Archive for August, 2013

Economics as Science?

27 August 2013

I am sure that Rosenberg and Curtain (“What is Economics Good For?“) are intentionally trying to be provocative.  And I should state up front that I think we (as economists) often oversell what we do. But this article misses the mark by a wide margin — in part, because I don’t think these guys haven’t really thought very hard about what their saying, or maybe haven’t read any recent empirical work.

Rosenberg and Curtain could have at least recognized the difference between macroeconomics and microeconomics.  They make the undergraduate mistake of thinking that economics is all about managing the macroeconomy.  What about the successes we (primarily microeconomists) have had in understanding things like the effects of school inputs on short- and long-term outcomes?  Or understanding the labor supply responses to changes in tax policy?   Or the behavioralists progress in understanding the limits of our standard utility-maximization model?

I disagree strongly with their focus on predictive power.  As if the only thing that economists are up to is gazing into a crystal ball to predict the next recession. They also completely fail to engage the difference between experimental and observational data.  Essentially they are saying “economists work with observational data, and they can’t yet predict what will happen next in observational data”.   Macroeconomists have, what, 15 recessions that they’ve observed with any degree of accuracy and given the interrelatedness of national economies?   Would physicists  have been able to write down a complete model of gravitation with 15 observations on which to base it?    How is experimental economics or field experiments in subfields like development and labor not “science”?

In searching for the Higgs boson, physicists needed 1 quadrillion proton-proton collisions to be certain enough that they’d found the particle to make the claim of discovery, at a cost of $10 billion just to build the Large Hadron Collider. I’m pretty sure that after observing 1 quadrillion recessions and gathering however many petabytes of data that the LHC generates that even macro economists would be able to predict future recessions with complete accuracy. Or have the tools to make them not happen at all.

I wonder… if the Higgs had not been found, would these guys claim that physics is not a science, because it has poor predictive power?

The interactions economists (or psychologists, for that matter) are trying to “predict” (and I really hate the emphasis on prediction here) are pretty complex, observed, even in experimental data, at a far lower frequency than in disciplines like physics or chemistry.  To say nothing of observational data.

Sure, our models involve simplifications that may reduce their verisimilitude. But we have made progress. That the severity of the Great Recession was less than that of the Great Depression is due to the progress that economists have made over the last 70 years. Surely, with more political will, the consequences could have been made even less severe.

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