The surprising thing about economics for me: it is not a science. What you learn is a perspective. But people sell their version hard. It gets dogmatic.
Economics is a science as much as hydrology is a science: it isn't exact, but it is based on solid science.
Nobody derived Navier-Stokes equations to reach the formulas that show the erosion of a river bank, or the discharge calculation of a weir. Doing so would be nearly impossible given the extremely high level of complexity.
So instead of trying to start with the fundamental equations and build "up", you start by analyzing the behavior and modeling it.
It isn't any different than what Kepler, Newton, Galileo, etc. did: you look at the real world and build models that describe the world with enough precision for what you need.
Sure, you might say that hydraulics isn't a science per-se, but an applied field and so on. In that case, so is economics.
I think the truth is somewhere in between because of the relationship of economics and politics.
There are absolutely academic economists who are doing a reasonable job trying to find the objective truth underlying human behaviour in economic life, understanding market forces, understanding relevant institutions, and so on.
However, the majority of what actually makes it into the public discourse is simply politically motivated reasoning, often in the form of hacks writing for think tanks that are paid for by special interests.
It's amazing to me that, at least when I was at university, the computer science curriculum had more content concerning ethics and our responsibility towards society than the economics curriculum.
No other field of knowledge is as poisoned by politics as economics, by far. That's why even though economics can be a decent science, a healthy amount of scepticism towards anything you read by (even supposedly academic) economists in the public discourse should be the default attitude.
Politics is power and power does corrupt. I am sorta glad that CS and the pure sciences remain largely free from this sort of perverse influence, although it does make me wonder how much more progress we could make as a species to fully explore and understand economic behaviors of societies.
Economics is not based on solid science, especially not macroeconomics. There is no way to run proper experiments and have counterfactuals. So it ends up being mostly opinions wrapped into a 3 variables linear regression fitted on 4 data points.
"Many empirical controversies in economics are essentially disputes about whether or not certain variables constitute valid instruments" - Econometric Theory and Methods, Davidson & MacKinnon
Pretty broad statement. Some micro-economic theories, like the game theoretic models in auction theory, contract theory, mechanism design and behavioral economics are probably the most successful, accurate and impactful theories in all of social sciences, including psychology.
You may not realize how much your buying behavior, your salary, your interactions online and your use of technology are dependent on these models.
But comparing their success and use to fields like sociology, management and even psychology, their track record is frankly amazing.
We already know that Macroeconomics amounts to modeling systems that do not aggregate meaningfully from these successful micro-models.
Saying economics is not a science based on this, is like saying physics is not a science because we still can not find a unified theory. Which is a pretty good analogy for a Macroeconomic model that forecasts GDP (aka, everything).
The difference is that you don't try to act on the cosmology models to change the way galaxies behave. Most of practical economics tries to derive policies or make choices out of its models.
That's irrelevant as far as the designation of "science" is concerned. This is a question of knowledge and certainty, not practical application. The point is that results in cosmology (and other fields) are very well confirmed despite the fact that they don't come out of strict experimentation. In that same vein, when someone denies that economics is a science I'd argue they're really talking about whether its results are robust, not whether economics uses a certain methodology or is put to certain ends.
On the contrary, cosmology is based on physics (gravitation, Maxwell equations & so on) and a good bit of chemistry. 99% of the knowledge used in cosmology is based on science science developed and tested "in vitro" on Earth.
Economics also has a pretty wide range of subjects. I would argue that something like macroeconomics isn't based on particularly anything (and has dubious value), but certain aspects (some microeconomics, game theory, etc) are somewhat more based on either logic or empiricism.
Indeed, economics end up being the study of resource allocations by human beings, both at the individual and collective levels, and the resulting system.
But macroeconomics is indeed based on a lot of things, and you seem to be very misinformed. Macroeconomics relies very heavily on mathematical tools such as calculus and topology to model the collective behavior of humans.
If you are really interested in learning more, I recommend "Knowledge and the Wealth of Nations: A Story of Economic Discovery".
Math is a language, it doesn't make something scientific (or not scientific). The issue of math and science are unrelated. The problem with macroeconomics is not the tools they use, it is that it does not have predictive power. We cannot meaningfully (better than martingale or historical MA) predict GDP/inflation/SP500 return etc. A lot of macro assumptions are obviously wrong (people do not optimize marginal utility, people have transitive preferences, nobody can meaningfully compute externalities of basically anything, etc)..
Economics professor here. I disagree. We formulate theories that we test using data. Same as physics except that economics is much more messy. Another difficulty is that in many cases (macroeconomics for instance) we cannot do experiments to test theories. This makes it much harder to learn from the data.
