses the underlying reality or whether new supply can be made, whether the controlling participants want new supply, etc. etc. The neat mathematical formalism becomes the enemy of understanding.

[john v]

Paine,

You're in a world of your own. Nevermind. :(

[roger]

I'm not sure why we should assume all of the different areas of knowledge we cut out of the world correspond to sciences, much less science like physics. The aim of reducing all natural sciences - for instance, biology - to physics, even, has floundered, and been given up since the early sixties by all but the crustiest positivist as a rather empty promise.

I'm not sure I agree, though, with this from John: "Economics will only become a science when it restricts itself to examining and understanding how economic systems behave." Unlike physical systems, however, economic systems are much harder to designate. They certainly aren't given. For instance, is having a child an economic act, existing in an economic system? Is answering a stranger's query for directions as one walks down a street an economic act? I can pretty confidently say I know, at least, what is meant by a physical system, but I have a much harder time recognizing economic systems. And even if we agree upon them, why should we think that they are autonomous enough to be explained by an economics that posits rational and interchangeable players, rather than, say, social psychology? When Tversky and Kahnman show that few people have an intuitive grasp of the probabilities upon which rational choice theory builds its outcomes (without rational choice theorists ever having paid attention to the mere human ground of their models) or when the ultimate game shows us people choosing to sacrifice for fairness - are these economic facts?

I don't see how economics will become more or less scientific than it is right now. Everything that has been said against Sorman's article repeats Walter Bagehot's cautions about thinking the English Political Economy is universal, which he place in the preface to Postulates of Political Economy. Bagehot was a free marketing, free tradin' kind of guy, but he wasn't fooled into thinking that either the value judgments or the assumptions of the Political economy were anything more than an expression of a particular economic arrangement in a particular culture. Bagehot takes, for instance, what he calls the "transferability of labor" - a free labor market - and says "in most ages and countries this tendency has not been victorious but defeated; in some cases it can scarcely be said even to have existed, much less to have conquered. If you take at random a country in history, the immense chances are that you will find this tendency either to be altogether absent, or not at all to prevail as it does now."

However, to add what Bagehot didn't, you can take any country you like and go back as far as you like, and you will find gravity. Particles. You will find natural selection.

We are obviously dealing with different kinds of phenomena here.

[ken melvin]

I suspecy economic systems are more like Mandelbrots or fractals than science, or, perhaps, more like the science of chaos. Weather forecasting, a few years ago, was hit and miss. Today, they are usually right.

[paine]

roger you had me reading carefully...
till you pulled that pompous old vic jack rabbit
walter B
OUT OF YOUR TRICK HAT

EXAMPLE

"If you take at random a country in history"

any the history of human state society
is a series of one offs
a structured interconnected series
which taken as a whole
is indeed self explanatory
but no less and nothing else will help

rude empirics fail miserably

we've had three independent human worlds
(maybe a few short runners too )
over the past 50k years

australia

the americas

a short runner ??
maybe parts of sub saharan africa

and of course
"the world"
the vast old world
of eurasia and north africa

only the americas gives us
even the rudiments of a parallel independent experiment
in human social development
at the critical cusp between pre state and state society

three independent histories ???

and what universality can we confidently gleen
from the mere observation of that paucity
of "data points " ???

take a country at random indeed walt ..you old imaginary horse trader

free labor as wehave today
was impossible in most worldly parts
much before the 16th-17th century
and then only really in europe and its colonies

bla blah blah

bagehot go to bed !!!!

[paine]

ken are you sure you want to say
econ con
is like the science of chaos ???

the global weather system though purely physical
does share a similar level of variability and complexity
or
at least a similar multitude of "causal units"

but society has orderly means
even in its anrchy
that ar non eternal
and un-availible
to non" brain" based systems

one damn thing after another
which if it has a determination
it is only emertgent at a level of detail beyond our aility to observe gather and compute ??

[John]

It's possible that my phrase "economic systems" might not have been the best possible choice of words. I simply meant that economics should stick to predicting the facts (including behavior) and dispense with the value pronouncements, such as this: "If people find themselves unemployed and impoverished, that's the free market in action. Therefore, the situation should not be opposed."

Roger: "And even if we agree upon them, why should we think that they are autonomous enough to be explained by an economics that posits rational and interchangeable players, rather than, say, social psychology?"

