The 'Dismal Science' certainly is dismal, but is in no way a science

Philosophy professors Alex Rosenburg and Tyler Curtain ask, “What is economics good for?”. And the answer, as far as they can tell, is “Not much.” Richard Epstein, a noted libertarian law professor, dissents somewhat from this view.

Normally I would be in full-throated agreement with Professor Epstein, but I think he kind of misses the point in his essay (though his heart is certainly in the right place). Epstein's point, boiled down, is that even if economics is not predictive it still has value as a modeling theory and helps us to define our terms and establish boundaries when discussing economics. But here again economics falls down -- its practitioners cannot even agree on a basic model. Keynesian school? Austrian school? Chicago school? Marxist school? Anarcho-capitalist school? These models do not overlap much and often lead to wildly-different results. (Disclaimer: I am a partisan of the Austrian school of economics.)

Economics is not a science of any kind (though I guess you could wedge it in as a sub-specialty of human psychology). It is not predictive, and not at all rigorous either in theory or practice. Never mind the fancy mathematics or complex models: modern economics isn't far removed from astrology or the casting of bones or reading tea leaves.

Professor Epstein tries to retrieve the field of economics from the dustbin by drawing a line between macro economics and micro economics, and seems to assert that economic theory can be rigorous on the scale of the micro. I find this unpersuasive, because macro is simply a scaled-up micro -- the phenomenology is more complex, but contains the same basic elements. Chemistry is still chemistry, whether you're talking about a few molecules or a whole bucketful of goo; physics is still physics, whether inside an atom or at the scale of a whole galaxy.

Macro economics is simply micro economics writ large. If you can’t scale your theory up, then there’s something wrong with your theory. (Physics, it must be said, faces this exact problem with its inability to unify gravity with the other basic forces. There is something wrong, or at least incomplete, in the current model. It is nevertheless observationally accurate and highly predictive, and so remains valuable as a scientific theory.)

I've always thought that a useful conceptual model for economic systems would be cellular automata. It still wouldn't be predictive, but it would provide insight into how scarcity and environmental factors influence emergent systems (human behavior being an emergent phenomenon). You can't "fix" economics until you "fix' human behavior, and that's just never going to happen...so the next best thing is to understand chaotic, emergent behavior a lot better than we do now.

Perhaps what we need is more philosophy and less science in economics. The question of "how" in economics matters less to me than "why" (beyond the obvious existential reasons) -- human motivations and goals in economics are the real questions we're trying to answer, after all, not simply the tracing of every financial transaction and manufactured good.

But it's not as if the philosophers inspire confidence. Rosenburg and Curtain throw out this howler:

For the foreseeable future economic theory should be understood more on the model of music theory than Newtonian theory. The Fed chairman must, like a first violinist tuning the orchestra, have the rare ear to fine-tune complexity (probably a Keynesian ability to fine-tune at that).

Well, of course it would be a Keynesian symphony, wouldn't it? (You'll have to imagine the sarcasm-dripping tone of voice here.)

Clearly, I think that Rosenburg and Curtain’s assertion that economics can be understood like music theory to be absurd. Doubly so if you include the Keynesian fallacy they introduce; Keynesian music theory would simply posit that more tones equals better music, regardless of their placement in the staff or the instrument playing them. And it should be up to the conductor and not the composer to decide when and where to introduce all those new tones. The end result would not be particularly musical, but then in Keynesian music as in Keynesian economics the benefit of the audience is not really the point.

The more basic objection is this: if you screw up a piece of music, the only harm you have done is to the ears of your audience. If you screw up the economy, you can destroy your entire society. The stakes are just a bit higher with economics than they are with a musical performance. Once again we see the ancient leftist desire for control, the conceit that they can tinker with some fantastically-complex (and badly-understood) phenomena without any negative consequences.

The best approach to any potentially-dangerous phenomena you don’t understand is to use extreme caution, and limit your interference as much as possible. Hippocrates understood this many centuries ago when he founded the science of medicine: First, do no harm.

We have discovered, through many centuries of trail and error, that market capitalism performs the best of any economic model we’ve tried so far. That doesn’t mean there aren’t better ones, just that no one has discovered any yet. The wonderful thing about market capitalism is that it runs pretty well with very limited intervention. It doesn’t require a great deal of regulation or fine-tuning -- in fact, regulation and fine-tuning tend to degrade the performance of a market-capitalist economy rather than improve it.

There may come a time when economics becomes a robust, predictive science, but I rather doubt it. As I said before, economics is really the study of human behavior, and creatures as irrational and contrary as we are resist definitive analysis. I think we’ll have to make peace with the fact that all we can do in terms of “managing” the economy is to “manage” it is little as we possibly can.

posted by Monty at 08:15 AM

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