How to make economics a realist[ic] and relevant science
from Lars Syll
As yours truly has reported repeatedly lately, university students all over Europe are increasingly beginning to question if the kind of economics they are taught — mainstream neoclassical economics — really is of any value. Some have even started to question if economics really is a science. Two Nobel laureates in economics — Robert Shiller and Paul Krugman — have responded.
This is Robert Shiller‘s view:
Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences: “You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment” …
My belief is that economics is somewhat more vulnerable than the physical sciencesto models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems, complex phenomena that the field of behavioral economics is finding relevant to understanding economic outcomes.
And this is what Paul Krugman says:
So, let’s grant that economics as practiced doesn’t look like a science. But that’s not because the subject is inherently unsuited to the scientific method. Sure, it’s highly imperfect — it’s a complex area, and our understanding is in its early stages. And sure, the economy itself changes over time, so that what was true 75 years ago may not be true today …
No, the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions and uses hard math instead.
My own take on the issue is that economics — and especially mainstream neoclassical economics — has as a science lost immensely in terms of status and prestige during the last years. Not the least because of its manifest inability to foresee the latest financial and economic crisis – and its lack of constructive and sustainable policies to take us out of the crisis.
We all know that many activities, relations, processes and events are uncertain and that the data do not unequivocally single out one decision as the only “rational” one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.
Neoclassical economists, however, have wanted to use their hammer, and so decided to pretend that the world looks like a nail. Pretending that uncertainty can be reduced to risk and construct models on that assumption have only contributed to financial crises and economic havoc.
How do we put an end to this intellectual cataclysm? How do we re-establish credence and trust in economics as a science? Five changes are absolutely decisive.
(1) Stop pretending that we have exact and rigorous answers on everything. Because we don’t. We build models and theories and tell people that we can calculate and foresee the future. But we do this based on mathematical and statistical assumptions that often have little or nothing to do with reality. By pretending that there is no really important difference between model and reality we lull people into thinking that we have things under control. We haven’t! This false feeling of security was one of the factors that contributed to the financial crisis of 2008.
(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions. Mathematics gives exact answers to exact questions. But the relevant and interesting questions we face in the economic realm are rarely of that kind. Questions like “Is 2 + 2 = 4?” are never posed in real economies. Instead of a fundamentally misplaced reliance on abstract mathematical-deductive-axiomatic models having anything of substance to contribute to our knowledge of real economies, it would be far better if we pursued “thicker” models and relevant empirical studies and observations.
(3) Stop pretending that there are laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability.
(4) Stop treating other social sciences as poor relations. Economics has long suffered from hubris. A more broad-minded and multifarious science would enrich today’s altogether too autistic economics.
(5) Stop building models and making forecasts of the future based on totally unreal micro-founded macromodels with intertemporally optimizing robot-like representative actors equipped with rational expectations. This is pure nonsense. We have to build our models on assumptions that are not so blatantly in contradiction to reality. Assuming that people are green and come from Mars is not a good – not even as a “successive approximation” – modeling strategy.
Number four is my favorite; I see economics as a subset of sociology and economists purposefully blind to the economy as a subset of Earth’s environment, which functions on a solar energy budget.
Math isn’t the issue but the fact that the choice of models is so arbitrary (or self serving) and empirical data doesn’t enter in so much (often because it is hard to get, especially from experiments). In this empirical vacuum, as Max Sawicky put, it’s about the politics.
4) Strongly agree, but to some extent it requires more “mathiness” on the part of other social sciences. But it does remind me of a point Josh Mason made, as I understood it, as long as we don’t know how much growth is exogenous (e.g., coming from education and tech, etc), then there’s no way to the assess the social value of all the putative gains to efficiency that neoclassicals claim can be captured by, for example, neo-liberal policies. I.e., Even if they’re right, it could just be a tempest in a teapot.