Another thing Economics has to do to become a science is to abandon certain premises when they are false. So economics really should abandon the presumption of rational and interchangeable players, and instead be informed of the results of social psychology, cognitive science, ecology, marketing and advertising, and so forth. Many people behave irrationally at times, doing things that they later wonder what the heck possessed them to do. Many of these acts involve economic transactions.

Also, it's been repeatedly proven that groups can be irrational even when the individuals composing the group are all acting rationally. Sometimes, group behavior is not merely irrational but actually chaotic, even when individual behavior is rational.

Is a person refusing to comprehend something because his salary depends on him not comprehending it behaving rationally? Hard to say.

All of Roger's examples should be incorporated in theories of economic behavior.

[piglet]

"In the end, whether economics satisfies an arbitrary definition of science is irrelevant."

Sorry Mark but that is too easy. We are not asking for an arbitrary definition of science, we are asking for the very concrete definition of what makes economics a science. To date you have only told us what economics is NOT (an exact, experimental science) but we want to know what it IS, and how that fits scientific requirements. One start would be a comment on the article that started the thread: what is your take on the idea of "economics as science" put forward by Guy Sorman, and his list of "propositions", or trivialities, or dogmas, that he cites? You have seen heavy criticism from almost everybody in this forum, what is your take?

"First, the size of the data set is entirely separate from whether experimental control is present." Astronomy, evolutionary science and others rely heavily on observation in non-experimental settings. That doesn't make them unscientific. I see no reason why economics couldn't similarly be based on extensive observational data enhanced by experimental settings. One of the most frequent criticisms of economics is, however, that economic theories often appear to be immune against empiric refutation, which is certainly true for Sorman's ideological list (*). See, for example. Anarcho's comment with his list of empiric examples calling into question the claim about "Free trade helps economic development". Why don't you address that type of criticism? Whatever you say about "arbitrary" definitions of science, the requirement that scientific theory must be open to empiric refutation is indispensable.

* To avoid misunderstandings: Sorman's propositions are irrefutable in the sense that they are vague. Once you make them reasonably precise, most of them would have to be regarded as empirically refuted. Or, you make them precise but attach so many conditions that they become trivial.

[Patricia Shannon]

From an interview in the March 2007 issue of Discover Magazine, of Jane Goodall.

Q. If chimps are so much like us, why are they endangered while humans dominate the globe?

A. (Jane Goodall) Well, in some ways we're not successful at all. We're destroying our home. That's not a bit successful. Chimpanzees, gorillas, orangutans have been living for hundreds of thousands of years in their forest, living fantastic lives, never overpopulation, never destroying the forest. I would say they have been in a way more successful than us as far as being in harmony with the environment.

[ken melvin]

For weather the model says, if these things are gibbons, this is the likely result(s). If some fool decides to seed the ocean, model no damned good. Bassackwardly, for economics, if fools control these gibbons, the more likely some set of results.

[piglet]

"The issue of what economics can be useful for (and maybe where it isn't) is illustrated in yet another piece by Bjorn Lomborg in today's WSJ. Yet again he uses economics to suggest the best ways to allocate resources for global issues"

This example raises two questions. First, is economics really equipped to solve that type resource allocation optimization? Are there examples of when this has been done successfully on the scale that Lomborg purports to do it?

The second question is, how come that economists so often claim not just to be able to help with the optimization question, but also volunteer their ideas on the underlying ethical and policy decisions? Because that's what they are doing, at least in the Lomborg scenario. For example, they tell us how we should evaluate future lives destroyed or disturbed by Global Warming against the loss of comfort we'd have to face to curb GHG emissions. That is a purely ethical question and there is nothing that scientific economics can tell us about it. Why isn't this obvious to the practitioners of what is supposed to be an objective science?

[Patricia Shannon]

Professor Ravi Batra predicted a depression in 1990, based on his study of the "Great Depression". The depression of 1990-1992 wasn't as bad as he predicted, but we may be entering such a depression now. He attributed the great depression to the concentration of wealth in the hands of the few. These people, having so much more money than they needed, made risky, unsound investments. Sound familiar?

He later came to acknowledge the role played by the fact that the masses had little buying power. Henry Ford was able to calculate that paying his workers more would result in his making more money, because of the resulting increase in the number of cars that would be bought, but economists of today don't seem to be able to understand that. Is that progress?

