Monday, March 21, 2011

Is economics a science? #1

I see that many have been discussing this question lately, but from the contributions I’ve seen it is difficult to know what they mean by the question.

My entrypoint to the discussion was Brad DeLong’s “highlights” post. Here’s some arguments from Adam Ozimek at Modeled Behavior:

if you’re going to hold economics research to an extremely high burden of proof, then you should be prepared to subject all of your beliefs to such standards. What this will leave you with is mostly weak beliefs about the world for a lot of stuff that matters to you, whether it be about medicine, history, biology, psychology, criminal justice, climate science, or economics. Maybe widespread weak beliefs are a better approximation of the truth, I don’t know, but I do know very few people do or are willing to reason like that consistently. Maybe they should. But even here the vast majority of humanity has more belief changing to do than economists.

I’m puzzled by this claim that economics research is held to an extremely high burden of proof. Is it? My impression is that the burden of proof required to make claims about reality differs strongly with the sub-discipline of economics you are looking at. Some of them are happy to whip up a stylized model consistent with “standard assumptions” (perfectly clearing markets, intertemporally optimizing rational consumers, etc), tweak it until it reproduces some “stylized facts” and explain that this has strong policy implications and that the phenomena has been satisfactorily explained. By saying that I find this type of economics about as convincing as homeopathy (which I find almost as convincing as their remaining concentration of active ingredients), am I holding economics research to an “extremely high burden of proof”? I would argue that nobody should find such work convincing, because it uses an inappropriate strategy for justifying the empirical claims they want to make. This is not a criticism of “economics,” it is a criticism of  silly methods. I would be just as sceptical of intricate social causal mechanisms from sociology that are based on high-flying conceptual distinctions and nuanced readings of past theorists with cursory mentions of some more or less representative facts about reality.

The reason I don’t see this as a criticism of economics is that there are many economists and parts of economics that are different: Researchers who are happy to get into long and serious discussions regarding data quality, alternative competing hypotheses, identification strategies for isolating causal effects, remaining weaknesses in their work, alternative interpretations – with more tentative and carefully worded policy recommendations coming out of it.

It can oftentimes be difficult to see the scientific process at work in economics, as in other fields. Sometimes we are stuck at impasses where we are left with little more than theory to guide us, and sometimes empiricism is limited to testing particular model parameters, and ultimately our confidence should be limited by this. And sometimes what looks like pointless or tautological theorizing is really theorists attempting to build tools and lay groundwork for empiricists. It’s easy to look at some of this and think it un-scientific, but not all steps of the scientific process look like science.

Yes, “ultimately our confidence should be limited by this.” But too often, in my experience, this is not the case: Economists do not temper their confidence in this way. That’s the problem, and that’s the “non-scientific” part of economics (in my opinion).

Another question is, if economics weren’t a science, then would previous paradigms so have been done in by empirical outcomes? The old Keynesian Phillips Curve held that there was a tradeoff between inflation and unemployment. When that relationship broke down during the stagflation of the 70s, the Phillips Curve was invalidated, and this helped shift macro away from old Keynesianism and towards the new classical paradigm. Real Business Cycle models of the 80s were also invalidated by reality: it was clear that money mattered, and in the real world it was hard to find technology shocks to explain actual recessions.

If the global federation of astrologists agreed that some rare astronomical event did not have the effect they believed it would have (because it occurred and not everyone born at that time became supersmart or had blue eyes or whatever) – that would not turn astrology into a science. Saying that one change of consensus due to empirical observations is sufficient to make something scientific is silly.