Wednesday, November 26, 2014

Is Economics a Science?

NEW HAVEN – I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?

One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.

There is no Nobel Prize for engineering, though there should be. True, the chemistry prize this year looks a bit like an engineering prize, because it was given to three researchers – Martin Karplus, Michael Levitt, and Arieh Warshel – “for the development of multiscale models of complex chemical systems” that underlie the computer programs that make nuclear magnetic resonance hardware work. But the Nobel Foundation is forced to look at much more such practical, applied material when it considers the economics prize.

The problem is that once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.

Why is it called a prize in “economic sciences,” rather than just “economics”? The other prizes are not awarded in the “chemical sciences” or the “physical sciences.”

Fields of endeavor that use “science” in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have “science” in their names to distinguish them from their disreputable cousins.

The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.

There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.

In fact, even the term chemical science enjoyed some popularity in the nineteenth century – a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of imposters was already fading by the time the Nobel Prizes were launched in 1901.

Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term “astronomical science.”

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.”

But physics is not without such critics, too. In his 2004 book The Trouble with Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next, Lee Smolin reproached the physics profession for being seduced by beautiful and elegant theories (notably string theory) rather than those that can be tested by experimentation. Similarly, in his 2007 book Not Even Wrong: The Failure of String Theory and the Search for Unity in Physical Law, Peter Woit accused physicists of much the same sin as mathematical economists are said to commit.

My belief is that economics is somewhat more vulnerable than the physical sciences to 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.

But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy’s irreducibly human element.

The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models. And, while economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields. As economics develops, it will broaden its repertory of methods and sources of evidence, the science will become stronger, and the charlatans will be exposed.

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    1. CommentedM A J Jeyaseelan

      Economic phenomena do not have the same intrinsic fascination for economists as the internal resonances of the atom because hardly any contemporary economist understands it.

      Economists these days deal with nothing but policies, which are of immediate interest to politicians or businesses because that's what pays one to be an economist outside the mundane profession of teaching. It would be wrong to say that the economic phenomena are not fascinating enough. Economists have stopped paying attention to it because of their lack of understanding on the one hand and the absence of attractive returns on the other. The Nobel Foundation has indeed done a great disservice to economics by recognising only those who wear the cloak of mathematics.

      Economics is the most fundamental of all sciences because one will have the opportunity to pursue any other science only when one's own survival is secure and only when scientific researches are economically feasible. It is because of this reason, the US had to cut down heavily on its space research. When companies face difficulties it is R & D expenditure, which goes under the guillotine first. Economics determines the feasibility of everything.

      What most economists fail to recognise is the fact that economics dictates the limits of all laws, relationships and governance frameworks. Any person, economy or empire, which does not understand the basic economic phenomena and fails to abide by its invisible rules will go under. It is not as if economists are completely unaware of it. They just do not understand it and they call it the 'invisible hand'

      It is when people's greed fail to pay heed to the needs of the economic phenomenon, economies get shaken up at the roots. Economic phenomenon did not spare even the greatest empires in history to flout its rules. It will not allow any country to ignore its basic principles, how ever mighty these countries might assume themselves to be.

      It is a pity that persons who do not understand the economic phenomenon or do not care to study it claim themselves to be economists.

    2. CommentedWorld View

      Taleb is right. Economists often hide behind complex equations and try to act too smart. If they are so smart why do they not make money in the market. Why is their primary source of income teaching and research and not application of their equations.

    3. CommentedRobert Mullen

      A fine question. Touching on a few aspects....
      It doesn't matter much whether we call it economics or economic sciences. But there are standards. To me science looks for "laws" that attempt to describe the relations and behaviors of entities in the world. The entities are (in some sense) real. Engineering uses those concepts and laws to achieve various ends. It makes or does things by using scientific knowledge. Engineering projects may fail either due to flawed/incomplete science, due to bad or incomplete planning, or due to unanticipated shocks.
      The problem with economics is not the people, nor the presence or lack of math, but the attempt to do economic engineering without a basis in economic science. Right now much of macro economics is at the level of chemistry before Lavoisier. We use artificial concepts like GDP, Liquidity, Competition that have no more reality than the Phlogiston and Caloric of the eighteenth century. We are dealing with bogus entities that are neither real nor invariant. We can do all the math we want -- it will sort of work in its own terms, there are some rules of thumb, but in the end we have (in the US) forty years of essentially flat median income. We can't agree why, and our best minds can do nothing better than suggest that the successful countries copy us.