I mentioned economics gets dogmatic. Occasionally, we even have economists who attempt to re-define science. Here's a quote from the article:
"Andrew Lo, an MIT economist, said that while physics has three laws that explain 99% of the phenomena, finance has 99 laws that explain only 3%. Not only do we not fully understand how the economy works but also there is an endless debate on how it should function."
You can have your own science threshold. But I think calling economics science is doing disservice to science. It distorts the public's perception of science.
Thats a silly way of looking at it. Every field of science has their own threshold for acceptance. Biology as a field is much less stringent than physics when it comes to p values for example. Psychology even less so. This ddoesnt mean physicists can go around saying Biology or Psychology are not sciences. Economics is a science - just not as well understood / clean as some other fields. Humans are a part of the equation which makes it harder.
I agree. 'Science' is either based on quantitative observation, or theory, or experiment that validates theory. Microeconomics largely follows this rubric, but I would say macroeconomics largely does not. Macro and international econ suffer from the same problems that psychology and sociology do as 'sciences' -- they're studies of very complex systems that are based on too little quantifiable theory that has been rigorously tested. As such it's a stretch to call any discipline that lacks a basis in natural law a science.
(IMHO, biology, which also deals in very complex systems, gets a scientific pass because so much of it is based on well tested chemistry and its methods are heavily experimental. (Aside from evolution, that is.) Likewise, cosmology benefits from its well-grounded bases in physics and geology.)
But that doesn't mean the study of such complex systems can't or don't employ scientific methods or standards that improve their utility greatly. For example, I'm a big fan of Piaget's work, though I would hesitate to call it science. Such work offers compelling insights, though with little real hope of us seeing farther by standing on the shoulders of giants.
Not only that, but economics seems to have suffered (and in many cases largely ignored) many of the methodological and foundational critiques of both its predecessor (as political economy) and its modern incarnation (capitalist economics). These criticisms come from both inside and outside the field, not to mention from a variety of hetorodox (periphery) sources, not limited to neo-Ricardians, Marxians, Post-Keynesians, Walrasian, and even Austrian School.
Every science has its object (that's what Plato thinks anyway) and thus different tools and methods are required for different objects. The tools in the science of philosophy are different to those of biology, which are still different to psychology. This is not a criticism of economics, philosophy, or science, since I don't consider science to be purely the methodology of the natural sciences. The multiplicity of seriously considered and valuable views within both philosophy and economics (there are more examples though) is unheard of in the natural sciences to my knowledge.
To say that economics is a science in the same sense as the natural sciences requires excluding heterodox schools since their methodology leads to different conclusions to orthodox economics. That is to say, we would need to declare one methodology as absolutely correct and all others as incorrect. From my limited knowledge reading around heterodox economics[0], I don't think such an exclusion is warranted.
[0] The likes of Sraffa, Veneziani and Yoshihara, Shaikh, Kliman, Mohun, etc.
I would rather say that most sciences differ from natural sciences.
This is certainly true for any social science, but also for biology, medicine, certainly psychology and so on.
Similarly, heterodox schools are usually peripheral because they are peripheral to the current academic discourse. So for example Marxian primary material is a critique of past-tense economics. Post-Keynesians have a fetish for one particular concept or method (flows, MMT, crisis prediction) and reject everything outside of it. The Austrian School rejects the use of data and even formal modeling altogether, all while academic economics becomes more experiment based.
Nevertheless, there are heterodox professors even at universities ranked within the top 10, and numerous initiatives for inclusion. So given the wide chasm that needs to be bridged for academic discussion, I think the degree of exclusion is actually rather low.
>So for example Marxian primary material is a critique of past-tense economics.
Marxism has come a long way since Marx, though; a big part of the field today is the applicability of Marxian theories to aspects of modern economies, such as globalization, neoliberalism, imperialism and digital goods. By saying their critique is only aimed at political economy, you're charging them with irrelevance, which to me doesn't seem the case. Being ignored does not mean irrelevance.
That's usually a sign that there's too little validated theory beneath the debate. This seems to be the hallmark of all attempts to study complex systems, like psychology and sociology, where in/validation of theory is impossible by experiment and must rely instead on cumulative historical observation, and the interpretation thereof.
it can be based on observation, like we do with space..... we don't usually smash suns into each other, we observe what happens and how well that fits our models of what we think should happen.
Except in astro we also make predictions and theories are accepted when predictions turn out to be right (famously with GR, for example). The problem with macroeconomics is that economists are not capable of meaningfully predicting future macroeconomic indicators (GDP, inflation, whatever). This is why it's not an actual science.