[Patricia Shannon]

http://www.texasmonthly.com/preview/2007-02-01/bookinterview
From the February 2007 Issue

Best-selling author Ravi Batra on economic prosperity.

by Mike Shea

In The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos, the best-selling author and Southern Methodist University professor of economics expounds on corruption and the keys to global prosperity.

Your new book identifies a laundry list of global economic problems. Can you single out the most worrisome?
Ravi Batra: The single most worrisome global economic problem is the housing bubble that now exists not just in the United States but also in many other countries including the United Kingdom, France, China, India, Australia, and others. By itself the bubble need not be catastrophic even if it bursts, because housing is very different from other investments, but unfortunately the U.S. bubble has been primarily financed by foreign money. When the American bubble starts to burst around mid-2007 and beyond, foreign investors will head for the exits;

[sk]

Economics is a science ? That man is fooling himself - I think this summarizes my view:

“I cannot find a single convincing argument that tells me that astrologers won’t do better than economists,” Mr. [Nassim Nicholas] Taleb said last week by telephone from Lebanon, where he was mountain hiking.

“The problem is the arrogance of these economists,” he said. “They’re making people rely on theories that have not worked, do not work, and are really dangerous.”

Sorry, I don't want to diss you, Dr. Thoma, in your own blog at that, so please exclude yourself for the category.

-K

[roger]

Ah, Mr. Paine... in the standard form of chess, the players have distinct sides and go at each other until one side wins. But in the Machiavellian version of chess, you persuade the queen to betray her king. Thus, taking that Victorian Jack, Bagehot, and turning him against the side that usually quotes him is a good thing! If you don't trust me, trust Niccolo.

John, I agree with you about the rationality thing - except that I think it isn't that people show irrationality so much as that rationality is not defined by a single variable - "gain more stuff." There's also, for instance, "be more fair." There's nothing irrational about it, but it leads to different strategies which economists would call inefficient or irrational. I would just call them - optimizing fairness. If you define rationality strategically, letting human behaviors and sensemaking define the values, you will be able to use "rationality" in a less fumblethumbs way.

[Lafayette]

Nice list. But one SERIOUS omission.

Not a word about Income Inequality. Just oversight? Or ambivalence?

[Lafayette]

Debate

piglet: Why isn't this obvious to the practitioners of what is supposed to be an objective science?

What makes you think it isn't.

Science is as science does, it is not intended to either prove the existence of a supreme being or the necessity of social morality. These are to be found in two co:existing spheres of human intellect.

We humans employ political economy to debate the usefulness to society of a social morality (matters like Income Inequality). We also employ econometric modeling to understand the ways and means of an economy.

We shouldn't confuse the two. And to a large degree we don't. Stiglitz, Sachs, et al., go beyond the science to argue for social fairness in the world. It is their inherent right to do so. There is always the Cato Institute to give other views of how political economy should be applied. The debate rages, as well it should.

Like any subject, science or not, there are schools of thought that argue for the supremacy of their ideas/notions. That's debate. Let's consider ourselves lucky that it exists.

Otherwise we'd be living in a totalitarian regime.

[BJ Feng]

Rational means you act in a predictable manner. If you gain more happiness/benefit/utility from giving $5 to a beggar on the street than spending it on beer, then it's assumed that you will again do the same thing under the same circumstances.

Economics is a difficult subject because so many more variables have to be taken into account when you deal with people, who are complex, instead of objects. People change their preferences, they behave differently under different circumstances, all that has to be taken into account and it is impossible to know all the variables currently. That's why models are simplified, but we can't say that lowing interest rates 1% will also lower the unemployment rate X%, we don't have that kind of accuracy.

In the long run, people do behave rationally, and groups of people can be bunched together. It's sorta like physics where you can't know the precise location and velocity of an electron, but grouped into an atom, they become predictable though we still don't have a good grasp at what is occurring at the quark sized level.

Is String Theory science? If so, then Economics certainly is, as Economics is testable and falsifiable, unlike String Theory. Economics also makes testable predictions while String Theory doesn't. So Economics is much more of a science than the latest branch of physics.

[reason]

BJ Feng
I'm sure I read somewhere that being unpredictable can be a winning (and so rational) strategy.

[reason]

BJ Feng
Many scientists don't think String Theory should be called science. (The word Theory is in this case incorrectly applied, it should be The String Metaphysical Hypothesis).

[reason]

Or the The String Cosmological Hypothesis.

