Economics Is Not a Science
Mark Thoma has written a piece that expresses a major concern I've had lately. Namely, one can no longer believe that economics can be considered a science because the experts in the profession are unable to truly explain the cause of the crisis or what needs to be done about it.
As he says:
[W]hen [the financial crisis] was finally discussed, the reasons cited for the financial meltdown were all over the map....How can some of the best economists in the profession come to such different conclusions? A big part of the problem is that macroeconomists have not settled on a single model of the economy, and the various models often deliver very different, contradictory advice on how to solve economic problems. The basic problem is that economics is not an experimental science. We use historical data rather than experimental data, and it’s possible to construct more than one model that explains the historical data equally well. Time and more data may allow us to settle on a particular model someday – as new data arrives it may favor one model over the other – but as long as this problem is present, macroeconomists will continue to hold opposing views and give conflicting advice....This divide in the profession also increases the possibility that the public will be sold false or misleading ideas intended to promote an ideological or political agenda. If the experts disagree, how is the public supposed to know what to believe? They often don’t have the expertise to analyze policy initiatives on their own, so they rely on experts to help them. But when the experts disagree at such a fundamental level, the public can no longer trust what it hears, and that leaves it vulnerable to people peddling all sorts of crazy ideas....When the recession began, I had high hopes that it would help us to sort between competing macroeconomic models. As noted above, it's difficult to choose one model over another because the models do equally well at explaining the past. But this recession is so unlike any event for which there is existing data that it pushes the models into new territory that tests their explanatory power (macroeconomic data does not exist prior to 1947 in most cases, so it does not include the Great Depression). But, disappointingly, even though I believe the data point clearly toward models that emphasize the demand side rather than the supply side as the source of our problems, the crisis has not propelled us toward a particular class of models as would be expected in a data-driven, scientific discipline. Instead, the two sides have dug in their heels and the differences – many of which have been aired in public – have become larger and more contentious than ever.
The economists and business professionals that make the most sense to me are people like Paul Krugman (who foresaw that a liquidity trap was a realistic economic outcome even today from damaging financial crises from his studies about the Japanese economy after their real estate bubble of the 80s) and Mark Thoma, but they are outshouted by the austerians who want to starve the economy back to health by gutting government during a massive unemployment crisis. How can we ever call economics a science when the worldview of the economists is so intertwined into how they read the evidence? At least with science it is possible to build a true scientific consensus where the evidence is so overwhelming that the vast majority of scientists conclude that something (like anthropological global warming) is real. With economics there doesn't seem to be anyway to create evidence that won't be corrupted by the human observer's biases.
Update: Krugman points out that in economics, the IS-LM model derived by John Hicks has been very good model of what we are seeing today. Using models that do predict the data is a much better way of coming up with answers than using a predilection for pro-or-anti-government/pro-or-anti-regulation bias. Perhaps economists will someday actually use evidence and really model the world in a way that will help societies make better decisions. Currently, it is Krugman and his salt-water brethren that have been doing a better job on looking at the evidence.