Economics as a Science - A Discussion

Time Magazine

redarmyblues wrote: »

To clarify,, I said that in a rational world that it would be or is futile to argue on this board not that Economics was or is futile, and you proved my point, because you disagreed with my views you didn't bother to read my posts properly, you merely skimmed them and gave them a meaning of your own according to your ideaology. I also believe that the complexity of data that Economic models must deal with are beyond calculation and consequently that some or many Economists are guilty of a faith based approach to the disciplince. I mean a meteorologist deals with perhaps a far less complex set of data which s/he can measure in real time but would not dare make a long term forecast but an Economist working with historical data has no problem making predictions years in advance.

But It does seems my true point is the same as yours, that Economics is a profession rather than a science. I share your view because it as makes its own laws, rules and conventions it is similar to Law, Accountancy and Banking rather than the objective methodology of Chemistry, Physics Biology. Now since debate is not welcome on this forum and you are all ganging up on me I had better leave you to resume agreeing how clever you all are.

To put it simply:

• It's abundantly clear that you're mistaken in your interpretation of 'rational'.
• You're mistaken in what you think economists 'do'.
• Economists are professionals and the labour market for economists is for a market for professionals. This nomenclature does not imply that the subject is unscientific.
• I really think you're throwing your toys out of the pram here rather than engaging in debate.

rigumagoo

I have not read any of the previous posts in this thread so forgive me if this has already been said; but economics is not a science.
For a theory to be scientific, it must be falsifiable, that is it must in principle be possible prove whether a theory is true or false based on observable evidence. This criteria was developed by the reknowned 20th century philosopher Karl Popper who attempted to create a formal definition of what 'scientific' meant.
For example, Lamarckian inheritance was an alternate theory of evolution which for some time rivaled Darwin's theory of evolution. It was a scientific theory because the predictions it made about the world were, in principle, disprovable (and, in fact, were disproved, but not before Lamarckianism could wreak havoc in Russia, causing widespread famines due to its implementation into their agricultural policy).
Interestingly, discredited 'crackpot' theories such as homeopathy and reflexology actually are scientific, because they can be tested and proven true or false. (The reason they are seen as unscientific is because, despite having been thoroughly disproved, their adherents continue to practise them).
Now back to the question in discussion; according to the rule of falsifiability, economics is not a science, because economic theories cannot in principle be proven or disproved. There is no amount of evidence that would convince, a marxist for example, that his theory is a false model of reality.
The main tenant of marxism is that countries progress from monarchism through capitalism and finally to socialism. It was claimed that, during the 20th century, the citizens of western european capitalist countries such as France and GB would 'rise up' and overthrow their capitalist governments and install socialist ones.
When this, the central prediction of marxism did not happen, we did not hear any marxists lamenting the fact that their theory had been disproved, rather excuses were made such as "the creation of the welfare state has released the pressure on the proletariat and has just delayed the inevitable revolution."
This is an example of how no amount of evidence could in principle disprove a given economic theory because any events or market data can be rationalised within the framework of that theory and be made to coincide with it, as in the way shown above. As a consequence of this, in exchange for the luxury of being undisprovable, economic theories must suffer the fact that they are inherently unscientific.

Time Magazine

rigumagoo wrote: »

I have not read any of the previous posts in this thread so forgive me if this has already been said

Welcome to the thread. Not sure if you're getting off on the right foot though

For a theory to be scientific, it must be falsifiable

Agreed entirely.

Now back to the question in discussion; according to the rule of falsifiability, economics is not a science, because economic theories cannot in principle be proven or disproved.

Disagreed entirely. Because...

marxism

...is not economics. It's a theory from a bearded fellow from the 1860s. Modern economics, developed from the 1950s on, does speak in such grand terms and can, for the most part* be tested with data. Indeed tracing out causal relationships from data has been probably the main focus of economics over the past twenty years.

*The primary exception to this is pure theory (where data cannot exist because the concepts are notional like the derivatives of functions, or theories about long-run decision making that cannot be observed, unless maybe you insert chips into people's brains.)

nesf

rigumagoo wrote: »

This is an example of how no amount of evidence could in principle disprove a given economic theory because any events or market data can be rationalised within the framework of that theory and be made to coincide with it, as in the way shown above. As a consequence of this, in exchange for the luxury of being undisprovable, economic theories must suffer the fact that they are inherently unscientific.

If that was true we wouldn't see Economics evolve as a subject as a result of data showing flaws in previously held theories. Much of the economics of the past 30 years has been a reaction to the data showing the economics of the preceding 50 years to be only partially accurate.

