Last week, Tyler Cowen linked to this discussion by UCLA economic historian Matthew Kahn on why progress in economics is so difficult. There are two claims made in Kahn's post that are particularly relevant to readers of this blog. First, there is the claim that economics is inherently more difficult than the natural sciences because economists don't deal with a stationary environment, but instead an environment which is "bombarded with shocks" that constantly changes the equilibrium. Not only does the environment constantly change, but the actors within the environment are heterogenous, act on limited knowledge, and are prone to mistakes, etc.
Nothing Kahn mentions in this critical paragraph cuts against the arguments that Austrians have argued from Menger onward. Well, except that Mises actually made the argument that the unique human element in economics actually privileged economics over the natural sciences. Which leads to the next point Kahn makes.
Kahn thinks the difficulty with the economic environment, also means that progress is less likely. Austrians, instead, argue that progress will come from embracing the analysis of the dynamic environment and all that means for the way we do economics and what we can expect from economics. Instead, Kahn finds the changing environment to present difficulties for data collection and the quality of data that economists work with. In the end, this means that if progress is in fact made over the next 30 years Kahn will be surprised (happily so).
But, of course, a lot turns on what is meant by progress. If by progress what is required is that economics produce results which would be appropriate for a science that dealt with a stationary environment and that hope is to be found in better quality data, I fear the appropriate position is one of pessimism. But if we change the idea of scientific progress to be consistent with a science that deals with complex phenomena and constantly changing environments, then I believe there are plenty of reasons to be quite optimisitc.
What is your reaction to Kahn's presentation?
"Happily, there is nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it."
(J.S. Mill, Principles, 1848: Book III, Ch. 1).
Posted by: Roger Koppl | November 02, 2009 at 12:35 PM
It seems to me that economics is not a science. or at least it is less a science than physics, chemistry or biology.
Although science is usually considered a in-or-out category, I have no problem of conceiving it as a spectrum. (Both tomatoes and apples are fruit, and yet apples seem to be more "fruity" than tomatoes, i.e. apples better exemplify the ideal fruit.) The hypotheses of economics are unusually difficult to test empirically; logical falsification normally requires more generous assumptions than in the other sciences, i.e. the problem of theory-ladenness is deeper. Accordingly, the focus of economics shifts away from predicting specific events and toward explaining how things work in principle -- mathematical modeling and praxeology are both ways to achieve that.
Unfortunately, this would make economists less relevent to the change political scene. Hayek said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design," but that isn't a line that that "man of the system," to borrow Smith's phrase, is keen on hearing. In other words, there is a strong demand for economics to masquarade as a science like physics or chemistry, and we all understand in principle what happens to supply when there is a demand like that.
Anyway, that's my tentative feelings on the matter.
Posted by: Lee Kelly | November 02, 2009 at 12:55 PM
According to Whewell's Hirearchy: Sciences are ranked according to the level of precession that is possible from each. His observation of the early 19th century state of affairs follows:
A: mathematics and physical sciences;
B: chemistry and mineralogy;
C: geology and geography;
D: natural history (biology);
E: statistics;
F: Economics and other social sciences.
[Taken from Deborah Redman, 1997]
The goal of progress is to improve all other sciences to the level obtained (at the limit) by mathematical sciences. Readers of the blog are no doubt familiar with the reasoning behind using math in economics to make the science progress in this way.
So the question is, has economic earned its relatively prominent position by approximating the level of certainty in math?
What I understand by Boettke's comment. "Well, except that Mises actually made the argument that the unique human element in economics actually privileged economics over the natural sciences." Is that economics does a better job of explaining human action, but isn't that self-reflexive? Because we study human action, we necessarily limit our ability to approach the tautology of mathematics. So, I don't know if economics can claim a privileged status epistemologically except in reference to other social sciences. Other social sciences would have to share the explanatory aim of economics in order to be compared to them. If the explanatory aim of economics, politics, and sociology are the same, then the one that does a better job wins. If they do not, then they lack a dimension of commensurability.
What I get from this is that the goal is an important element in evaluating progress. If by science we abstract from creativity, or human action, can we call economics a science? If we do, are we are not necessarily removing human action from the scientific treatment as we approach the "Cartesian"/ materialistic ideal?
The Mill quote tells us that the materialist approach is quickly satisfied, the human action component is where all the interesting discovery takes place. To this extent I find the Mengerian approach fascinating, but I have to wonder about the use of the words science and progress if we take Whewell seriously in his framing of the issue.
