Let’s revisit the reasons why economics is not a science

An angry econ guy recently called me names for asserting that economics is not a science–well here comes some more proof of my case.

Commentary in this essay is on Federal Reserve
Research makes my case very well.

I would remind all of you out their that econometrics and microeconomics as well as macroeconomics theory and practice, including their very sophisticated formulae, are great examples of trans science, cargo cult science, something that looks like science but can’t make the grade, can’t pass the Popper test of falsifiability.

I still think Economics is a very important and worthwhile area of inquiry and intelligent observations and commentary are constantly flowing from economist research and study, but think of economics like psychology and social studies–too many variables, too complex and too many confounders, not enough replicability and reproducibility.

Let the games begin. Please don’t start off by accusing me of being a stupid physician/lawyer. My momma encouraged me to go to school and learn things and she would be upset to hear such things said about her oldest son. I have brothers and sisters who are smarter and better educated than me, but I try.

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7 responses to “Let’s revisit the reasons why economics is not a science

  1. “An angry econ guy recently called me names for asserting that economics is not a science…”

    That would be me.

    Did you read the article?

    “The most common reason we are unable to replicate the remaining 45
    papers is that the authors do not provide data and code replication files.”

    Not that the authors make the mistake (or engage in the deception) here of conflating ‘we couldn’t replicate the results because we didn’t have the data’ with ‘the results CAN not be replicated’. These are different things.

    Importantly, reading the article, we see that in EVERY case in which they had access to the original data, they could replicate the results.

    But, indeed, even if their statement was entirely true, and the results could not be replicated because they were falsified, that would not make economics ‘not a science’. It would just make those authors jackasses.

    There was a critical experiment about 100 years ago that verified relativity (I don’t recall if it was general or special). In the real world its results CANNOT be replicated, because they were simply falsified. Does that make physics ‘not a science’? It didn’t even make relativity wrong.

    I posted this before, and I’ll do it again here-

    Science-

    noun

    1. a branch of knowledge or study dealing with a body of facts or truths systematically arranged and showing the operation of general laws:
    the mathematical sciences.

    2. systematic knowledge of the physical or material world gained through observation and experimentation.

    3. any of the branches of natural or physical science.

    4. systematized knowledge in general.

    5. knowledge, as of facts or principles; knowledge gained by systematic study.

    6. a particular branch of knowledge.

    7. skill, especially reflecting a precise application of facts or principles; proficiency.

    Next time you want to go on about how something is ‘not a science’ you might want to refer to the actual definition of science.

  2. First in the pool…

    The biggest flaw in conventional Economics is summed up with the phrase “Assuming rational behaviour on the part of the consumer” that constantly pops up in any economic study. As anybody who knows the least little thing about Marketing can tell you, consumers are in fact profoundly irrational.

    Example: You’ve lost your job and are flat on your ass broke. What is the sensible thing to do? The rational answer is to hunker down and economise. Instead however the consumer is just as likely to do the irrational, say take a vacation trip to Hawaii. After all, it might be your last chance.

    This is called Behavioural Economics, and it’s completely at odds with the graph and chart folks because, well, you can’t very well predictably quantify human behaviour and psychology, the reason you have manias and bubbles.*

    And that’s the reason Economics fails as a science.**

    (It’s also the reason that Keynesianism and Monetarism both ultimately fail, i.e. the decision makers don’t follow the rules – rules that do indeed work if followed to the letter – because the players are human. Instead, the rules are bent, and the insiders end up trying to line their own pockets and the pockets of their cronies, amongst other things. Mr. Market is ignored. Too-Big-To-Fails are propped up. Debt is increased. There’s no creative destruction. The deadwood is piled up even further. And the can is kicked down the road as things keep getting worse.)

    Spoken from the vantage point of having both a degree in Econ (with a heavy quantitative leaning, i.e. computer math models) and an MBA with a marketing emphasis. I know a little bit about both subjects.

    Just a thought.

    VicB3

    *Here, read all about it:
    Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay
    http://www.cmi-gold-silver.com/pdf/mackaych2451824518-8.pdf

    **And it’s also the reason that companies start to go down the tubes when accountants and attorneys, focused on the quarterly report, financial games and bonuses, start to make the marketing decisions.