One can not judge the “scientificity” of economics by the standards of the neo-classical construct, built in good faith but when we were scientifically naive.However, it is now a “religion” at the service of corporations, the public institutions such the World Bank, the IMF, etc.,and the US Dept. of Defense. All heterodox economists who would like to put economics at the service of societies should know that by now.
Real Economics is a complex man-made construct. In that sense, it is “natural” in the second degree. I have seen lots of criticisms of economics based on the fact that it can not predict. Prediction is not a property of complex system. As yourself: Is Meteorology a science? If the answer is “Yes”, then why would you demand accurate predictions in economics, which is as complex as the weather.
If it was up to me, I would ask universities to start teaching economics as a reflexive non-ergodic process whose complexity could be demonstrated by the Kaplan-Yorke conjecture , and whose attractor could be reconstructed via the Takens’ theorem(1981). Then, I would identify and put the patterns thrown-off by the economic system at the service of society.
How can you have any social “science” that purports to deal with humans who, in the real world are highly embedded in time and space for example, or in space-time for the daring, in a discipline with no time or space in the modeling or core assumptions/”axioms”? What is the real-world time lag between t-1 and t or t and t+1? Where is this economic activity located in location and geographic “Place”? How do you realistically assume an individual representative actor in a system that celebrates “diversity”, and requires it for mass consumption and markets requisite for the expanded reproduction of capital and capital-labor relations?
Then we get into the real-world and highly interdependent realms or spheres of the geography of economic activities (hydrosphere, lithosphere, pedosphere, biosphere, atmosphere, magnetosphere and cognitosphere or the realm of human thought and policy shaping human conduct and where and when it occurs and its impacts on location and Place) all of which is simply assumed away as “too squishy” to be quantified and thus be included in “scientific” modeling. As Heibroner put it: “Mathematics has brought to economics rigor and alas also mortis”.
Next, we get into the real-world dimensions (“contexts themselves interdependent) of the social formations and modes of production into which humans are born, socialized, limited by institutions and resource limits, all of which “economics” must assume away, (to construct some kind of “pure economy” and “pure economic actor” that can be abstracted to build the models that can incorporate quantifiable variables, parameters, functions and constants of their modeling): geographic-historical sphere; politico-legal sphere; socio-cultural sphere;
Finally we get into the real-world of the political economy of commodified academia where theories and their theorists are commodities traded on various markets like any other commodity. They have to be able to supply according to the effective demand which, in academia, is NOT FOR free thinkers, people who would not trade integrity and intellectual honesty and courage for tenure or some promotion, people with substance who eschew schmoozing and networking, people who seek modeling “isomorphic” with the aspects of reality being modeled rather than assumed and contrived realities “isomorphic” with and allowing the forms and levels of math that are being showcased to get into some “prestigious” journal, get tenure, a promotion, a grant, lucrative book deals and speaking gigs, position at a “prestigious” institution etc.
Bottom line? Under capitalism, cannot buy or effectively demand what is not for sale and cannot be corrupted, bullied or co-opted to effectively supply just as no one can effectively supply what is not being bought and for which there is no effective demand.
Like any other professionals, economists fall into four categories described by competence and charlatanism. There are competent charlatans, non-competent non-charlatans, competent non-charlatans and non-competent charlatans. What counts as economics at any given time is determined by the balance of authority conferred on the various components from both inside and outside the discipline. It is not the scientific rigor or pretence that confers this authority. Science is rhetoric.
Paradoxically, the cherished strategy for refuting the charlatans is to challenge the rigor of their scientific pretensions. This reinforces the myth that the authority of economics is or should be a matter of objective determination. Meanwhile, the technical jargon required to mount an effective rebuttal remains incomprehensible to the uninitiated. Must the layman then become fluent in gibberish as the only conceivable defense against the abuse of gibberish?
Rather than dwelling incessantly on how to restore the elite status of economics as a science, wouldn’t it make more sense to systematically compare it to other idioms and genres of publicity and mystification (some of which are more accessible to a broader public)?
