Economics: Science, Art, or Politics?

led zeppelinIn the midst of researching a completely unrelated topic the other day, I stumbled across a gem of an essay from an August issue of The New York Times entitled, “What Is Economics Good For?” The article was written by Alex Rosenberg and Tyler Curtain, who are, respectively, the chair of the philosophy department at Duke University and a professor of English and comparative literature at the University of North Carolina, and they make the general assertion that characterizing the discipline of economics as a “science” may be erroneous, and perhaps even a bit irresponsible.

Rosenberg and Curtain do not dismiss the importance of economics or suggest that it cannot be used to positive effect, but the key point of their “economics is not actually a science” argument is that a true science, even if it occasionally relies on idealizations to describe phenomena, always works towards (and eventually achieves) improvements in its predictive ability – which economics, in the century-and-a-half or so that it has existed as a formal discipline, has not done, despite adopting many aspects of a scientific approach. The main reason for this, Rosenberg and Curtain suggest, is that economics attempts to empirically explain the behavior and interactions of a large number of social constructs – markets, institutions, and even individuals. Unlike a discrete factor (they use gravity as an example) which we can exploit but not destroy or fundamentally alter, the characteristics of economic factors are artificial conventions, and can be changed. In a sense, there are no constants in economics, and that makes it difficult to consistently apply or derive scientific “abilities” from it – falsifiability, repeatability, and predictability.

The argument is compelling for a couple reasons, not the least of which being that is made by disciplined analytical thinkers outside the realm of economics.  They are absolutely correct about the flaws in the “science” of economics that they describe, but on the other hand, all social sciences are potentially flawed in similar ways. What makes economics unique – and consequently, makes an economist a less credible judge of whether or not his discipline is a real science or not – is that the way it has evolved in practice has attached an almost inseparable political component to it. Any perceived constant – which as is pointed out above, is only a constant as a matter of convention – has any number of operational effects depending on one’s ideological orientation.

For example, let’s say a particular country sets a goal of a yearly growth rate of 5% in its Gross Domestic Product, and asks a variety of economists two questions: First, what growth rate will the country achieve if nothing is changed? And second, what has to be changed and in what manner in order to achieve the target growth? The Monetarists will base their analyses and recommendations on the effects of government monetary policy on the behavior of financial markets. The Mercantilists will base their analyses and recommendations on the impact of government intervention on commerce, but will argue about what degree is beneficial depending on whether they have more libertarian (Austrian) leanings, or more protectionist (Philadelphian) perspectives. And the Keynesians will base their analyses and recommendations on the scope and size of government spending. These economists will provide four or five (or more) different answers to the same problem, and to further confuse the issue, in the context of scientific validity as it is understood and accepted within the field of economics, they can all be correct. Or not.

So what does that make economics? And more importantly, what value does it have for everyone else? It is not a science, nor is it a mere art, and calling it an application of political theory, while perhaps at least partly correct, is still inadequate. Maybe the best description is one borrowed from our friends in the IT business – economics is actually a very complex methodology for the management of behavioral data. After all, data management doesn’t really exist on its own, but in the context of its application: The operational objectives and requirements of the enterprise using it. So in that sense, economics becomes slightly more difficult for the average non-biased, non-economist regular citizen to use; unless the perspective behind the economics is understood, the analytical results and predictions will be at best divergent to some degree from the observer’s reality, or worse, completely incomprehensible.

For the economist who genuinely seeks “truth”, or empirical correctness in the spirit of “true science”, a great effort must be expended to avoid bias. The only way to do that, it seems, is to be willing to objectively view economic problems from every perspective; the Monetarist and the Austrian must not only understand the fundamentals of each other’s point of view, they must set aside their assumptions that the other is wrong. That is a rather big challenge – thanks to a global education system that tends to ideologically compartmentalize economics from the very first lessons, most economists will not be able to cross those boundaries. So for everyone else, the best advice probably is, “take it with a grain of salt.” If you truly wish to understand the economy, don’t rely on the first “expert” to grab your attention, but seek the dissenting points of view; put them all together and you might – might – find something that is usefully-reflective of the real world.