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The Almighty Buck Science

Author Joris Luyendijk: Economics Is Not a Science (theguardian.com) 375

The Real Dr John writes: A Nobel prize in economics, awarded this year to Angus Deaton, implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modeling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths. In 1994 economists Myron Scholes and Robert Merton, with their work on derivatives, seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize in economics. A year later, Long-Term Capital Management lost $4.6bn (£3bn) in less than four months; a bailout was required to avert the threat to the global financial system.
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Author Joris Luyendijk: Economics Is Not a Science

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  • It's the dismal science [wikipedia.org]

  • by The Real Dr John ( 716876 ) on Monday October 12, 2015 @02:05PM (#50711547) Homepage

    Economics is not a science. It is a study of human behavior like Psychology, and as the article points out, it has heavy political overtones. There was no Nobel Prize in Economics until 1969. Maybe it is time to retire that particular prize.

    • by schneidafunk ( 795759 ) on Monday October 12, 2015 @02:06PM (#50711569)

      Psychology is a science, although a fairly new one.

      • Economics is as much a science as psych or sociology.

        • All three of those are liberal arts that are subject to change as differing ideas are brought into the fold. There are no unwavering facts in the liberal arts, such as one plus one equals two, just observations and predictions based on observations. Hard science includes irrefutable facts along with solid theories, such as e=mc2.
      • by The Real Dr John ( 716876 ) on Monday October 12, 2015 @02:23PM (#50711741) Homepage

        If you broaden your definition of science to include all fields of human investigation, sure. But if you mean a science like biochemistry or physics, where you do controlled experiments, then no, it is not a hard science. Some people differentiate "hard" from "soft" sciences. OK, by that definition economics could be considered a soft science. But as the author of the article points out, there is much more political bias in "economics research" than in most sciences (where some bias is often unavoidable, but still can be manageable with proper controls). Really, economics is the study of trends in economic activity, but often strays into making pronouncements on political policy, which seems an awful lot more like politics than science.

        • It's funny that we give them the names "hard" and "soft" sciences when it's much harder to get repeatable results in soft sciences,

    • by khallow ( 566160 )

      Economics is not a science. It is a study

      A systematic, empirical study of a subject is a science by definition.

      it has heavy political overtones

      So does climatology and pharmacology.

      human behavior

      You forgot to wiggle your fingers mysteriously while you typed that. And I guess economic systems that don't have significant human involvement like HFT or the ecology of flowers and pollination can be safely ignored.

      • A systematic, empirical study of a subject is a science by definition.

        Nope, falsifiable experiments are. That's what allows use to make predictions.

        • by khallow ( 566160 )
          We routinely do falsifiable experiments in economics.
      • Re: (Score:3, Interesting)

        Astrology is a systematic, empirical study of the relationship between the alignment of planetary bodies and the observable traits and behavior of humans. But I wouldn't call astrology a science because its predictive power is limited.
        • Re: (Score:2, Insightful)

          by khallow ( 566160 )

          Astrology is a systematic, empirical study of the relationship between the alignment of planetary bodies and the observable traits and behavior of humans.

          No, it's not.

          • Khallow, your definition of science as any systematic study is incorrect, because to astrologists, they think they are doing a systematic study. As a scientist, I think a more rigorous definition would be a systematic study based on the scientific method which includes falsifiability as per Popper. How do you falsify a theory in economics? You can argue against the tenets put forward, but you can't do controlled experiments in an attempt to see if the null hypothesis is true or false.

            • by khallow ( 566160 )

              Khallow, your definition of science as any systematic study is incorrect, because to astrologists, they think they are doing a systematic study.

              Why do astrologists' opinions invalidate the definition of science?

              As a scientist, I think a more rigorous definition would be a systematic study based on the scientific method which includes falsifiability as per Popper.

              Which is done in economics too.

              How do you falsify a theory in economics?

              The same way you invalidate it in any other science under the Popper scheme.

              You can argue against the tenets put forward, but you can't do controlled experiments in an attempt to see if the null hypothesis is true or false.

              Yes, you can. There's a lot of experiments in economic games, for example.

          • by edremy ( 36408 )
            Depends. I've seen attempts by astrologers to come up with a set of relationships that's both systematic and testable. I would argue that those attempts approach scientific hypotheses.

            Now, they uniformly *fail* those tests, so even if they are potentially valid scientific hypotheses, they're wrong and thus can be discarded, but that doesn't make them non-scientific in the first place.

            • by khallow ( 566160 )
              If a field makes assertions that are always falsified with a little effort, then that's a strong indication they aren't a science.
    • by Misagon ( 1135 )

      And the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is not a Nobel Prize.