    Here’s a rule of thumb that will serve you well in that regard:

    -Focus on customer value, and stockholder value will follow.
    -Focus on stockholder value, and the customer will flee at the first opportunity.

    Works every time.

  3. ViCB3-

    “The biggest flaw in conventional Economics is summed up with the phrase “Assuming rational behaviour on the part of the consumer…”

    In economics ‘rational’ is a specific technical term. It means their behavior is congruent with their preferences, modulo imperfect information. People do a LOT of stupid-ass shit because critical information is absent or incorrect. That doesn’t make them irrational or economics ‘not a science’.

    People ARE rational in that sense. It is in fact literally impossible to show otherwise. Preferences are unobservable, they can only be inferred. The ONLY way to infer them is to ASSUME (in a mathematical, axiomatic sense) people are ‘rational’. Given that, we observe rational behavior in not only people, but also animals and insects.

    Economists consider people ‘rational’ than society would consider batshit insane. Since so far as we can tell their actions are congruent with their preferences, they are rational. It’s their preferences that are batshit insane. We don’t pass economic judgement on people’s preferences.

    Keynes fails because he’s simply wrong. There is no law that says a ‘model’ has to be correct. We KNOW he’s wrong because his model violates well known economic laws. And I mean ‘law’ here in a ‘law of nature’ sense. The laws of economics are at least as fundamental as, and likely more fundamental than the laws of physics.

  4. The example given above disproves I think that people will do “a LOT of stupid-ass shit because critical information is absent or incorrect.” The guy knows he is broke. He knows he can’t afford a vacation. But he does it anyway, because this might be his last chance ever to go to Hawaii. Rational to him, but on a pure quantitative basis is doesn’t at all make sense.

    That’s Behavioral Economics for you. And I believe that you and I are talking about the same thing.

    As for Keynesian Economics, it’s really nothing more than the Story of Joseph from the Bible applied to modern life. Raise taxes moderately during the good years and sock away that money, don’t spend it. During the bad years lower taxes and use the saved up money to build, repair and expand vital infrastructure on the local level, keep people employed and fed. And that all makes sense.

    But the Devil is in the details. With a huge surplus, there is political pressure to lower taxes. Or to expand government bureaucracy. Or just piss it away.

    And when things go South and there’s no money, then there’s pressure to soak the rich to get additional revenue, meaning taxes are raised overall. And that’s what you don’t want to do. Or fat juicy contracts are let to big companies, political contributors, cronies and insiders, and not the small guy who only employs, say, ten people. Or monies are pissed away on things that don’t contribute a damned thing to infrastructure and development. (Department of Homeland Security training programs for municipal governments come readily to mind here.)

    In short, it’s not that Keynes is wrong, it’s just that the people running things are greedy, undisciplined, stupid and short-sighted, and they just end up making things worse.

    And that’s why, ultimately and as Bill Bonner sums it up nicely, the cure for a depression is a depression. You let the market do it’s magic. Like removing a band-aid, there’s a sharp pain and then it’s all over. The deadwood of bad investments and obsolete companies is cleared out. debts are canceled, and prosperity resumes. In short, Mr. Market does his magic.

    But that upsets people, who don’t want the pain. So they bribe and fiddle about, engage in weird-ass financial game, and things keep going long after they ought to have collapsed and failed.

    And later on, they fail just the same anyway. And, per Bonner again, that’s Capitalism for you. It gives you not the results that you want, but the ones you deserve.

    Hope this helps.

    Just a thought.

    VicB3

  5. “As for Keynesian Economics, it’s really nothing more than the Story of Joseph from the Bible applied to modern life.”

    No, it isn’t. for one thing, it predicts that channelling economic activity through government will in and of itself increase total output. This is nonsense.

    Besides that, nations can’t save money. You can build capital or you can consume. Period. There is no ‘saving in good times…’ stuff.

    And KEYNES WAS DEAD WRONG. He screwed up. His model doesn’t reflect reality. I don’t know many other ways to say this.

  6. Long ago in Econ.1, our tutor was a guy named Hugh who had been our math tutor a couple of years earlier…..He said he initially thought math was totally abstract but he went to Econ. because he found that math correlated weakly with real life but Econ. he concluded [to his great joy] bears no relationship whatsoever to reality…….This was an academic with an IQ probably above 160……. He would have taken it for granted that everyone realized Econ. is a branch of social psychology……….

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