Economics works similar to physics in that abstract models are postulated in an attempt to explain reality, when these models fail to fully explain reality new models are created or old one's are altered or amended and that is exactly what we see happening in Economics as it evolves as a subject.

As a simple example easily understood by lay people look at the development of the theory of economic growth in countries as it developed from the 50s onwards.

rigumagoo

[Marxism] is not economics. It's a theory from a bearded fellow from the 1860s.

Are you claiming that bearded men cannot formulate economic theories or are you claiming that theories devised in the 1860s cannot be economics?

Time Magazine

rigumagoo wrote: »

Are you claiming that bearded men cannot formulate economic theories or are you claiming that theories devised in the 1860s cannot be economics?

It's much more that economics didn't exist in anything resembling its current form in 1860. Indeed anything before about 1950 looks like a different subject to the current research frontier.

Joe1919

Time Magazine wrote: »

It's much more that economics didn't exist in anything resembling its current form in 1860. Indeed anything before about 1950 looks like a different subject to the current research frontier.

Ah!..............Things are different now.

(This Time is Different: A Panoramic View of Eight Centuries of Financial Crises*)
http://www.google.ie/url?q=http://citeseerx.ist.psu.edu/viewdoc/download%3Fdoi%3D10.1.1.156.3561%26rep%3Drep1%26type%3Dpdf&sa=U&ei=BDyTTMzXGc2TjAfVksXABQ&ved=0CBQQFjAC&usg=AFQjCNHm1oSV3pbwbiwViTc6mvKX0RiJ_w

I do personally think there is a case for some study of Economic History as there is always something to be learned from the past.

noodler

Joe1919 wrote: »

I do personally think there is a case for some study of Economic History as there is always something to be learned from the past.

Perhaps with regards to housing bubbles etc but some of the market-related nonsense that is going on at the moment really does seem to be uncharted territory.

Hasschu

I am a firm believer that Economics is an art that has become increasingly cloaked and cluttered in science. Here is a link to a radio conversation on the subject from WBAI (US). Go to "You and Your Money" in left column also Sept. 17th 10:30 A.M. in time date. The host is Susan Lee and the guest is Yves Smith. I am not touting this as scientific and no doubt one could look down their nose at it. However it as a viewpoint that cannot be ignored if you are an economics is a hard science advocate.

http://archive.wbai.org/

Économiste Monétaire

rigumagoo wrote: »

I have not read any of the previous posts in this thread [...]

Then don't bother posting.

redarmyblues

Time Magazine wrote: »

To put it simply:

• It's abundantly clear that you're mistaken in your interpretation of 'rational'.
• You're mistaken in what you think economists 'do'.
• Economists are professionals and the labour market for economists is for a market for professionals. This nomenclature does not imply that the subject is unscientific.
• I really think you're throwing your toys out of the pram here rather than engaging in debate.

[*]I will not respond to anything as irrational as a tautology.
[*]I only know what they do not, that is, either, discover truth, or expose error.
[*]Typo. I meant Profession.
[*]Rattle at the ready.

Time Magazine

redarmyblues wrote: »

I will not respond to anything as irrational as a tautology.

You may think it's trivial, but it is crucial. Hip and happening Guardian readers sipping their orange mocha frappucinos (while listening to Air on their non-iPod MP3 player) will tell you that economists' definition of rational is pure, greedy self-interest. That's nonsense. In fact, rational means (in non-technical terms) that between any two alternatives, a consumer can state which one they prefer. That is all. So with regard to your quote,

Firstly, I am not saying it is not possible to play the coffee market I am saying that it is too complex a system to make meaningful predictions about, secondly in the absence of complexity you still have an absence of rationality in mankind. Can you honestly say that you are where you are now in the world as a result of a succession of rational choices and if you think you are, I ask why are you tapping keys engaged in an activity that by any rational standard is futile.

it seems you're simply confused about the definition of rational. Our definition of rational does not imply you can play the market; our definition of rationality can hold in a world of great complexity; and yes, using our definition of rational our activities are almost "rational" simply by their existence.

The usual definition of rational is a far more loaded term than ours. So tautology is crucial.

I only know what they do not, that is, either, discover truth, or expose error.

This is just plain silly.

