The day Science killed Economics

"What's in the name?" Shakespear made it clear: "That which we call a rose by any other name would smell as sweet". To Shakespeare the name of things was independent and hence uninformative with respect to their substance. But what if the name of things is not just the carrier of information with regards to meaning but also a catalyst with respect to what that meaning actually is?


Truth and the "Science" Factor

Economics is in most, if not all departments around the world today "named" a Social "Science". Unlike other "social sciences" Economics has the unfortunate capacity of using mathematics to "scientify" and formalize its conclusions. To not completely understate the importance of this capacity I do admit, economics is very much mathematical in some ways. Same as in Engineering, in economics mathematics is a tool, a way to recreate circumstances under which one repeatedly applies certain pressures to a system to see its reaction. Mathematics is in this sense a telescope or a microscope that allows one to see detail, to entertain cause and effect. Unlike engineering however, economics has had a bit more trouble with focus. Unlike engineering, “the engine” that economists have to look into and the “pressures” this engine is subject to depend much more “on the eye of the beholder”. In that way, “economists” are potentially slightly more like physicists. They have to discover the rules by which a system works without being able to  “see” everything, and even worse, unlike physicists, without being able to recreate experimentally situations in a lab. So what the sort of thing economists are looking for is, what the kind of truth they are looking for is, what is its nature: subjective or absolute and whether that truth even exists, are questions the answers to which are, to say the least, ambiguous. For that reason the term “social science” in conjunction with the unfortunate capacity to scientificity has potentially proven problematic not just for the discipline but (looking at austerity and market “liberation” hysteria) for societies as a whole that have to bear the cross of bad economics and the Experts that come with it.

Economics and “the Theory of Everything”

Steven Hawking (The Grand Design), in his attempt to summarize not just the purpose of science but also what we call the “scientific methodology” said the following: “Today most scientists would say a law of nature is a rule that is based upon an observed regularity and provides predictions that go beyond the immediate situations upon which it is based”. Based on observation and on accepting the existence of things such as “natural laws”: relations consistent across time and space within a given “scale” of matter (atoms vs planets), science aims to uncover those laws and compose, like a puzzle, “The Theory of Everything”: A theory that by its composition by “natural laws”, has the power to provide predictions beyond the immediate situation in which it is based.

This is the sort of thinking that underlies the natural sciences. This is also the sort of thinking that has underlied and guided most modern economics. Not only the conviction that certain “natural laws” of social sciences do exist but also that moving from observation to their discovery we can – as “scientists” make predictions beyond the immediate situation on which those laws were based.

This is how economists started asking questions like “Does aid help growth?”, “Does government spending help growth” and other stupid gravity-wide-scale questions. Same as in the realms of physics questions of that “all encompassing” nature are only justified under the premise that “under certain conditions” some consistent and countable relationship between those variables such as aid and growth does exist. One would say at this point: “well yes… but physics has different laws according to “those certain conditions” as well, that’s why we have quantum physics, astrophysics etc…

Economics and the Theory of Nothing

While setting out the appropriate conditions under which a theory: a consistent set of laws, holds is a reality in all sciences, it is probably common sense that the scale of which this takes place is inversely related to the theory’s predictive power. If physics had to device a new set of “natural laws” with regards to gravity and movement of particles for any new building you entered some of that universality would be lost and they’d probably be much less confident in calling them “natural laws”. Only naturally, economics, influenced by its commitment to scientificity, has attempted to find such laws and the set of circumstances under which those theories hold. But what if a theory in economics can only extend as far as the immediate situation in which it was based and hence what if “natural laws” that can make predictions beyond that immediate situation simply do not exist. What if the “circumstances” in the case of economics are for example the particular norms of the area on which the observations were based, the people of a certain demographic, culture, income. What if economic “laws” exists under such a niche set of circumstances of time, space and people that have zero predictive power beyond those particular people and that particular time. What if economics –in contradiction with its crowning as a “science”- can only answer very specific questions like the ones that Banerjee and Duflo (Poor economics) very intelligently set out to do. Questions like: Why did the provision of free bed nets in a given African village did not work to decrease malaria?

Which brings me back to Shakespeare and the violation of the independence hypothesis. The “name”, the obsession with what we believe we have to do as scientists has harmed economic thinking and the progress of economics to the extend that it makes me wonder whether economics has done more harm than good in the past 10 years or even worse whether it has even sought to do good to start with…. Because unfortunately, with labelling something as a science another interesting feature has risen: as to all good scientists so to economists, what has mattered is one’s contribution to one’s science. Hence these days an economist judges another by his/her contributions proxied by one’s publications. A good economist is therefore one who published at Econometrica last May rather than one who helped alleviate poverty in region X of country Y or one who explained why inequality arises as a characteristic of labour market X and redistribution Y in country K.

And it is so large the failure of “economic natural laws” that our conviction to them as economists is equivalent to that of the engineers of a zero gravity planet trying to fire a rocket without fuel on earth just because “by observation” in their planet, floating is possible. The conviction is so tragic that instead of questioning to what extend “gravity of x m/s” is indeed universal, they blame the rocket for not being fired correctly. This is the kind of reasoning that has led to treating the financial crisis as an outlier. An “error”, an element of “randomness” rather than a failure of our assumptions and the laws that come with them a failure rendering the crisis “unpredicted even though predictable” (Dani Rodrik).

The World of 2009 A.E. (After Experts)

As an economist this sort of thinking saddens me. It is toxic not only to our world by the emergence of “expert economists” (as an extension of the notion that economic laws are universal and hence one could indeed be an expert) but it has also held back the discipline from declaring dead ideas as dead, from breaking free and growing past its mistakes to the powerful tool it could be. It is almost as if we live by the cross and the crown of “science” too much to service the people we are meant to be writing about as the reality of the adjective “social” in front of “science” would suggest.

"I almost think we are all of us (economists) ghosts. It is not only what we have inherited from our father and mother (substitute discipline) that "walks" in us. It is all sorts of dead ideas, and lifeless old beliefs , and so forth. They have no vitality, but they cling to us all the same, and we cannot shake them off. Whenever I take up a newspaper, I seem to see ghosts gliding between the lines. There must be ghost all the country over, as thick as the sands of the sea. And then we are, one and all, so pitifully afraid of the light" (Henry Ibsen, The Ghosts)

I' ll finish with an example, as every good economics paper should. An example of the toxicity of experts as a by product of this sort of thinking as well as of our inability to declare "laws": niche and our way of thinking: flawed.

Barry Eichengreen came to my university a few months ago to give a speech on austerity and the financial crisis. While I heard several times about the "events" that we missed as economists and the reasons why austerity had been necessary for some, I heard nothing about equity, about lack of appropriate tools to speak about asymmetries: things that make each economy and each society different, things that economist's "natural laws" couldn't by construction have captured. When the floor was opened to questions I asked him about these things. In the minute of an answer I got to the most important question of the discipline he just couldn't get himself to admit that the tools we have, the way we think about things MIGHT potentially be flawed. I wanted him to have said something, anything to admit his own limitations, the limitations not of what he knows but mostly of how he knows. I guess admitting the silliness of the universality in such an intractable, diverse world would reduce the significance of "experts" like himself. In moments like this it scares me that people like that advise todays’ policies and politicians. I guess that is a different issue not of methodology but of responsibility so I’d better stop here.