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Economics is a science

One point of view that has surfaced widely since the boom-bust of 2008-2010 is the assertion that economics is is not a science. In the light of the failure of mainstream economists to predict the course of events, it is understandable that a lot of people should come to this conclusion. The view was summed up by a commentator thus: It is not a science because of the steps of the “Scientific Method… To say there “seem” certain laws at work doesn’t prove that there “are” certain laws at work. That is it in a nutshell. You can chose to end reading there.

The arrogant tone of the comment is unfortunately a feature of contemporary discourse. Even a cursory observation sugggests that there are regularities. This can be seen in any street market. The prices of things do not fluctuate wildly and inexplicably. Wages seem to find their level. Real interest rates seem to find their level too. Land prices and the associated economic cycle seem to be subject to a remarkably consistent and regular 18 year periodicity which can be traced back for a couple of hundred years. Land vaues follow a coherent pattern which can be correlated with factors such as the presence or otherwise of transport infrastructure. It is reasonable to infer that causality operates. It is further possible to test hypotheses, for example by collecting further data and also by studying the effects of different fiscal policies and the construction of new transport infrastructure. Similar relationships can be discovered in relation to other interventions or the absence of interventions.

Relationships and regularities do not of course imply causality, nor do they make it possible to establish which is cause, which is effect, or whether there are common causes or other causes which lie behind what is observed. One might, for example, note that there is a correlation between the styles of hats that people are wearing, and how prosperous they are. At that point it is necessary to put forward hypothesis and test them.

Over the centuries and in different societies there have been economies so different that careful examination of how they functioned will yield the kind of information that in the physical sciences would come from laboratory experiments in controlled conditions – the most notorious of these being the Marxist economies on the one hand and the strange faux-libertarian economies that are currently emerging around the world.

All tihis indicates that, taking the economy overall, there are guiding laws in operation which are, in principle, discoverable, even though precision is lacking. Most phenomena in the sciences are not repeated with a reliability of 1%, which is in any case often more than the method of observation makes possible. Admittedly, too, people have different motivations and preferences,  but on the large scale,  their actions add up to a coherent picture. In practice, too, individuals and organisations have a more or less realistic understanding of the way the system operates. Thus, any street beggar knows that they will get more if they sit outside a busy shop than if they put themselves in the middle of a quiet park where they will have only the birds for company. In that respect, economics is not so very different from the biological sciences.

The alternative view implies an absence of regularity and causality. From this, it would follow that

  • That nothing is knowable about the subject
  • That any interventions eg through legislative and fiscal policy, are pointless, because their effects are completely unpredictable.
  • The same pointlessness applies to any commercial decisions.

If there were no regularities in economics, people would have no idea whether they were paying, or being paid, the right price for anything. Manufacturers could not plan their production. Businesses would not know what how much, and what stock to order, and what to charge for it. We all work on the assumption that there world of economics is rational. It isn’t always, but in the world of economics people do not knowingly give away things for less than they know, from previous experience, that they are worth. The assertion that economics is too complex to be a science is analogous to saying that it is not worth trying to learn to swim in the sea because the sea is too chaotic for the mind to apprehend.