Posted by: Michael | November 02, 2009 at 01:19 PM
This cartoon from the New Yorker says it best:
http://www.cartoonbank.com/2007/Og-discovered-fire-and-Thorak-invented-the-wheel-Theres-nothing-left-for-us/invt/130921
Posted by: Josh | November 02, 2009 at 01:50 PM
The problems that the social sciences face compared with the natural sciences are problems of degree rather than kind. The image of science is distorted by taking celestial mechanics as the paradigm but in that case we were gifted an evenly rotating system.
Of course scientists supplemented that big natural model with experimental models but we now have a experimental economics which von Mises said was impossible.
Economics has made a lot of progress especially among people who recognised the errors of scientism and historicsm.
It is unfortunate that von Mises thought that scientism was only a mistake in the human sciences, if he had realised that it was a mistake tout court then he could have got on better with Karl Popper and they might have generated some synergy instead of practically ignoring each other.
Posted by: Rafe Champion | November 02, 2009 at 04:03 PM
There's demand for apple pies, but none for mud pies, so they won't be worth a red cent, no matter how much labor has gone into them.
So much for Marx and the Labor Theory of Value.
Saving money in a mattress forces prices downward and the purchasing power of the money remaining in circulation upward. So, though less money in circulation, there is no less purchasing power and demand, for all of it saved is, in effect, lent to the spenders.
So much for Keynes and his theory of the business cycle.
Taking from the rich to give to the poor doesn’t just draw money but manpower downward upon the hierarchy of production, and the manpower faster than the money. For manpower doesn’t merely follow money but anticipates it. And with manpower and competition among the poor increasing faster than the redistributed money, they’ll be poorer than they would have been without it.
So much for the Left and its Social Justice.
And so much for all of your nonsense about economics.
If you really want progress in it, just open your eyes.
Posted by: DG Lesvic | November 03, 2009 at 01:09 AM
The person who thinks that he doesn't need "theory," but merely the need to "just open your eyes," simply doesn't realize that every "look" with his eyes already is through the pair of glasses called theory.
Or as Hayek offered as the motto for part one of his book, "Studies in Philosophy, Politics, and Economics" (1967), from Goethe: "It would be best if it was understood that all that is Fact is already Theory." (Loosely translated.)
Why is there a demand for apple pies and not mud pies? This requires a theory of the idea of means and ends, the (marginal) utility or usefulness of goods, the meaning of trade-offs and prices.
To discuss Keynes' ideas (or any other "macro" theory) it is necessary to have a theory of exchange; the conditions under which the direct trading of one good for another is possible or difficult; the conception of attaing one's ends through indirect rather than direct means, and thus the understanding of a "good" that is used as a medium of exchange. Therefore, a theory of money, the idea of "purchasing power," a logic of how this purchasing power may change from an increase or decrease in the quantity of the object used as a medium of exchange are all necessary and implied in "looking."
And the same would apply to capital formation and its relation to savings and consumption, etc.
So, DC Lesvic only "sees" these things because he "looks" through a complex series of theorems that he does not seem to fully understand -- like the old fellow in the story who never realized that he was speaking prose.
Richard Ebeling
Posted by: Richard Ebeling | November 03, 2009 at 08:10 AM
Prof Ebeling,
I agree completely with everything you said.
By the nonsense about economics here, I wasn't referring to theory but to "research" and all the other distractions from economics here and in the universities.
And when I said, "open your eyes," I really meant, "open your minds."
Anyways, thanx for your defense of economic reasoning. It was a pleasure to read.
Posted by: DG Lesvic | November 03, 2009 at 11:58 AM
Every person needs theory.
a theory of money, the idea of "purchasing power," a logic of how this purchasing power may change from an increase or decrease in the quantity of the object used as a medium of exchange are all necessary and implied in "looking."
Posted by: hemant | November 03, 2009 at 11:04 PM
Every person needs theory.
a theory of money, the idea of "purchasing power," a logic of how this purchasing power may change from an increase or decrease in the quantity of the object used as a medium of exchange are all necessary and implied in "looking."
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Posted by: Rakesh Mathur | November 04, 2009 at 01:07 AM
Kudos to Lee.
Michael, I can think of a couple of other ways to judge economic's progress toward the level of mathematics and physics.
1)How often do mathematicians disagree on theory behind a proof? How long does a disagreement persist when one arises?
2)What are some widely used innovations that have been based on economic discoveries? Maybe something comparable in scope and power to a laser?
Posted by: Robert Johnson | November 04, 2009 at 07:28 PM
Robert,
I don't follow, could you rephrase?
Posted by: Michael | November 04, 2009 at 11:33 PM