Let me give you a counterexample. John Nash said that in any inter-dependent game that does not have a fixed-point solution in unique strategies, it has one in mixed strategies. It was a purely mathematical proof. Its relevance to society is debatable, but the proof is certainly sound. The same can be said of Arrow and Debreu's proof of the existence of general equilibrium, or just about any paper in the past 50 years that has gone through the steps of verifying the internal consistency of models. You may argue that the application of mathematical proofs to society is useless (and I would disagree, as countless experimental and non-experimental data strongly suggest much behaviour can be explained to a very reasonable degree of statistical significance by these frameworks) but they are certainly not wrong.

As for the "expose error" thing, that's also incorrect. Steven Levitt's papers on the causal effect of abortion laws have been ripped to shreds after coding errors were found. That's exposing error. Economics has largely been data driven since computers became common. Almost all data papers are falsifiable.

Ostrom

Time Magazine wrote: »

Steven Levitt's papers on the causal effect of abortion laws have been ripped to shreds after coding errors were found. That's exposing error

Didn't hear about that, what did he do?

Time Magazine

Most recent paper on the topic is here. See the abstract and footnote 7 for a summary of the statistical issue at play.

southsiderosie

Sorry, this is not very well thought out, as it is 5:30 in the morning, but here goes...

Flamed Diving wrote: »

So what are your thoughts on Economics as a science? What are its achievements? What are its failings? Where do you see it going in the future?

I think economics as a field has a lot of problems. I somewhat resent that econometric modeling is emerging as the only "real" way to do research across many of the social sciences today. I think that the focus on statistical analysis on the one hand has forced those of us outside of economics to be more careful and rigorous about our cases and assumptions (and this is a good thing), but I am often disturbed by a lot of the underlying assumptions, particularly those governing human behavior, that go into statistical modeling. I also think the current fetish for finding natural experiments is problematic but for different reasons.

Ultimately, if economics is about the most efficient use of scarce resources, then we should also perhaps acknowledge that notions of efficiency and valuable resources are to a certain extent socially constructed concepts, and adjust accordingly.

Amhran Nua wrote: »

Peer review of scientific studies and research allows peers of scientists to review work and attempt to replicate it before it is given the thumbs up and published as more or less established fact. Its an imperfect system, but the best available at the moment, and I think economics could benefit from it.

I don't think peer review can save us from bad policy or group think. If a paper submitted to academic journals cuts against accepted norms in the field, it may not get published; to use an example from a different field, this happened to two professors in the run-up to the Iraq War who believed that the establishment of democracy was implausible.

Hasschu wrote: »

To my mind Political Philosophy, History, Commerce, Psychology, Sociology and yes Mathematics are essential parts of a well rounded economist. What has to be guarded against is the idiot savant syndrome which often leads to simple solutions for complex problems with the end being an inevitable disaster.

I completely agree.

Time Magazine wrote: »

[Marxism]...is not economics. It's a theory from a bearded fellow from the 1860s. Modern economics, developed from the 1950s on, does speak in such grand terms and can, for the most part* be tested with data. Indeed tracing out causal relationships from data has been probably the main focus of economics over the past twenty years.)

I disagree. Economics evolved out of sociology. In fact, I would argue that one of the main flaws in academic economics today is that social factors are far too often underplayed (with some obvious exceptions). This recent column from the FT highlights my point exactly; the author notes that he would expect consumer behavior to converge across the EU, but having lived in some of the countries he mentions, I could tell him exactly why Spaniards would not necessarily embrace the shopping experience at Aldi, and it has little to do with prices.

This is not to say that Marx was right. But I do think it is important that the field of economics emerged out of the study of how society shapes behavior, and a lot of that seems lost on economists today, both academics and practitioners.

Time Magazine

southsiderosie wrote: »

I disagree. Economics evolved out of sociology. In fact, I would argue that one of the main flaws in academic economics today is that social factors are far too often underplayed (with some obvious exceptions). This recent column from the FT highlights my point exactly; the author notes that he would expect consumer behavior to converge across the EU, but having lived in some of the countries he mentions, I could tell him exactly why Spaniards would not necessarily embrace the shopping experience at Aldi, and it has little to do with prices.

This is not to say that Marx was right. But I do think it is important that the field of economics emerged out of the study of how society shapes behavior, and a lot of that seems lost on economists today, both academics and practitioners.

