Scientific Economic? Not Again!
That whole quasi-Nobel prize award paradox still reverberates. Today’s New York Times carries an op-ed piece by Raj Chetty from Harvard trying to fend off the laughter of those who see having both Shiller and Fama win at the same time is a little strange.
His conclusion? Of course economics is a science. Why? Because it does lots of complicated math stuff, that’s why. I suppose none of us ought be surprised, after all Professor Chetty has a lot of personal prestige riding on the answer.
What I find odd though is the way in which Chetty goes about his argument. He freely acknowledges that economics fails to answer many of the big questions that fall within its domain. It still cannot explain economic growth satisfactorily, nor does it have an iron grip on the causes of recessions. These are two examples Chetty gives us. But, it has, we are told, made great strides towards becoming a subject grounded firmly in fact. This progress is due to the development of a scientific approach which, Chetty tells us, is the real thing linking last week’s prize winners.
So I take it that economics is nascent – the last couple of hundred years being a prolonged birth process, but that it has a non-controversial method now sufficiently developed that is can be regarded by a skeptical public as “scientific”.
He then gives us a few examples of the triumphant application of this method. There’s a study of unemployment benefits; one of health insurance; and another of teachers.
Now I am not going to question the value or efficacy of these studies, but it occurs to me to ask: is that all you have? After all any social science researcher once equipped with the right statistical method could attack those problems. There’s nothing super-economic about them.
So is Chetty arguing that economics is simply statistics or econometrics or applied math? And that being so is what makes economics “scientific”?
If this is true, I think economics is significantly deflated. Gone are the grand questions, and banished is the systemic look at big issues. Economics is reduced to number crunching, answering what Chetty calls “micro” questions. This is rather pathetic. It does accord, though, with many anecdotes I hear about economists being, at heart, just applied mathematicians. Not that there’s anything wrong with applied mathematicians. It’s just that we have them already, so why do we need economists to do the same things? What makes economics different?
And that seems to be the key question. At least to me.
Economics is different precisely because it looks at those big questions – the ones Chetty says it has failed to answer. There’s nothing to be ashamed of in that failure either. Just as long as economists are honest about it. After all the failure of old ideas is how we all learn and thus create new ones.
Maybe this is why economics doesn’t yet rise to the level of being a “science”. It doesn’t abandon its old ideas. They are never really put on the shelf as failures. There’s always someone carrying the torch for them.
One last thing: if, as Chetty argues, economics has this bright shiny method and both Fama and Shiller are adept at it – which I assume we can all agree on – then how come that method produced two so different answers to quite – but not exactly the same questions? Are markets that nuanced?
I don’t know, but I remain skeptical.
Meanwhile I think what stirs this issue up is not so much the Efficient Markets Hypothesis itself, which if looked at narrowly still says a useful thing or two, but the subsequent overly expansive way in which Fama defended it. Especially in the face of the real estate bubble. He showed his Chicago school ideological background too much, and thus debased what was left of EMH.