      As the full title says, it was instigated not by Alfred Nobel but by Sveriges Riksbank - the Swedish Bank, the central bank of the Swedish currency.
      And this was done in 1969, 68 years after the first Nobel Prizes in natural sciences and literature.

    • Re: (Score:3, Insightful)

      by Anonymous Coward

      Economics is a huge field, encompassing mathematics, experimental science, and other methodologies.

      Most papers in biology aren't reproducible, either. There's plenty of bad science and improper application of theory to go around in academia. Although I think economics is especially prone to bad methodologies and poor application, largely because it seems more accessible than it really is. Neither the public nor scholars are sufficiently skeptical and rigorous in their treatment of economics.

      The irony is tha

      • by flink ( 18449 )

        I would also point out that medicine as practiced by most physicians is not a science either. They use the fruits of science, but their field is based on an entirely different method of knowledge acquisition and application. Yet we don't regularly fault doctors for being "unscientific".

        I always thought of my doctors as "meat mechanics": they listen to the engine and pound on things and to them to try to figure out what's wrong, and then take a stab at fixing the problem based on experience and various field repair manuals. Occasionally you'll require the intervention of an engineer (surgeon), but if I ever find myself talking to a scientist about the state of my health, I'll know I'm screwed.

    • An interesting reaction to Joris Luyendijk in The Guardian, is from Noah Smith on his blog Lazy econ critiques [blogspot.nl]:

      It's Econ Nobel season, and so someone needs to do the job of standing up and repeating all the old disses. This year, it's Joris Luyendijk in The Guardian. [...] Anyway, this litany of critiques, repeated ad infinitum since the crisis, strikes me as mostly pretty lazy. There are good critiques out there. These are not they.
      That said, I like Luyendijk's idea of adding a general social science prize to the Nobel roster. Nobels are silly anyway, so why not have one for every field? While we're at it, how about one in math and computer science, and one in psych/neuro/cognitive science? And one in visual arts? And one in writing snarky point-by-point rebuttals in blog posts?

  • nobel prize winner to explain it its probably doesnt work.

    When an index fund beats actively managed funds 60-75% of the time it aint brain surgery.

    Sound strategies like dollar cost averaging do work over the long run (15-20 years)

    • Be careful not to confuse "economics" with "trading on the stock market." They're not the same.

      Don't confuse "academic economists" with "political economists." Academic economists write papers; political economists write editorials and go on TV shows (although the same person can play each role at different times).
    • When an index fund beats actively managed funds 60-75% of the time it aint brain surgery.

      It certainly isn't. [youtube.com]

    • by HiThere ( 15173 )

      That's not clear, but if it both requires a Nobel prize winner to explain, and he's still poor enough that the money in the prize is significant, in that case it probably doesn't work.

  • by JustAnotherOldGuy ( 4145623 ) on Monday October 12, 2015 @02:12PM (#50711625)

    It's a fuzzy science, similar to cooking.

    Sometimes you try stuff, make predictions, and it turns out great.

    Sometimes you try stuff, make predictions, and it's dreadful. Like my famous "Peanut Butter & Haggis" recipe, or pickle-flavored ice cream.

    • by Ichijo ( 607641 )

      Sometimes you try stuff, make predictions, and it's dreadful. Like my famous "Peanut Butter & Haggis" recipe

      Just curious, what was your prediction on that one?

      • Just curious, what was your prediction on that one?

        Ahem, well, lets just say I didn't think it would be as bad as it was.

        I'm surprised the EPA didn't show up to cordon off my house. But the Food Police did show up and arrest me for vandalism, though.

  • Rocket analogy (Score:4, Interesting)

    by Noah Haders ( 3621429 ) on Monday October 12, 2015 @02:13PM (#50711639)

    When a rocket blows up, it might be the engineers' fault, but you can't blame physics itself. It's not the fault of the field of economics that some bozo lost money and other bozos bailed them out.

  • Well it does have a passing similarity to quantum mechanics in that the very act of making an observation of the financial system will change it because people try to use the observation to make money. The difference is that in quantum mechanics the effect of the observation is based on certain fundamental rules which cannot be changed and you can use these to calculate the probability distribution of outcomes. In economics it seems that there are no fundamental rules or at least if there are nobody has yet
    • somewhat like Schroedinger's Cat?
    • In economics it seems that there are no fundamental rules or at least if there are nobody has yet found them given the total inability of economics to predict the economy.

      It only seems that way to you because you know nothing about economics. Take a class or something and stop being ignorant.