Good point, but I'm not sure you understood mine. It wasn't the content that I complained about (although that's obviously fair game for attack) but rather the approach. I think social/behavioural factors play a huge role in life, of course I do, but it's the waffley approach to this that I have a problem with. I much prefer rigour and data. It does mean that some things cannot really be examined -- and that is limiting -- but it provides a sound empirical basis for what is studied. I think the point you're making is that economics has gone too far down the road of rigour to be useful for policy, etc. You're probably right, but taking this back to the OP, that approach has made the discipline more scientific, not less so.

southsiderosie

Time Magazine wrote: »

Good point, but I'm not sure you understood mine. It wasn't the content that I complained about (although that's obviously fair game for attack) but rather the approach. I think social/behavioural factors play a huge role in life, of course I do, but it's the waffley approach to this that I have a problem with. I much prefer rigour and data. It does mean that some things cannot really be examined -- and that is limiting -- but it provides a sound empirical basis for what is studied. I think the point you're making is that economics has gone too far down the road of rigour to be useful for policy, etc. You're probably right, but taking this back to the OP, that approach has made the discipline more scientific, not less so.

Hm, I think I understood you...I think I just disagree with you.

Clearly there is far better statistical data available today than there was in Marx's time. But I think there is too much focus on statistics and modeling and not enough getting out of the computer lab and actually talking to people. A wise man once told me "Statistics are like a bikini: they show everything and reveal nothing". To that I might add: and if you want to get the girl to reveal what's under that bikini, you'd better start talkin'.

Hasschu

I would consider Marx, Smith, Keynes, Schumpeter and many other lesser lights must reading if one hopes to get a fleeting grasp of how the world operates. Twenty years out of Ireland in well governed countries and poorly governed countries also helps to put Ireland and its gov't in the proper perspective. Exposure to economic research and its models also pulls back most of the seven veils surrounding "scientific" economic modelling. Ireland's present problems were home grown and Ireland's economists were the cheering section or claque mollifying the gov't and the public. Granted there were a few who saw clearly and raised the alarm as the overhwelming majority walked in lock step over the precipice. A phrase which is popping up more frequently is "Schumpeterian Depression" reputed to last for decades (a la Japan) based on "creative destruction". The US and other property meltdowns are symptoms of SD and not the root cause of the present economic malaise.

fergalr

Flamed Diving wrote: »

However, I think that this is a discussion worth having, if it is done properly. So what are your thoughts on Economics as a science? What are its achievements? What are its failings? Where do you see it going in the future? I know I speak in broad terms here, but you may discuss one specialised area of Economics, or whatever.

...

For me, predicting markets is always doomed to failure because if you can create a highly accurate model for predicting stock markets, peoples behaviour will change accordingly (in an effort to optimise the model, assuming they have access to it) and hence the very market the model attempted to describe (ie behaviour) will have vanished.

I'm not an economist.
But I'm just wondering, are you sure that last point is valid?
For some models and systems, wouldn't the behaviour converge?

For example, if you were playing a game with a nash equilibrium, (maybe it'd make sense to conceptualise the situation where all the actors had a perfect model of the stock market and were choosing their actions as a game) wouldn't the availability of a model that showed them what that nash equilibrium strategy (presumably mixed or something) was tend to reinforce it's applicability?

In other words, isn't it possible that with better models of the markets, the markets would behave even more predictably, as the actors in them now all worked from the same model?

I'm not saying this *is* the case - I'm assuming its some mad chaotic system that will never be modelled - but I'm just wondering if it is necessarily the case that actors having access to the model would invalidate the model?

Time Magazine

fergalr wrote: »

I'm not an economist.
But I'm just wondering, are you sure that last point is valid?
For some models and systems, wouldn't the behaviour converge?

For example, if you were playing a game with a nash equilibrium, (maybe it'd make sense to conceptualise the situation where all the actors had a perfect model of the stock market and were choosing their actions as a game) wouldn't the availability of a model that showed them what that nash equilibrium strategy (presumably mixed or something) was tend to reinforce it's applicability?

In other words, isn't it possible that with better models of the markets, the markets would behave even more predictably, as the actors in them now all worked from the same model?

I'm not saying this *is* the case - I'm assuming its some mad chaotic system that will never be modelled - but I'm just wondering if it is necessarily the case that actors having access to the model would invalidate the model?

Good question, and I'm not a macroeconomist, but I understand that the outcome would then be perfectly random. Stock prices would match the discounted values of their income flows (or whatever actually determines stock prices) and the only changes would be "news", which is unpredictable per se.

Of course this outcome would only occur if the model somehow became known to everyone. You/me/anyone can't rule out the possibility that some company have the perfect model of stock prices sitting on a shelf and cream profits from it. Of course, if they had that information, they wouldn't tell anyone. (In fact, that's probably a better way to answer your question.)