        CommentedM A J Jeyaseelan

        I wish there were enough real world applications of economics, which would have made room for economic engineers. It would be absurd to compare economics with the engineering domain of other sciences.

        The engineering domain requires the theoretical soundness of its fundamental sciences. I do not how economics, which neither has strong foundational theories nor any reasonable application portfolio can claim to be an engineering discipline

    4. CommentedNathan Coppedge

      The point seems clear about how economics IS a science, in that not everyone succeeds as an economist. But does ECONOMICS succeed, is a more philosophical question.

      I have read a number of economics articles, and finally concluded that some of the basic secrets involve the following: (1) Reciprocal variables, (2) Quantification of systems, and ignoring 'knowns' and 'unknowns', 'markets' and 'cycles' then perhaps, (3) Universal variables, and (4) Casuistry.

      More than most disciplines, economics seems to benefit by abbreviations, which is why it's maddening that such abbreviations do not often occur. Evidently words like 'market' and 'vicious cycle' are more appealing, so much so that these secondary terms become central to the majority of writing on economics.

    5. Commentedjj wayne

      It is refreshing to see Shiller's candid admission that existing economics is more
      like an engineering rather than a science. That is much better than pretending, or
      unwillfully/willfully ingorance.

      However, it is very wrong for Shiller to say that "economic phenomena do not have the same
      intrinsic fascination for us as the internal resonances of the atom or the functioning
      of the vesicles and other organcelles of a living cell."

      No! No! No! Professor Shiller, almost everyone including almost every physicist and biologist
      in the world are much more interested in learning how to predict the financial markets
      than learning the works of atoms or organcelles. The REAL PROBLEM is that economists so far
      have almost nothing useful to teach us! THAT IS THE PROBLEM. No economist WAS able
      to answer question whether the financial is predictable and let alone how to predict it.

      Everything in the physics world is predictable. Physicists just found Higgs boson predicted
      50 years ago! Amazing. Yet all of sudden, in the most approachable length and time scale
      of everyday life, there is a black hole of knowledge and we are still wondering whether
      the financial market is predictable and how to predict it. Something is very wrong here.

      BTW, Professor Shiller and others, whether economics is a science should be considered as a settled issue.

      There is no doubt that economics is a science. It is a branch of quantum physics!

      Economics does have immutable laws: physics laws of social science. Please check out

      Economics does have a universal mathematical framework like Maxwell’s Equations for
      electromagnetism: a fundamental equation of economics. Please check out

    6. CommentedDaniel spillane

      A.J.: I think you can't see the forest for the trees; hence, you miss out at what troubles the heart of the wood. In this case, Robert has appeared as the Lorax at a time of great "Thneed"(1)--where "economic charlatans" are mindlessly chopping the Truffula, which are driving the fauna away. It is the *behavior* of chopping, and being driven, that are part of Robert's science of economic forestry.

      In short, bring on the behavioral new growth, and respect the quantitative old wood.

      Dan Spillane
      Seattle, WA

      (1) "Thneed" a ridiculous ... invention ..."which everyone needs." (Wikipedia)

    7. CommentedEdward C D Ingram

      My work takes all this a lot further.

      The problems we all face are not to be solved by tinkering with the economy.

      They are based in the financial services sector.

      I have been talking of 'Wealth Bonds' for at least a decade. Robert Shiller calls them Trills - linked to GDP, but the concept is basically the same.

      What we need to do is to roll out these kinds of financial services so that we are all financially safe. Once that is done we do not have problem with macro-economic stability or management of the economic cycle.

      It is all explained in my draft book on my Blogs. Influential people say it will become prescribed reading at universities.

      If anyone wants to publish some of it here as a co-author - I invite you. Especially the Actuarial Maths pages. These are the key.