[John]

From what little I've studied of string theory -- mostly the 1980s versions -- string theory is math. You can calculate certain things. Some string theories lead to general relativity as a limiting case; others don't. Some string theories lead to the standard model (quantum chromodynamics, electro-weak theory); others don't. A few lead to both. In that sense, string theory is falsifiable.

Second, some string theorists are trying to calculate the predicted results of experiments down at the energies of our high-energy accelerators. They may succeed, at which point string theory becomes truly testable.

It's possible that economic theory makes falsifiable predictions. The problem is that those predictions are usually blatantly false, yet the theory is not abandoned or modified. (The falsification is ignored.)

"In the long run, people do behave rationally, and groups of people can be bunched together." First, do people really behave rationally in the long run? Second, it has been shown that relatively simple interactions can lead to chaotic phenomena. It has also been shown that even when individuals in a group behave rationally, the group as a whole may be irrational.

Example: loan sharks or corporate executives might try to persuade borrowers to take on hefty loans that will have trouble being paid off. Then the loans are packaged and sold to others. The scum get their commissions and bonuses for getting the loans, and the others lose money.

I've watched the motion of foreign exchange rates. It's purely chaotic, jumping around wildly with (probably) infinite variance. Even if there is a stable, rational, long-run value, that "long-rung value" itself moves around. Economic bubbles are chaotic phenomena.

Paul Krugman, in "Peddling Prosperity," discusses an example in which rational behavior is distinguished from almost-rational behavior. When the deficit rises, the rational response of individuals is to increase their savings a tiny amount to prepare for the expect tax increase later to pay off the deficit. That amount has large uncertainties, so it is almost as rational to do nothing. In that way, the rational response has been completely eliminated.

This example suggests that trying to express economic behavior as perhaps a small perturbation around an equilibrium fully rational result won't work; the radius of convergence is zero. (And it won't work as an asymptotic expansion either.)

"The heart has its reasons whereof reason is beginning to comprehend" in the context of cognitive science. Understanding the behavior of the heart means abandoning the notion that the heart be rational, and instead trying to understand how the heart works. Likewise, an old definition of acrophobia that I encountered, "an irrational fear of heights," is idiotic. Acrophobia is a visceral, intense, sickening feeling, and should be understood as such without calling it irrational. A simple look at evolution, and an understanding that people are hurt and killed in falls, shows how natural selection can favor acrophobia.

Instead of trying to model economic actors as rational, economists should be rational about their own theories, and try to understand the irrational aspects of human behavior.

[Pete Murphy]

Your list of "ten propositions" has left out the most important of all: that an increasing population density, beyond an optimum level, drives down per capita consumption. Falling per capita consumption, in the face of rising productivity, inevitably yields rising unemployment and poverty.

You've left this off your list because no economists recognize this relationship yet. Why? Because economists will not consider the ramifications of population growth. When confronted with the issue, they cry out "Malthusian," cover their ears and curl into a fetal position, waiting for the issue to pass.

Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It's a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today's recession may be just a preview of what's to come.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?

At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China's. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world's population.

Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Please forgive me for the somewhat "spammish" nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Pete Murphy
Author, Five Short Blasts

[Ryan]

Economics is not, never was, and never will be a science. It is primarily a Epistemological Philosophy that uses some empiricism and deductive logic to support its findings, and there is nothing wrong with that.

[ken melvin]

Rationality is fudgable.

[Mark]

Piglet: "what is your take on the idea of "economics as science" put forward by Guy Sorman, and his list of "propositions", or trivialities, or dogmas, that he cites? You have seen heavy criticism from almost everybody in this forum, what is your take?"

I thought it was self-evident that Sorman's propositions were value-laden. Just because a like-minded group with advanced math skills agrees that Pareto efficiency is too stringent and Kaldor-Hicks is good enough (i.e., losers are unworthy of compensation) doesn't make it a scientific fact.

BTW, you cite evolutionary science. A persistent, dogmatic debate in evolutionary biology is whether intraspecific competition or interspecies predation is the primary determinant of ecological community composition. To me, it seems obvious that the importance of each varies among communities and over time. The true believers, however, will argue endlessly. Why? Because any feasible microcosm experiment is a toy model, and so results that don't comport with the preferred theory are disregarded. Much the same can be said about economics. This doesn't invalidate the study of the production, distribution, and consumption of goods and services.

[Patricia Shannon]

BJ, Your analysis might not be correct in all aspects, but I appreciate that you are looking at human beings as human beings, not tools or machines.