The Free Thinker

Is Economics a Science?

McConnell, Brue, and Flynn's textbook, Macroeconomics, 19th edition, makes the claim, on p. 5, that economics is a science which uses the scientific method. This is often claimed and is part of the way economists legitimize themselves.

I dissent, however.

Some economic "laws," such as the Law of Demand (that people will demand less of a good when the price goes up, ceteris paribus), could stand up to pretty rigorous testing. Other key concepts, such as the concept of market equilibrium and the market clearing assumption, probably could not be formulated in such a way as to be vindicated through rigorous testing. There are even key concepts, such as the assumption that "markets clear," which are in a sense directly refuted by the facts: the supermarket shelves are never "clear," there are always a lot of goods waiting to be sold. Yet economists are justified in continuing to use the assumption for many purposes (although they may sometimes overuse and misinterpret it). Why?

Economics-- or so I would claim-- is not a science in the same sense that the natural sciences are. It is at a disadvantage in one way, but has a secret weapon to compensate. It is at a disadvantage because human beings are not deterministic: they have free will, they make choices, they cannot be predicted, at least not comprehensively and reliably. If you are philosophically committed to determinism, (I think you are wrong but) you can arrive at a similar insight by another way, namely that since we are human beings, we can never predict ourselves, because the information that we use as the basis for predicting our own behavior will also affect our behavior so as to falsify the prediction. If the world's greatest genius in predicting the stockmarket deduces that the Dow will rise by 500 points tomorrow, he may be right; but if he says so, he will be wrong, because his words will change what happens to the market. I cannot predict the invention of the wheel, because if I am able articulate what a wheel is, I have already invented it. Another way of putting the point is that human beings are too complex for science to predict them.

So much for the disadvantage. The secret weapon is that, since we are human beings, we know some things by introspection. If some utterly alien race were to observe the Earth, I do not see how it would be possible to know that human beings are purposive, or that resources are insufficient to satisfy their wants. Certainly, economists do not begin by setting aside (somehow) their introspective knowledge of rationality and scarcity, and then attempting to deduce it from the purely external kind of observation that natural scientists must rely on. They establish rationality and scarcity by appealing to introspection, and proceed from there. Theoretical models in economics have the character of tautologies: they make a set of assumptions, and deduce things from the assumptions. Sometimes this is a fault, in that the models are too abstract to be applied, but not always. It is possible to derive useful conclusions from mere logic starting with mere introspection, bringing in the real world only in the form of the loosest stylized facts, and making predictions which are precise only in the model and which when applied to the real world are too vague ever to be really tested in a rigorous way, letting mere experience leavened with common sense suffice to confirm the (rough) truth of the theory. Thus the Econ 101 supply and demand model, for example.

Introducing the Author

I think most readers of this blog are long-time visitors, but no doubt new people sometimes stumble by, so for their sake I thought I should say something about who I am. And even long-time readers may not have kept track of the most recent developments and so may appreciate the update. I've been blogging for eight years now at various places, starting in 2003. At that time I had recently finished a Masters degree in international development at Harvard's Kennedy School of Government, and was working at the World Bank. Since then I worked at the Cato Institute, at the World Bank again, and then went to do a PhD at George Mason University. I also worked for a year and a half at InterMedia Survey Institute, mostly doing audience research for Radio Free Europe and Voice of America. When I was laid off from that job in April of this year, I was able to focus on finishing my PhD. I successfully defended on July 20, 2011, and just began to work as an Assistant Professor in Economics and Finance at Fresno Pacific University. It's because I'm a professor now that I feel I should "relaunch" this, or at least signal an intention to raise the tone a bit. The subtitle of the blog, "Arcane Topics in Economics and Philosophy," is worthy enough of a professor, but the content of the blog has rarely lived up to that title. More often it has been little better than a running commentary on contemporary politics, a form of writing of which there is too much already and in which I have little to offer that is better than others. My intention is to make the blog an outlet for scholarly reflections that are-- that word again-- too "arcane" for publication elsewhere. However, I have found that it is very difficult to have the discipline to execute a blog in a fashion to live up to one's plans for it, and I don't have too high hopes for it this time either. It's a third priority at best, after teaching and regular academic scholarship; it's something to fit into the gaps, or better, something to emerge from the gaps; it's a place to jot things down, as it were, and I always do have plenty of thoughts to jot down; but usually I don't remember the thoughts long enough.