    8. CommentedZsolt Hermann

      Economics is the external expression of human inter-relationships.
      Humanity is an integral natural system, which is becoming much clearer these days when we realize we evolved into a global, totally interconnected and interdependent network with each other.
      Studying such a system through economics, and concluding results from such study would constitute science.
      And I have no doubt about the credentials of those receiving prizes and accolades for their work.
      So why do we see such controversial, contradicting results, conclusions today, and why does it seem that regardless of the credentials and prizes no theory can solve our deepening global crisis?
      Because the system present day economists study, examine and make conclusions of is not a real system, but is based in an illusion.
      Humanity, while evolving from, and still existing within the vast natural system around, invented an artificial human bubble which increasingly left any natural foundations and became totally disconnected from anything real.
      Not only our economics but each and every aspect of our lives.
      It is not the economists' fault of course, but while other sciences study the inanimate, vegetative and animate parts in nature and despite their very subjective tools and study they can get a bit closer to "true observations", since economists and other "human sciences" study human interactions, as a result today and for a long time now they have been studying illusions, dreams, fairy tales.
      Until we humbly accept our role in the natural system and take on its unbending, strict natural laws and principles again, until we learn to adapt to the system instead of trying to fashion it to our liking based on artificial, excessive demand and the belief that we are above the system, these human studies, sciences have no chance of studying anything close to real.
      These people are great scientists, bright minds, and placed into the right paradigm, within the right coordinates, they will be able to build true economics that could serve as foundation for a sustainable global human network, but not before.

        CommentedEdward Ponderer

        I tend to agree. The problem with economics is not per se, the competence, even the brilliance, of those pursue and extending its normative models, but rather a change in scenario with globalization. In physics, relativity and quantum mechanics hardly relegated Newtonian physics to the dustbin as it remains a limiting case which covers the vast majority of practical phenomena. But this is simply not the case in economics under globalization. It represents not only a phenomenon of two-dimension space closure and related resource / waste disposition dimensions, but a multidimensional interaction of vast proportion and nonlinearity. It is far to complex, chaotic to continue within the grasp of simple models but requires a distributed interactive reality of the order of a continuous swarm intelligence of humanity with local economists among them. Nothing short of this "Mind" can handle "the new math."

    9. CommentedPaolo Magrassi

      Economics is not a Galilean science because controlled and repeatable experimentation is not possible. (You can't fail Greece, or raise inflation to 10% in Germany, or shut down Apple, and see what happens. Much less you can do it over and over again, within unaltered side conditions). It is true that there are a few axiomatic glitches in areas of physics as well, however these are exceptions, while axiomatic reasoning is the inescapable norm in economics.

    10. Commentedde Lafayette

      Science = the systematic study of the structure and behaviour of the physical and natural world through observation and experiment.

      Art = the expression or application of creative skill and imagination

      Academics tend to treat political economics as a science. Politicians know it is an art.

      Why the difference? Because a science tries to employ precise solutions towards achieving an objective. But politicians know that implementing economic policy decisions is art due to the vagaries of human nature that can undo them.

      Which is also why there are damn few politicians with a good grounding in economics.

    11. CommentedPatrik Willot

      Any student in economics should be reminded the following quote from the Cambridge (U.K.) professor Joan Robinson: "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists." We still pay the price of giving a Nobel price to monetarist M. Friedman or glorifying A. Greenspan at the Fed..

    12. CommentedGiles Conway-Gordon

      Robert Shiller's wish to liken economics to engineering is, on any dispassionate analysis, fanciful in the extreme, not to say delusional.
      He seems to wish to assert that economics has achieved over its history a substantial and increasing body of sound, reliable work which has steadily improved the way economies are managed and, consequently, significantly increased human well-being. This is simply nonsense.
      To see why, one has only to compare the miserable recessionary conditions still prevailing in the major economies, five years after the global financial crisis and after much more than a century of theorizing and policy prescription by economists, with the extraordinary trajectory of real advances in the physical sciences and engineering. Take, for example, manned flight (to select only one of a myriad similar records in many sciences), from the Wright Brothers to the Boeing 787 Dreamliner, not to speak of landing on the moon, Voyager and the Hubble telescope. The comparison is manifestly absurd (and blaming the failure, by implication, on the politicians is dishonest).
      Contrary to what Professor Shiller claims, the inherent variability of economic behaviour at all levels, from the single consumer to the firm to developed economies, makes it impossible to distinguish the 'charlatans' from the virtuous.
      The most appropriate judgment on the scientific value and methods of economics was given by Friedrich von Hayek, one of Professor Shiller's Nobel Prize in Economic Science predecessors, in his acceptance speech for the Prize in 1974. Hayek's speech was entitled 'The Pretence of Knowledge' and in it Hayek identified the methods of economics as, essentially, 'scientistic' rather than scientific, that is, claiming the validity of the processes of the physical sciences without any valid justification.

