Why Economics Is Not A Science

Economists like to pride themselves on their job and how scientific it is. Politics might be full of emotional rhetoric and unthought out ideas, but economists rely solely on cold hard facts. Flicking through my old textbooks, I see many references to “thinking like an economist” where we were supposed to cast aside fallacies and view the world with a rational and scientific eye. If only it were so. In reality, economics lacks the basis in real world evidence, the scientific method, and predictive power to be considered a science and is instead a highly politicised topic.

(Debates about whether economics is a science usually draw comparisons and analogies with science subject like physics. Unfortunately almost no one has studied both economics and physics so such analogies are unverifiable and can be used to claim absolutely anything).

The first major reason why economics is not a science is that a lot of it is not based on evidence. If you study economics you will spend a great deal of time studying perfect competition, a state of affairs that almost nowhere exists. Utility is another concept which plays a huge part in economics that is so vague and undefined that it is hard to know if it exists or how you can possibly maximise it. Rational actors, efficient markets, supply and demand are all concepts that are assumed without evidence to be true. In fact, textbooks are surprisingly evidence free and embarrassingly divorced from reality. Not that it gets any better as it goes on, my masters was an impenetrable maze of incomprehensible gobbly-gook taken to such an extreme level of abstraction that it resembled what I imagine a monkey and a keyboard would produce. (No, I didn’t enjoy it, why do you ask?) Economic journals can be so theoretical and abstract that it sometimes seems as though they are arguing over how many angels can stand on the head of a pin. What makes matters worse is that the evidence exists, it is not as though we are trying to find the Higgs Boson, there is no excuse for the failure to describe the real world and rely on excessively theoretical models.

After all, if economics truly was based on impartial evidence then it would have long since dropped many of its ideas that have been since debunked. There is a whole school of economic thought primarily devoted to showing that people are not rational and in fact use many heuristics and biases, yet economic students still receive the same 19th century view of utility maximising rational actors as though it was fact. I have thoroughly investigated the evidence regarding welfare benefits and unemployment and found no connection, yet many economists still claim increasing welfare will increase unemployment. The economic crisis should have lead to a serious rethinking of economics, yet it is depressing to think of how little has changed. A subject which still teaches that markets are efficient even after they spectacular implode cannot call itself a science or claim to be evidence driven.

Economics lacks a crucial element of the scientific method, the ability to repeatedly test hypothesises. There simply is no neutral control in the real world to test theories and policies against. For example, it would be great if we could test how best to respond to a recession by having one country implement a Keynesian stimulus and another conservative austerity and compare the results. However, that simply isn’t possible as the variables would be enormous (the different economy size, structure, culture and a thousand other differences even between neighbours). Crucially, it is almost impossible to repeatedly test a hypothesis. How can you be sure a policy that worked one way will work the same way next time? Milton Friedman argued that the Great Depression was due to a collapse in the money supply and that had the Federal Reserve kept it steady it would not have happened. Yet it wasn’t until 80 years (from the Great Depression to the Great Recession) later that we could test this hypothesis and found it wanting (and still we only have one serious piece of evidence against it).

This hasn’t stopped economists from trying to compare different countries or US states, but these usually require a heavy reliance on proxies which capture only a small piece of the picture at best. You occasionally see articles comparing (for example) the unemployment rate in California and Texas as if it was an experiment to test whether Democrats or Republicans had more effective economic policies, but these are so crude as to be useless. There are some useful experiments in economics (the Ultimatum Game for example) but these are very limited in scope. They only work in certain restricted circumstances on an individual level and are really the exception that proves the rule (although Dan Ariely and others do some very interesting experiments).

Economics has little predictive power, another important feature of science. In fact asking an economist what the consequences of a certain policy will be is the same as asking for their best guess. What will happen if we raise the minimum wage? Maybe unemployment will rise or maybe it will improve the living standards of the poor. What about printing huge quantities of money? Maybe it will destroy the economy in a wave of hyperinflation or maybe nothing much will happen. What if we reduce regulations on the financial sector? Maybe it will lead to a more efficient and prosperous economy or maybe it will destroy it? What if we raise taxes and have a strong welfare state? Maybe it will destroy the incentive to work and lead to an inefficient economy or maybe it will create some of the richest countries in the world (Scandinavia for example).

The thing about science is that your beliefs do not change the facts. Evolution is real and happens even if people don’t believe it is. Atoms are the same regardless of what theories we have about them. However the theories of economics (like social sciences) changes how people behave. Telling people that everyone acts in their own self-interest becomes a self-fulfilling prophecy and studies have found that studying economics makes you more selfish. Teaching that markets are efficient and self-regulating leads to people failing to intervene even when danger signs are flashing. For example many argued that we didn’t need to regulate banks tightly or do anything about the housing bubble because the market was efficient.

