Saturday, January 16, 2010

Economics as a Science

I want to start off by saying that I like Greg Mankiw’s intermediate economics textbook – that should be self-evident otherwise I wouldn’t have adopted it for the intermediate economics course I’m teaching this semester. But every time I start this course and look at the title of Chapter 1 (“The Science of Macroeconomics”) I feel immediately revulsion: I even went to the trouble of changing my powerpoint slides and calling the chapter “Introduction to Macroeconomics” as I couldn’t bear to look at that title!!  And Greg Mankiw's textbook isn't the only one that claims that economics is a science, it just happens to be the text I'm using this semeseter.

The Chambers English Dictionary defines science as “knowledge ascertained by observation and experiment, critically tested, systematized and brought under general principles, especially in relation to the physical world”. And yes, scientists use the scientific method, which comes from Karl Popper’s work. Karl Popper, the British/Austrian scientist came up with the framework for deciding what is, and what is not science – to quote from Wikipedia:

“Logically, no number of positive outcomes at the level of experimental testing can confirm a scientific theory, but a single counterexample is logically decisive: it shows the theory, from which the implication is derived, to be false. Popper's account of the logical asymmetry between verification and falsifiability lies at the heart of his philosophy of science. It also inspired him to take falsifiability as his criterion of demarcation between what is and is not genuinely scientific: a theory should be considered scientific if and only if it is falsifiable.”

So in other words, if you can show that something is false, then that something can be tested to see if it is false, and therefore you can use the scientific method. So this means that any economic theory that has data (or potentially has data) should be testable if economics were to be classified as a science. Now a lot of economics does have data that it is either already collected or could be collected in the future. But a lot of economics does not lend itself to the scientific method or falsifiability. Take the 2nd welfare theorem or the optimal currency area theory. These are not verifiable given that economics operates on the basis of human behaviour.  Even when things are verifiable, economists like to think that general rules are "laws".  Take the "law" of demand for example - it is clearly not a "law" in the physical science sense of the word, but economists abuse it by attaching it to human behaviour in the face of changing the price of a product, which depending on the type of product can actually lead to an increase in demand (Thorstein Veblen's "conspicuous consumption", for example).

And there lies the rub. I know this might sound semantic, but calling economics a science is to my way of thinking calling it a “physical science”, or at least something on a par with physical sciences. Economics deals with human behaviour, either individually or collectively, so in no way does it constitute being called a “physical science”; but rather fulfills the criteria for being a valued “social science”. Some economists would say that economics uses way more mathematics and statistics than other social sciences so that it is more like a “physical science”. Well sure, the methods we use can get quite technical at times, but that shouldn’t detract from the core issue of what we’re studying, not how we’re studying it.

Certainly in most Universities the Faculty of Science doesn’t contain the economics department ( - although Dalhousie University in Halifax, Nova Scotia is the exception to the rule here), and it is put in the Faculty of Arts and Humanities or the Faculty of Social Sciences or the Business School or Faculty. Why is this? Well one of the strengths of economics is that it is not easily categorized – it contains logic from philosophy, math from science, imaginative theories ( - which almost demand an artistic mind), and “touchy-feely” policymaking from public policy.

So, to sum up…is economics a science? Yes, it is in the sense of being a “social science”. Is it a science in the sense of being always falsifiable, which can be claimed for all physical sciences? The answer here is no.

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