Monday, June 13, 2011

Economics, math and science - Krugman 1996 vs. Krugman 2008

Recently came across a slate essay by Krugman from 1996 where he basically asserts that economics is a hard-core sciencey discipline because it uses mathematical models, and that those who dislike modern economics do so because they would prefer literary criticism style blah-blah. He starts his piece by discussing criticism of him (which I haven´t read) from Bob Kuttner. Krugman states that the disagreement has nothing to do with politics:
We are both, after all, liberals.  (...) What we are really fighting about is a matter of epistemology, of how one perceives and understands the world.
A strong desire to make economics less like a science and more like literary criticism is a surprisingly common attribute of anti-academic writers on the subject.
More than 40 years ago, the scientist-turned-novelist C.P. Snow wrote his famous essay about the war between the "two cultures," between the essentially literary sensibility that we expect of a card-carrying intellectual and the scientific/mathematical outlook that is arguably the true glory of our civilization. That war goes on; and economics is on the front line. Or to be more precise, it is territory that the literati definitively lost to the nerds only about 30 years ago--and
they want it back. That is what explains the lit-crit style so oddly favored by the leftist
critics of mainstream economics. Kuttner and Galbraith know that the quantitative, algebraic reasoning that lies behind modern economics is very difficult to challenge on its own ground. To oppose it they must invoke alternative standards of intellectual authority and legitimacy.
In effect, they are saying, "You have Paul Samuelson on your team? Well, we've got Jacques Derrida on ours."
The literati truly cannot be satisfied unless they get economics back from the nerds. But they can't have it, because we nerds have the better claim.
I find this interesting for two reasons. For one thing, economics is about the real world, yet Krugman doesn`t mention empirical evidence with a single word. Based on this piece, the discussion seems to be a theological debate between Pythagorean mystics who believe in the revelatory power of math and the medieval scholastics who want to focus on conceptual distinctions and dialectical reasoning. With both of them seeing themselves as the more scientific.
The second thing is that this belief in divine revelation through algebra is exactly what Krugman later attacked when he had had enough of the absurdities of highly regarded, peer-reviewed work in top journals spouting poorly justified empirical claims. After the financial crisis, he wrote,
the fault lines in the economics profession have yawned wider than ever. Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten. What happened to the economics profession? And where does it go from here?
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.
the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
what’s almost certain is that economists will have to learn to live with messiness. That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic “theory of everything” is a long way off. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets
will solve all problems.
My point with this is not that it`s wrong to use mathematics (Krugman made sure to clarify this as well). My point is that it`s wrong to think that you can reason your way to empirical truth without getting involved with the messy reality around us. Claims about reality need evidence from reality. The claims about reality that you start out with could derive from a formal model or a verbal argument or even a diagram - but to analyze empirical evidence requires quantification of phenomena and statistics, so this is not an argument against either numbers, mathematical methods or hard-to-understand algebra. It`s an argument against theology in science and the belief that you can dispense with empirical evidence provided you`ve thought "logically" enough from a priori "truths" using some method or other - whether based on mathematics, literary criticism-style discussion, or symbology.

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