There is also the very important fact that economics has a strong political element (to the point that in the 19th century it used to be considered the same subject as politics). My textbooks used to pretend that economics was value free and that economist’s job was merely to create wealth, it was up to politicians to decide what to do with it. It cannot be ignored that some of the most important issues in politics (especially at the moment) are economic issues. Questions such as how best to end the recession, deal with budget deficits, unemployment, the public sector, immigration, poverty etc are all a combination of economics and politics. It is mere fantasy to pretend that economists can act as neutral judges above political bias. Everyone has a bias, a viewpoint, a series of ideas and assumptions upon which they interpret the world.

There is an unfortunate degree of arrogance among the economics profession who see themselves as scientists superior to the social sciences. This physics envy has to go and economists must see themselves for what they really are. Economics is a social science that studies human behaviour not abstract atoms. None of this is to say that economics is useless or rubbish, just that it is looking at things in the wrong way. The field of economics is extremely important to us all, which is why realism is needed all the more. Economics cannot progress as a subject until economists drop their delusions of grandeur. It is better to live as a Duke than dream of being a King.

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18 Comments

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18 responses to “Why Economics Is Not A Science

  1. Reblogged this on alittleecon and commented:
    Another nice blog from a recent economics graduate.

  2. Some of what you say may be true but as I always say many Economists value “complexity” for it’s own sake. Economists like to use “FANCY WORDS” & make their subject more complex than it is. This often means the person making the comments Doesn’t understand it Either.
    However there are some facts that hold true just as in science there are facts that hold true. But in science & economics there is always the “UNKNOWN”. FACT:- AUSTERITY always creates unemployment never employment. However as at the moment in Britain the Tory agenda is to create unemployment in order to keep Incomes down. They play on the suggestion that we are spending more than our taxes can afford.
    This ignores the fact that Taxes do not provide Gov’t with Funding to spend, nor could it ever be so, because until Gov’t spends there should not be any “Funding” in the system. Then Politics says that any debts will be handed down to our children. Nonsense, this is a misuse of the word “DEBT” & it is utter nonsense that a debt exists that will have to be repaid.

  3. anon guy

    The only thing I get out of this blog post is to caution anyone in the future from going to UCD, as they might end up as deeply uneducated as the author. Of course, perhaps I shouldn’t overlook his unique qualities.

  4. Economics is not a “natural” science but … it could establish a science of economics. This means that speculative economics would have to be shunned aside into another field, maybe we call it philosophical science. (Scientists were once referred to as “natural philosophers.”) The science of economics would have to have agreed upon protocols of proof and evidence, etc. Econ has made a start in that direction, but has gotten enamored of itself and co-opted by political powers wanting to use economics to drive their agendas.

    The attitude of the science wannbees in econ is off putting but they should obscure the partial effort to bring some additional order to a somewhat disorderly study.

  5. Phillip Craig

    I love this post. When I was taking a senior level International Economics course in college, the class got the Econ professor to admit that economics was a bunch of crap and really didn’t mean anything. Needless to say this lead to an absurd and short debate as to weather we should do any homework on the subject if it was “all made up anyway”. We ended up doing the work anyway, but we all had a good laugh at the expense of the teacher. (Although the teacher did have a good laugh and a sheepish grin on her face about the entire thing.)

  6. Austerity is taken as gospel when it makes no sense in capitalism, as the bulk of the people need to have money to spend to support the economy.

    The poor old will be left starving penniless after 2016 in the UK:

    https://you.38degrees.org.uk/petitions/state-pension-at-60-now

    Austerity was a published paper by Harvard university professors, since debunked by a student in the USA, showing such lacking research as not including Australia and Canada, wealthy nations, and poor grasp of Excel spreadsheet practical skills.

    The purpose of government is to invest in the economy in a recession, not just add to its debts by political desire to kill off the poor, done again and again throughout UK history.

    Welfare reform is nothing of the kind, as the admin costs far outweigh the costs of starvation causing admission to public health hospitals and mental health issues caused.

    Nowhere in history has leaving the poorest to starve, in or out of work, has not led to insurrection against government that has become the greatest threat to life of the many.

    Sitting and starving whilst not one person does not pay the 75 per cent of taxes from people, in or out of work, that give politicians in the UK their even more wealthier and privileged lifestyle, is not an option.

    Something has to give.

    Far better to quietly and peacefully vote in socialism in the UK, before the Bastille moment arrives against the Marie Antoinette political class in today’s England.

    The Greens offer a 2015 manifesto pledge of:

    - universal, non-means tested Citizen Income, non-withdrawable, in or out of work.

    That ends starvation altogether in England.

    The 1997 manifesto pledge of the socialists was:

    - state pension at 55 for men and women at £320 per week
    - 50 per cent rise to those already receiving state pension and pensioner benefits.