      Giles Conway-Gordon

    13. CommentedYoshimichi Moriyama

      Someone found economics too difficule a discipline and went to physics. He was rewarded for this decision. He was given the Nobel Prize years later. Bertrand Russell said, hearing this, that he had given up economics, finding it too easy. Roy Harrod commented on Russell that he could not have done the work such as Keynes did because he simply lacked this-worldliness such as Keynes had.
      I found both disciplines too difficult ror me and gave them up, thus perhaps leaving room for Prof. Shiller's Prize. But economy is too important an affair to leave only to economists and I shall be pardoned for poking my nose in.

      What is economics about, after all? My conjecture is that it is a kind of science; it is composed of facts and logics; it is a chart made up of them. We need a chart in our navigation, in our navigation of the economic world. We need it for engaging in economic activities; it can tell us the course of least resistance or the course of lowest cost and highest profit.

      But my question is, though I am amateurish, that the production of lowest cost and the consumption of highest profit is everything.

      No Japanese has been awarded the Nobel Economics Prize but we have had excellent economists, to mention only a few, such as Michio Morishima (M), Hirobumi Uzawa, Ryutaro Komiya (K), etc. R says that only a quarter of economic theories are of use for policy-making. M said that it was a pity that the foundations of economics were laid in modern Great Britain. I guess that M meant we could have comprised different economics.

      What is economics as a science about?

    14. CommentedM1ro Br@da

      Nobel prize is not (can't be) objective even for so called 'hard science' like chemistry, physics, medicine...
      The (maximization of) utility concept in economics, is subject of psychology - and should unite economics and psychology.
      The reason why it is divided is a power - to move less profitable spheres from economics to psychology or sociology ... Also economists do not seem to take any responsibility - whatever happens (often opposite what they proclaimed) - does not really matter...
      I developed the concept of maximization originality as a student of PhD in economics in 2000, and almost published in journal of socio-economics -returned after 2nd round because the social element was 'missing'...
      Anyway here it is:

    15. CommentedDavid Cowburn

      Purely as a technical comment, this year's Nobel for chemistry is cited for the computation of chemical reactivity unrelated to magnetic resonance. Karplus has made significant contributions to magnetic resonance as a analytical tool, but this is not the prize basis.

    16. CommentedGuy Vaughn

      Until Economics and most social sciences embrace Biology, Genetics, and concepts like genetic self interest that underlies much of human behavior, they can only describe these behaviors as metaphor.

    17. Commentedsrinivasan gopalan

      Prof.Shiller has nicely defended his domain, having been conferred this year's Nobel Memorial Prize in Economic Sciences. His contention that the tag of science is important for the recognition and insulation from charlatans looks far-fetched. May be Nobel Prize Committee is still seized of its fascination for anything science or scientific that it deserves an award. In fact, the brilliant logician, mathematician and philosopher of contemporary time Bertrand Russell was given Nobel Lauerete for his literary style in English Language and not for any of his demonstrated acume in the fields he pursued throughout his long life. In fact the famous novelist and journalist Arthur Koestler in one of his scintillating works The Roots of Coincidence argued for conferring scientific status to para psychology and extra-terrestrial phenomenon such as ESP and clairvoyance. The study of particle physics, Koestler argued, became a fascinating one as the physists proceeds of assumptions while delving deep into sub-atomic particles and he relevantly said that physics becomes metaphysics here when it proceeds on assumption. It would be nice and proper for eminent people not to insist on the fact that what they propound or find is based on science and scientific rigour inasmuch as non-science field is also replete with sparkling wit, wisdom and penetrating insight into things that normal minds are not given to explore! This in no way detracts the achievements of eminent people inclduing Prof. Shiller who need not add his shrill voice in defence of science or scientific status to his pursuit for glory and fame. G.Srinivasan, Journalist, New Delhi, India

    18. CommentedDaniel spillane

      This comment is a test--certainly a scientific one. Has anyone had problems with profile freezing, deleting, or censorship?