Anyway. I have a number of publications already. One of them, "Public Expenditure Tracking Surveys in Education," co-authored with Ritva Reinikka, seems almost like a relic of another life. It is, as far as I know, the canonical introduction to the kind of studies which were my principal job at the World Bank, though I did a number of other things. I worked as a PETS consultant in Malawi, Azerbaijan, and Tajikistan, being primarily responsible for coming up with a research design, writing questionnaires, developing a sampling strategy, analyzing the results, and writing a report. I won't necessarily vouch for the effectiveness of the technique. Of course in a large organization, one is often unable to appraise the value of one's own work, but in this case I was supposed to know more about the methodology's value and contribution than my bosses-- the country economists who tended to sponsor these things-- did, and my ambivalence about this is one reason I went back to grad school. I didn't want to depend for my living on this; I suspected it was a fad. Of course, I also love the pursuit of truth, exercising the mind, studying, explaining, discovering, debating. My father is a law professor, and I think his example left me with an ethos. I wouldn't seriously endorse this view, to be sure-- indeed, writing it down makes it clear how silly it is-- but I tend to feel (not believe!) that if one isn't writing for publication one isn't really doing anything. At best, one is saving up experiences to be analyzed and written down later. That's quite wrong of course, but such deep, irrational prejudices are probably the sources of a lot of human action. Anyway it was for me. That's partly why I took up blogging, and why I've laboriously pursued a profession which consists of writing and talking in public, which, praise God, I now have the chance to begin.

Other publications. I published about 16 or 17 articles at Tech Central Station. I also had a website where I self-published articles. Here is my author page at (what became) TCS Daily. It only has nine of the articles I wrote there, which is not all of them. Hmm... here's "Iraq and the Police Principle," which the author page does not like to but still seems to be on the site. So maybe some other articles are still extant, but not all of them, I think. "Hobbes, Locke, and the Bush Doctrine" is published at TCS Daily here and at Free Republic here. "American Hajj," one of my best, seems to have disappeared. Ah, here's the first article I ever published: "Did Benedict XVI Take a Page Out of MacIntyre's Book?" That article anticipates a paper I later published in a working paper series, "The Economics of Monasticism." That article is in a more academic vein, and since 2007 I have been pursuing scholarly rather than journalistic modes of publication. Thus, "Islam's democracy paradox," an econometric exploration of the freedom and democracy deficits in the Islamic world, was co-authored with Charles Rowley and published in Public Choice magazine. Economic Contractions in the United States, a book about the 2008 financial crisis (and also the Great Depression of the 1930s) was co-authored with Charles Rowley. My first sole-authored book, Principles of a Free Society, was published last December and was so successful that I think sales may have actually reached double digits. The article "What if Justice Demands Open Borders?" which was published at The American was based on that, though the book is far more fundamental and subtle. Ironically, while professional advancement was the last thing I was looking for in writing the book-- I wanted to change the world, and thought that if anything the book's radicalism was likely to make me a pariah, but that that was a price an honest man must be willing to pay in the most just and urgent of all contemporary causes, the opening of borders, the end of world apartheid-- it may have been the main effect of the book, at least so far, for I think in job interviews the mere fact that I had written a book, even if no one has read it, made a favorable impression. For me, it was good to think through the issues and to have the results written down and in hard copy. I've also published a few articles at SSRN, namely, "Religion, Altruism, and Social Capital," "X-Efficiency Evolution: An Old-New Hypothesis about the Sources of Productivity Growth, from an Agent-Based Simulation," and "Enterprises and Institutions in Post-Communist Eurasia."

More important than any of these publications (except maybe Principles) is my still unpublished dissertation, and especially the second paper in it. The title is "The Division of Labor is Limited by the Extent of the Market," but I'll refrain from any further explanation here. The dissertation should come online soon (perhaps it already is, only I don't know where) and I can expand on it then. In the meantime, apologies to any readers for any inappropriate content in the posts already extant on this blog. Probably there is a good deal here that is written in the heat of the moment and indefensible, and I am not above deleting unfortunate past posts if they are brought to my attention, but I will probably never have the time to go back through them and separate the wheat from the chaff, so likelier than not, the good and the bad will stay together. Going forward, though, I'll try to write only content worthy of a scholar, e.g., novel insights, penetrating questions, interesting data.

Rachel Maddow:

"American corporations are setting new profit records right now. Seriously, it's raining money for the Microsofts and Apples and Goodyears and Caterpillars and 3Ms of the world. They all set a record for revenue in the last three months. Second quarter reports are coming in and, so far, it is rivers and lakes and oceans of money for the S&P 500. After months of record profits already, they are now doing even better than before, even better than expected. And in the case of oil companies, they're doing a lot better. That's what happens when you can sell your product to a captive audience for suddenly high prices. You get even richer than you were before, and you started off really rich.