If you can make successful macroeconomic predictions you can get very rich so there are many, many people working on doing so. But you don’t just need to be right, you need to be right first because people with a good model acquire more and more resources from their own growth and from acquiring more outside investment until they reach the limits of the strategy they are using.
Astronomy is not the study of things that resist being predicted and self-modify to be unpredictable upon being successfully predicted.
All that said here are some things we know in macroeconomics;
In the long run inflation is caused by an increase in the money supply;
If you unexpectedly increase inflation you will have an economic boom as people are fooled by the short run disequilibrium between their expectations of the real value of money and what their nominal money now buys, likewise an unexpected fall in inflation will lead to a recession;
You can have at most two of control of inflation, control of the interest rate and a floating exchange rate. If interest rates go up you will attract investment and your currency will appreciate unless you have capital controls. If you want to maintain the value of your currency you have to keep your domestic real interest rate very close to the global real interest rate, unless you have capital controls. If you choose to forego capital controls and have a floating currency you can control interest rates and inflation but you may have large inflows and outflows of capital; If you contract the money supply like the Federal Reserve did after the 1929 stock market crash (30% decline in monetary base, 30%!) you will have a recession.
I agree that it might be fundamentally impossible to make meaningful macroeconomic predictions (because it is self correcting). But this is one of the arguments why macroeconomics might fundamentally not be a science (kind of like the art of writing fiction isn't a real science, although there are many commonalities/themes/etc one can study).
Re your third paragraph. You make many claims which may or may not be correct, but at the end of the day nobody has any kind of track record of prediction long term inflation rates of GDP numbers. This means that there is little value in counterfactual claims (if we did x then y would happen). Every study (such as your allusion to '29) are explanative, not predictive. Explanative studies have relatively little to do with what makes something a science (prediction).
Finally, this is not to say that there is absolutely nothing meaningful in economics. Surely if you arbitrarily set tax rate to 100% or 0% you would have negative consequences. Similarly, if Fed changes current rates dramatically, this would have consequences. It's just for "normal" changes in policy we have basically no predictive power other than something like nearest-neighbor search in historical observation.
The accuracy of GDP prediction, which - remember - amounts to the task of predicting everything there is without having "completed the science", is pretty decent all things considered.
Look for example at GDPnow forecast vs. reality. GDPnow is very spiky, since it changes constantly, but its performance is overall pretty accurate, and during each period its data use more than halves the RMSE. In other words, it has predictive power.
If you look at IMF predictions of world GDP [1] you can see that simply taking last year's value would have had lower error for most years and in average.
>> Another difficulty is that in many cases (macroeconomics for instance) we cannot do experiments to test theories. This makes it much harder to learn from the data.
I assumed another reason Economics is so hard is because cycles are so long that there are not many to test theories with, especially once you consider unique contexts around specific cycles. Would appreciate if you could opine on this aspect of difficulty?
Also, I'm always amused that after so many years there is still such a two sided dogma on Keynesian vs non Keynesian economics - is one side being difficult or is there really room for debate?
I also have this impression. It is influenced a lot by the personal political view of the researchers. It seems it has a hard time of staying objective.
While in physics, math, computer science, etc. it's way easier to stay politically neutral, because there are no politics involved. In these sciences, the money is also pointing in the right direction.
What I mean by that last part is, for example nutrition studies always have different parties that want the science to point to a different direction. Sugar, meat, ... industries try to influence those things a lot.
Just recently I discovered this blog post: https://www.themoneyillusion.com/the-economics-babel/ and it all started to make sense. The problem with macroeconomics is that there are many effects - but all the theories treat them as if the economy was governed by just one. There is no integration between the theories.
The truth is somewhere in the middle. Like most sciences: a theory is put forward, and then you test it with empirical data.
The issue, and I think this is something that most economists would definitely dispute, is that there are few real hard and fast "laws" of economic behaviour. And this leaves scope to construct theories and even test theories in a way that is not objective. This occurs in other sciences too ofc but there is far more scope for this in economics.
If we go into the meta: I think all disciplines go through this at some point. History went through it in the late 19th century, and eventually got over it by simply acknowledging that historians are human too. Economics is very far from this point but it will get there. And once it becomes more clear what actual knowledge looks like then I think economics will be on more solid footing (I don't think economists understand that no-one believes their bullshit about objectivity, I really don't and it reflects badly on them).
Also, the OP mentions finance...there is a big difference between finance and economics. First, things that get published in academic finance have an effect on the data. If you publish a strategy that works, returns will that strategy will drop off. Second, there is a lot of self-promotion. Finance is a fast-moving, aggressive field which is great because it leads to high output but a lot of the results can't be reproduced.