    19. Portrait of Gudmund Hernes

      CommentedGudmund Hernes

      The test of a science is whether you can agree on a procedure for letting facts decide who is right when you disagree on the model of what is going on.

    20. CommentedStefan Olsson

      If referring to positivism, and the school of those philosophers that claimed that science and theories, and their inquiries need being measurable, yes economy is no science. I believe, however, that few would agree to that definition today even though a solid argument and test result becomes more justified if it can be backed up by such validated and measurable evidences. Economy and physics are to different entities, still comparing the two by referring to non-measurability in economics as well as string theory in physics offers an interesting perspective in the context of metaphysics. Bring in the philosophers into the discussion. Philosophers possess knowledge in scientific inference and metaphysics. Contemporary scientists is in many faculties forced to use ceteris paribus conditions to analyse and provide proof on theories and that per se means inference uncertainty of significance. Perhaps we need to accept this? If we are to extend our knowledge beyond e.g. The Higgs particle, string theory, quantum physics and political science. To be improving the cross-scientific research and and post-scientificly return to the days of non-compartmentalizing faculties, back to pre-Newtonian era where physicists also dealt with philosophical theories. The means of breaking new scoentific ground is, perhaps, to broadening our perspective, to build a new edifice of further understanding. Perhaps we need to acknowledge Thomas Kuhn's shift of scientific paradigm, abandoning the present positivistic view in favor of brand new approach to inquiries, measurements, inferences and knowledge. Perhaps we shouldn't listen to Wittgenstein when he claims that "the limits of my language is the limit of my world". Economy can never enter the scientific society if metaphysics do not follow suit.

        CommentedDaniel spillane

        From philosophy, is derived ethics (moral philosophy) and logic. In the US at least, neither of these are required curricula for a college degree, last I checked. Computer Scientists are taught discrete mathematics, and some engineers combinational logic. Most Computer Science curricula also require statistics. Meeting at three disciplines for some Computer Scientist is analytics; what's really needed is policy making based on such a scientist, sitting down with perhaps a Behavioral Economist and a Philosopher-Ethicist. And whoa, given the state of our economy--these three could become drinking buddies.

        A political "scientist" is nowhere to be found, nor a lobbyist. Now...what happened to Ross Perot with his "flip charts"? And if he had them to show Congress, would they blink and then reduce complex issues to political "science", much as they do with reports from their own GAO?

    21. CommentedProcyon Mukherjee

      If we consider 'Science as falsifiability', then Economics wouldn't even come close, but if as in any scientific inquiry, the fundamental tenet rests on logical reasoning, testing hypothesis or making inference as in any other Scientific subject, then Economics definitely graduates; the problem compounds when two opposite views are substantiated by two schools of thought, each vying against the other and policy is misguided therefore taking cue from each, while achieving precious little as a consequence.

    22. CommentedWayne Davidson

      That sovereign states and by default politicized central banks would apply Keynesian economic principles to a global system that is defined by phenomenology defies reason. Equally, the failure of local retrospective assumptions and remedies to address the distortions inherent in complex global systems underlines why applying heuristic solutions to the probability of risk under the guise of science is untenable.

    23. CommentedJose araujo

      What defines a science is the way you persue knowledge. The problems of economy are the same has other sciences,social and natural, the problem is the way some pursue knowledge, and drift away from the scientific method. IMHO we don't hace sciences, what we have is scientists doing their work and many impersonating them for easy results fame or conformation of theire prejudices. We have been plagued with prejudice and aprioris in many sciences (Genetics, Medicine, Biology, etc etc) economy is just on of this fields

    24. CommentedJose araujo

      Well, the Austrians have been proved wrong a long time ago, both by empirical data and by logic. People tend to confuse theories with hypothesis, now a theory should be a proved hypothesis. ABC was a hypothesis wich was negated