    As it is the poor and pensioners who shop in town centres, this would generate jobs on the high street, suffering terminal decline into ghost towns in England.

    As there are 23 million over 50s in UK today, and over 13 million who struggle to make ends meet each day, then economists’ theories threaten the lives of millions in the UK today.

  7. William

    - Economics is a “social” science. There’re a number of people who have a very good clue how the economy works. But Friedman is not one of them. He thought that one could increase the money supply without any adverse impact.

  8. yeah but it is a systematized body of study and it establishes cause and effect relationship between any two variables which are being studied in it .

    • The problem is that unlike in science, ’cause and effect’ are not clear or constant in economics, and even seemingly similar events can have a different results in different contexts. For example, the effect of increased education on GDP will vary depending on the level of development in a country.

  9. Theorem:
    How to Create the Impossible Debt that is Swallowing the World (4 minute cartoon)

    Evidence for the Theorem:

    http://paulgrignon.netfirms.com/MoneyasDebt/MAD2014/problem5.htm

  10. Reblogged this on TheCritique Archives and commented:
    “I have thoroughly investigated the evidence regarding welfare benefits and unemployment and found no connection, yet many economists still claim increasing welfare will increase unemployment. The economic crisis should have lead to a serious rethinking of economics, yet it is depressing to think of how little has changed. A subject which still teaches that markets are efficient even after they spectacular implode cannot call itself a science or claim to be evidence driven.”

  11. Economists are paid to give the answers their paymasters want. True economics has to consider all the evidence.

    If we.considered the cost of all the unnecessary infrastructure, the costs to the environment, the costs of the wars it has produced, driving cars would become uneconomical and public transport would improve tremendously. But we don’t. Governments and big business pay economists huge amounts of money to give the car and oil industries hidden subsidies by not taking these factors into account..

    Just one example of how economists don’t look at all the factors and pieces of evidence. They are endless.

  12. Hi

    I got to here “Utility is another concept which plays a huge part in economics that is so vague and undefined that it is hard to know if it exists or how you can possibly maximise it.” and stopped.

    Utility is a well defined concept. It is sad that you seem to have passed through an entire economics degree without being taught what it is.

    A utility function is a representation of preferences. That is, given a person’s choices we define a utility function as being a function that assigns higher numbers to choices that are revealed preferred to other choices. As an example, if you are offered a choice of A and B, and you choose A, your utility function should assign a larger number to A than to B. It’s that simple. Utility is just a representation of preferences.

    Of course there a lot more details and special cases to consider. What if sometimes you choose B, and sometimes choose A? That’s cool, a random utility model can help us there. What if sometimes you can’t make up your mind? We can work with that as well. What if sometimes you violate transitivity? This one is a bit trickier, but we can deal with that too.

    But, as an undergraduate, all you really need to know is that utility represents preferences.

  13. Hi

    UE: your comment is both incorrect and irrelevant.

    • BSF

      Hi: The point by UE is not irrelevant and is arguably incorrect but you have given no proof as such. Utility functions may be well-defined but that does not mean they aren’t problematic. Throughout my economics career, I have seen that utility (and, for that matter, production) functions are invariably chosen on an ad hoc basis. They suit a certain task (ease of use for analytical derivations, correspondence to a stylized fact, etc.) and economists often argue about the appropriate utility function but, in general, do not question whether they should be used at all. They are put forth on an “as if” basis; people don’t actually have utility functions and the vast majority of peole don’t even know what they are but they come close enough to approximating real world behavior that they allow us to better understand agents’ behavior and conequently to make predictions. I have two problems with this line of thinking: 1) “as if” arguments are assertions, not falsifiable statements characteristic of scientific enquiry and 2) economics is very poor at making predictions, thus calling into question whether agents actually act “as if” they have utility functions and, for that matter, follow any of the other assumptions that ecnomists typically make.

      Back to UE’s point, I think I agree. Almost any behavior can be described by a utility function. Furthermore, indeterminacy is a big problem. Which function is appropriate if many (perhaps infinitely many) functions fit the observed behavior? How do we choose among them in a scientific manner? I don’t think economics has good answers to these questions.

      Last point: it is inarguable that utility is a concept that comes from (arguably outdated) philosophy. The use of utility as a central organizing concept infuses economics with value judgments that are rarely considered. And this has real world implications (e.g. the use of Pareto optimality in policy analysis) which push economics away from science and into the realm of philosophy.

  14. Fred Uniborn

    Economists should be and can be neutral: all they have to do is to tell the truth: They don’t know what will happen.

    I compare them to meteorologists. Like meteorology, economics IS a science, but one that has not advanced enough to be that useful.

    I wonder if we could experiment with virtual economies, like those behind many videogames.

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