      • It only seems that way to you because you know nothing about economics.

        Then why does economics fail to predict so many economic problems before they happen? You do not have to be a scientist to see that science can make predictions that work consistently. If economics is a science then it too should be capable of making clear predictions which work consistently. You do not need to be an economist to see that this is not the case.

  • by phantomfive ( 622387 ) on Monday October 12, 2015 @02:23PM (#50711743) Journal
    People who think economics is not a science usually have no understanding of economics. The author, for example, uses examples of economists (and non-economists) who failed to predict what direction the market would go. This is like saying, "Physics is not science because we still don't have FTL travel. Fail."

    Economics is a science, and it has a useful body of knowledge. MV = PQ is among the most tested theories in science. Gresham's law. The business cycle. All other things equal, an increase in supply will reduce prices. The biggest problem of economics isn't the lack of "hardness," it's the difficulty of running experiments (you can't re-run the depression six hundred times), so eliminating variables is difficult.

    Anyone who thinks economics is the art of predicting the stock market, will be confused, like the author of this article.
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Economics is a science, and it has a useful body of knowledge. MV = PQ is among the most tested theories in science.

      Your other points aside, MV=PQ is not a "tested theory", but rather an identity based on the mere definitions of the words, particularly the velocity V. You don't get much credit for that, in my book.

    • Economics is a science in that respect.
      You're also right that the repeatability of events make it very poor in practice. It should rightly be regarded within the restrictions of that as opposed to the 'conclusions' people draw from it relying on the success of the physical sciences.

      People who study the Great Depression can be as brilliant and analytical is anyone else, but they ultimately have no way to prove that *the problem* was the money supply and if only they had increased it, it would have been avoid

      • Well that's just your system. What if we brought in communism and simply gave everyone enough and made everyone work? An extreme example, but it applies to every minor law and social rule. You'd have a whole new set of laws to work within. The socio-political laws have just such a great impact. Not just communism. But every law, group of power...

        Your ignorance is hurting you here. Supply/demand doesn't disappear just because you've implemented communism, someone will have to manage that. MV=PQ doesn't disappear because of communism. Economics doesn't disappear because of communism. In fact, the only way to implement a command economy is to have a solid understanding of economics: without it, you will almost certainly fail.

        Capitalism != Economics. Economics can explain a lot that happens under capitalsim, but it can also explain a lot that happen

    • you can't re-run the depression six hundred times

      Keep voting for Republicans, and you can!

  • by qeveren ( 318805 ) on Monday October 12, 2015 @02:28PM (#50711803)

    "Constructing inherently imperfect theories" is essentially the definition of science.

    • by vvaduva ( 859950 )

      No, It's clear that he doesn't. That's a terrible write up.

    • Except is isn't. That covers all forms of theorizing.

      Science is all about testing the theory. Theologians have theories, but they are as far from scientists as it's possible to be. Even further than economists.

  • There's the assertion that economics is granted a prize because the Nobel committee (or whoever) consider it a hard science like the other science prizes. That ain't necessarily so. Economics may have been selected as a representative of the so called softer sciences (it includes many of them after all) rather as the literature prize can be considered representative of the arts.
    • Re: (Score:2, Informative)

      I didn't get the connection between the Nobel prize and it having to be a science. Does that mean Literature and Peace are now sciences?

      What most people are forgetting is that is a social science. The leave out the social part. It's going to be different than chemistry and physics. Mind you most of the stuff I hear from economists is either obvious or seems like they pulled it out of their ass.

  • Oblig Dilbert. https://www.youtube.com/watch?... [youtube.com]
  • by Ludwig von Mises. It's a hard read but worth it.

    From wikipedia:
    Mises came to be regarded by many as the archetypal 'unscientific' economist.

    I think there is no higher praise calling an economist 'unscientific' knowing the questionable practices his 'scientific' colleagues do.

  • by JoeyRox ( 2711699 ) on Monday October 12, 2015 @03:14PM (#50712251)
    If that's the measure by what represents science then we're in trouble.
  • Art (Score:3, Insightful)

    by BenBoy ( 615230 ) on Monday October 12, 2015 @03:21PM (#50712311)
    Economics/Econometrics is a science, it's swindling that's an art.
  • by master_p ( 608214 ) on Tuesday October 13, 2015 @02:39AM (#50715741)

    Just like Physics cannot predict the weather in the long term, because the weather is a chaotic system, Economics cannot predict the state of the market, not because it does not have theorems or its theorems are not correct, but because there are too many variables and the outcome cannot be predicted.

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