March 12, 2017

In economics, the scientific breakthrough is always just around the next corner

Comment on Noah Smith on ‘Anti-empiricism is not humility’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference

The scientific method is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

All this is clear in principle since the ancient Greeks but economists simply never got it. The very characteristic of economics is that it does not realize BOTH material AND formal consistency but oscillates between theory without measurement and measurement without theory.

After even the dullest economist has realized that DSGE/RBC/New Keynesianism has no counterpart in the real world the flight to empiricism is in full swing: “Empirical economics is taking over the profession.” (See intro)

The main goals of this new movement are:
― To “recapture some of the public respect that it’s lost over the last decade”
― “We’d all like economists to be more humble, right?”

In other words, we have to do something in terms of image branding and customer retention. The general public is said to have enough of arrogant experts, incomprehensible abstractions, pesky mathiness, and the inability to predict the next crash.#1

Not only this: “That’s what natural science looks like ― a small number of theory papers, supported by a very large base of applied theory and empirical work. It’s the sign of a mature field.”

The problem with economics, though, is that it is NOT a mature field. Just the contrary. Economics languishes for 200+ years at the level of a proto-science. The representative economist is in a state of incurable self-delusion. Until this day, economists have not even gotten the foundational concepts profit and income right.#2 This is like medieval physics before the concepts of mass, force, energy were consistently defined and properly understood.

Economists claim to do science but obviously lack any deeper understanding. Feynman put is thus: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”#3

What is missing is a proper understanding of what science is all about. The goal of theoretical economics is the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists do not have the true theory. But without the true theory, empirical work is a cargo cultic exercise: “And in the social sciences, it is even more obvious than in the natural sciences that we cannot see and observe our objects before we have thought about them. For most of the objects of social science, if not all of them, are abstract objects; they are theoretical constructions.” (Popper)

The economy is, clearly, an abstract object. Empiricism, realism, common sense, and loose verbal reasoning are always popular but do not cut much ice. Science goes beyond common sense and requires some abstraction. The functioning of the price and profit mechanism for the economy as a whole cannot be observed with naked eyes but only with the third eye of theory.

The current wave of empiricism and humility is just another instantiation of fake science. The only thing the representative economist can do to further the progress of economics is to throw himself under the bus.

Egmont Kakarot-Handtke

#1 New economic thinking, or, let’s put lipstick on the dead pig
#2 How the intelligent non-economist can refute every economist hands down
#3 Wikipedia Cargo cult science

Related 'Where economics went wrong' and 'There is no scientific elite in economics' and 'A vacuous analysis of profits and productivity' and 'Economics between mathiness, dyscalculia and idiocy' and 'Modern macro moronism' and 'If it isn’t macro-axiomatized, it isn’t economics'.


COMMENT  Practical recommendations for economics methodology on Mar 17

(i) The problem of economists is NOT arrogance but incompetence. Because of this, humility is NOT the solution.

(ii) If one puts NONENTITIES into the axioms (constrained optimization, rational expectations, equilibrium) one runs with absolute necessity into the identification problem. This problem cannot be overcome with more empiricism or better statistical technique but only by retiring cargo cult scientists who proudly announce “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)#1

(iii) The subjective-behavioral starting point of standard economics has to be fully replaced by objective-systemic axioms from which testable propositions readily follow.

(iv) Economists, who have not yet arrived at something akin to Archimedes’s Law of the Lever, should not invoke Heisenberg’s Uncertainty Principle in a methodological discussion.

(v) Economists, who cannot handle elementary mathematics,#2 should not invoke Gödel’s Incompleteness Theorem in a methodological discussion.#3

(vi) If it isn’t macro-axiomatized, it isn’t economics.

#1 How Arrow pushed economics over the cliff
#2 How the intelligent non-economist can refute every economist hands down
#3 See ‘Economics, Gödel, and a would-be field day for math-Luddites