"While the news is really, really good for the gold-plated crowd of people who own corporations, the news for everybody else, of course, is not so good. We learned today that U.S. companies are planning layoffs at a pace not seen since the spring of last year. Planned layoffs are up nearly two-thirds from the month before and from the level a year ago. And while we have been watching government austerity shrink the public jobs sector -- the teachers and police officers of America who have been put out of work -- now we're seeing big layoffs at drug companies and retailers. Even when government had been cutting jobs, these had been the sectors that had been providing some of the very few new jobs this lousy economy had been adding. And now they are cutting too. So, so much for the silver lining I guess.

"So much for the theory that what is good for the so-called job creators is necessarily good for the job doers..."

Well, that's true, what's good for the job creators is not necessarily good for the job doers. Competition is bad for the job creators, good for the job doers. The bad business climate of the past 2-3 years has helped business profits by deterring new and expanding businesses.

Analysis: Obama, Bernanke out of ammo to boost jobs, growth:

The United States has a jobs problem and there's not a lot President Barack Obama or Federal Reserve Chairman Ben Bernanke can do about it.

In the face of rising risks of a recession that could imperil his re-election chances next year, Democrat Obama wants Congress to extend a payroll tax cut and emergency unemployment benefits that are due to expire in December.

But the Republican-controlled House of Representatives is emboldened by budget concessions it made Obama swallow to lift the country's debt limit this week and he has little political leverage to win significant fresh spending to aid growth.

"Obama does not have much presidential persuasion left. He is running out of capital," said James Thurber, of American University's Center for Congressional and Presidential Studies.

Obama's political opponents have been openly scornful of the impact of two previous stimulus packages, which were accompanied by extraordinary measures by the Federal Reserve to kick-start the U.S. economy.

"It seems we've thrown everything at it. We've had QE1 and QE2, Stimulus 1 and Stimulus 2, and the unemployment rate is still 9.2 percent," said John Makin, an economist at the American Enterprise Institute in Washington. "Maybe there are just not many options here at this point," he said.

No, no, there's plenty we can do. First, we still haven't done enough of what we should have done at the beginning, namely, combine (a) deficit spending (but we've had plenty of that of course) with (b) strong action to bring the long-run fiscal situation under control, so that investors won't worry so much that profits from projects undertaken now will be confiscated. Adopt Paul Ryan's plans on Medicare. Raise the retirement age. Index Social Security benefits to inflation rather than wage growth, and maybe means-test them at the high end. Repeal Obamacare. The debt deal may help there, but we need to go further. And tax reform too.

Second, reform immigration already! Naturally when you're waging war against millions of productive workers, that's bad for the economy. The crisis started with a drop in housing prices, and a rise in housing prices would end it. And it's easy to get that: boost demand. Let in more home buyers. Give the people who are already here and living in homes-- and might buy them-- assurance that they can stay. I'll throw out a third one, borrowed from Charles Krauthammer, not to advocate it but just to show that there are options:

Charles Krauthammer: "An index of how spent he is sort of intellectually on the issue of jobs is the campaign speech he gave today, the fourth in 10 days, in which he pivoted, he did his pivot, and he announced five initiatives. Listen to them. Payroll tax extension: We already have that. Unemployment insurance extension: Already have that. Trade deals: He's had it for two and a half years and done nothing. Spending on more infrastructure: a perennial -- you know, more dams, more bridges and roads. And the last one, I love that. Here's the real new one that will get us out of our doldrums: patent process reform. Now that I think is the key to economic explosion, getting us out of 9 percent unemployment.

"He's out of bullets, he's out of arrows, he's looking for stones on the seashore. And it shows that he may want to have a jobs agenda, he may want to do a pivot -- there's nothing left in the cupboard. He did a huge Keynesian gamble, and it failed."

I don't know if the patent process reform I have in mind is the same as what Krauthammer/Obama are thinking of-- actually I'm sure it's not-- but I think the best form of fiscal stimulus would consist of patent buyouts. Let the government run auctions to buy a whole lot of patents (to make the auction genuine they only buy some of the patents people bid for), and then retire them, so that anyone can make the products in question. Prices of lots of goods drop, helping consumers. There are lots of opportunities for start-ups to make stuff that was proprietary before. And former proprietors of intellectual property find themselves losing revenue streams, and need to invest to get new ones. Now, I'm hesitant to actually endorse this approach, since it involves government spending. But it's not true that the government is out of options to stimulate the economy.

Destroying Democratic Presidents (Salon)

Alex Pareene captured the craziness of conservatives and business leaders who demonize President Obama, the man most progressives, whether they like it or not, recognize as the conciliator in chief. Home Depot chairman Ken Langone is just the latest to become unhinged on the topic of Obama, blasting him on CNBC recently:

"He is not acting presidential. He is behaving in a way designed in my opinion to divide us, to make us look at each other with skepticism, with suspicion. That is the end of America as we know it," Langone fulminated. "The destruction he is inflicting by his behavior will carry on long after we settle the debt limit."