I hate to sound too radical here, but how about, as a test of the “scientific nature” and extent of “rigor” of any theories, propositions, asserted “axioms” or modeling, is in the application and relevance to real-world issues and conditions–as expressed by those living under them?
How about those being interviewed to provide “data” having access to and being able see and understand what has been written about, themselves and their own lives that produced the “data” for the scholarly research? Of course that would mean that the prose and math might have to be translatable to and for the people who provided the data (and can report later on how well these various theories, policies, propositions and asserted “universal truths” are working out).
How many of those, for example, doing theory work on say the economics of discrimination in the workplace ever follow-up with those whose lives they have intruded on, who shared their lives and sufferings yielding the “data” in their research on their dissertations or got them tenure, just to see how they are doing?
Or how about running by some of the research subject’s core constructs and how they are to be measured, with the people living under the conditions those constructs are supposed to provide some measurement of state as well as changes in? For example, for someone working on the political economy of American Indian Reservations could find out, from those who live there, all sorts of possible constructs and metrics (e.g. percentage of members of the Tribal Council from the same Clan or Family or Price-spreads between and availability of certain commodities Rez vs surrounding urban areas) revealing the conditions there that the isolated, detached, hypothetico-deductivist academic theorist could never know or know how to use “apriori” or as a matter of asserted “universal axioms” of human conduct and “choices”and the motives behind the conduct and choices. .
And finally, when do we get to the issue of “structure” which granted is difficult to quantify to assess changes in structures and their implications? For example, we focus on quantifiable levels (even if measured with bogus metrics) rather than structures of output, income, prices, trade etc. What about the specific types and relative quantities being supplied or demanded (commodity structure)? What about chronic mismatches over time and space between what and how is being supplied or demanded? What about where and when various commodity types are being produced and demanded and imbalances in temporal-spatial structures? What about the issue of structures of supply and demand affecting structures of investment and vice-versa, affecting distributions and structures of incomes and wealth etc? What about endogenous as well as exogenous aspects of even vast institutions themselves (SSAs)? What about the issue of complexity (number and interdependence of decisions or tasks required) of structures as a variable or parameter, and how to measure it?
What happens, when, outside of anything allowable within neoclassical theory, not only are changes in say “expectations” acting as ” exogenous shocks”, triggering changes in supply or demand, thus changing market prices via clearing any short-run shortages or surpluses, leading to some kind of new and “predictable” equilibrium state via the endogenous market-equilibrium processes, what if, instead, as happens in the real world, not only is market price shaped by changing expectations that influence changes in supply or demand,, but the changing market prices then feedback on the expectations ( where do expectations and changes in them come from?) in the same or opposite directions e.g. bubbles in housing, finance and so many other kinds of markets, so that market price is not “determined” only by changes in supply and/or demand, but market price feeds back in a positive loop, and becomes also a partial determinant of changes in expectations that lead to changes in market supply and demand? What happens when the forces on the supply side are not autonomous from those on the demand side but there is some co-determination between supply and demand?
Science is not only what science does and how it does it, tests its results, but how and for whom it applies and tests and corrects what it does. The development of Zyklon-B gas by the Nazi chemists, was not only anti-human, but not even real science in how its effects were tested and verified before use. From Marx;s letter to Arnold Ruge in 1843 who was asking Marx to be more specific in laying out what future socialism might look like, he wrote back:
“If the construction of the future, and its completion for all time is not our task, all the more certain is what we must accomplish in the present: I mean, the ruthless criticism of everything that exists; the criticism being ruthless in the sense that it fears neither its own results nor conflict with the powers that be.
Doing real science, which requires intellectual courage and honesty, can be hazardous to your career, your life, your reputation, your liberty and your health.
https://sttpml.org/on-intellectuals-and-their-duties-in-the-21st-century-to-speak-the-truth-and-expose-lies/