I don't know who Langone is describing, but it's not Obama. Sure, he's taken a jab or two at fat cats, and quickly retreated. Mostly he's reached out to Republicans time and again, only to be rebuffed and humiliated, from the earliest days of his term. On "Hardball" today we discussed the extreme reaction this conciliating president has triggered in the GOP, from the earliest moments of his presidency.

Obama does want to be conciliator-in-chief, but the way he passed Obamacare in the face of majority opposition from the American people shows why he can't be. The force of Obama's rhetoric, like a Jedi mind trick, has great power over the weak-minded, but and also, of course, he seems conciliatory to those who already agree with him. But he lacks real respect either for ordinary people or for his conservative opponents, and he will not compromise when it is for the good of the country, but only when he is forced to. He is habitually condescending, which is the more galling since most of those he condescends to are smarter and more sensible than he is, and he can get nasty when rebuffed.

The Civility Deficit

So Congress has agreed to $900 billion, and later $2 trillion+ of spending "cuts," which doesn't actually mean cuts of course, but cuts relative to a steeply rising baseline. The government will still be spending well over $3 trillion and, I think, well over its historic average even as a share of GDP. Most of the cuts are spread out, in good Keynesian fashion, into the later part of a ten-year horizon. It's very moderate; it's really not enough. Steep tax hikes are already scheduled: first, the expiration of the Bush tax hikes; second, Obamacare taxes; but the deal doesn't add any more tax hikes, for now. Which makes sense in a recession. The rich continue to pay most of the taxes, but unfortunately, the government is still giving massive handouts to farmers and seniors that dwarf the benefits to the neediest Americans, who of course are well enough off by international standards that it's rather mystifying what the underlying philosophy could be of those who think it's compatible with justice, if handouts are to be given to anyone, that they be given to any native American rather than be channeled abroad. Meanwhile, as usual, the most regressive policy in the world, immigration restrictions, continue to shut out the poor, huddled masses, yearning to breathe free, the truly-deserving truly-poor, in order to protect the wages of American high school dropouts. This is not, by a long shot, the end of government. The government is still there. It's still big, really really big, and bad. But it's been trimmed a little bit. It's a little bit closer to being of manageable size. Disturbingly, as in the 1990s, it took a political crisis-- then a shutdown, now something like a threat of default although it was really only a threat of shutdown-- to rein in runaway government spending and restore something like fiscal sanity so the economy could have room to grow. But it didn't actually come to that, and now we have a deal, modest and inadequate, but a step in the right direction.

So far, so good. But now, look at what people are writing about it:

The Tea Party's War on America (New York Times):

You know what they say: Never negotiate with terrorists. It only encourages them.

These last few months, much of the country has watched in horror as the Tea Party Republicans have waged jihad on the American people. Their intransigent demands for deep spending cuts, coupled with their almost gleeful willingness to destroy one of America’s most invaluable assets, its full faith and credit, were incredibly irresponsible. But they didn’t care. Their goal, they believed, was worth blowing up the country for, if that’s what it took.

And

Washington Chain Saw Massacre (Maureen Dowd)

Even before Emanuel Cleaver, the Democratic congressman from Missouri, called the debt deal “a sugar-coated Satan sandwich” and Nancy Pelosi tossed in a side of “Satan fries,” the whiff of sulfur was rising from the Capitol...

Most of the audience staggered away from this slasher flick still shuddering. We continue to be paranoid, gripped by fear of the unknown, shocked by our own helplessness, stunned by how swiftly one world can turn into a darker one where everything can seem familiar yet foreign.

“Rosemary’s Tea Party,” an online commenter called it.

If the scariest thing in the world is something you can’t understand, then Americans are scared out of their minds about what is happening in America.

As William Friedkin, the director of “The Exorcist,” observed 27 years after Linda Blair’s head spun 360°, horror movies, like Hitler, pose a chilling, unanswerable question: “Why do bad things happen to good people?”

The horror director Brian De Palma once described the simple essence of his genre: “There is just something about a woman and a knife.” But, in this case, it was the president — and the federal government — being chased through dim corridors by a maniacal gang with big knives held high.

And

Joe Biden compares the Tea Party to terrorists. Is this the most crass and nasty US presidency in decades?

Where's the accountability for these insane slanders? Of course we have free speech in this country, and people should be allowed to say this, but public opinion should be decent enough that there is a de facto tolerance to calling legislators exercising their constitutional powers in response to the demands of the electorate in perfectly legal fashion "terrorists." Who are the people to whom the New York Times can publish this stuff without immediate cancellations of subscriptions? What happened to those people's sense of civic decency?