Is Economics a Science?

Robert J. Shiller is a Nobel Laureate in Economics and an Economics professor at Yale University, in an online article published in 2013 he addresses the vexed question as to whether Economics is a Science. Whilst acknowledging the limitations of his subject as a science readily enough he cannot bring himself to altogether abandon that label. Moreover, he almost seems more interested in highlighting the failures of other disciplines as sciences (chemistry, physics, politics, astronomy…) than to provide evidential support for his own thesis, and this should tell us something about the weakness of his argument. Simply labelling Economics a science does not make it one.

What kind of a subject is Economics? In its mathematical modelling it looks like a science, in its methodologies and its focus on human behaviour it looks much more like a Social or Human Science. Whatever the answer, it seems that Economics may be suffering from an identity crisis, not knowing what it is or where it is going. Why should this matter? Well, we live in a world where, for better or worse, the pronouncements of Economists are often treated as truths handed down by demi-gods from some heaven of perfect cognition; their theories are not only said to explain the world (life, the universe and everything in it) but they also inform political and social policies the world over. It seems therefore important to turn the investigative and critical eye of TOK towards this extremely popular academic discipline in order to try and gain some understanding of its true nature, warts and all.

Is Economics a Science? If by Science we mean a discipline which employs as it main means of acquiring knowledge what is commonly called the Scientific Method (or the Hypothetico-Deductive Model), then Economics could be described as a science since at least some of its data is clearly produced using this method.  On the other hand it suffers from the problem that it cannot use controlled experiments to test its mathematical models in the way the Natural Sciences can. Furthermore, if one applies a stricter criterion such as Karl Popper’s principle of falsifiability (a science can only be called so if, and only if, its data can subsequently be falsified through further observable data) then it is not at all clear how this can be applied to the entire field of Economics. On top of this, when it comes to providing accurate predictions based on sound mathematical models, economics’ record is, to put it bluntly, abysmal; but do not take my word for it, here is IMF economist Prakash Loungani writing in 2001, “the record of failure to predict recessions is virtually unblemished”. Finally, the scientific method can scarcely be applied to the core subject of Economics, Adam Smith’s  ‘invisible hand,’ it being in the nature of invisible things not be, well, visible and therefore observable. So in the end Economics is and isn’t a science, sort of.

Is Economics merely a Social or Human Science? By merely, one means that Economics as an academic subject is most closely associated with the human rather than the natural sciences. This means that its focus and methods is consistent with that of other human sciences such as psychology, sociology and anthropology. Therefore, the focus of economics is not primarily abstract theoretical concepts or economic models in the form of mathematical algorithms but the nature of human economic behaviour. If this is so, it obviously suffers the limitations of all human sciences including the challenge of obtaining objective and reliable knowledge of a notoriously fickle and decidedly uncooperative species – Homo Economicus. This quest is seriously, some would say fatally, undermined by the fact that economics has to operate on the basis of a number of assumptions which make any data gathered highly unreliable and mostly useless when trying to provide general laws of behaviour or predictive theories. Among them are the following. Firstly, Economists contend that even if individuals can act irrationally and erratically on occasions human beings demonstrate collective rationality. It does not seem clear to me how one could ever demonstrate the validity of this assumption, if inconsistency is a given characteristic of human behaviour how can one ever trust that there will be enough ‘rational’ agents in one’s sample to be representative of this collective rationality? Secondly, we are told consumers always maximize utility producers always maximize profits. This golden rule of economics is an assumption based on other assumptions and could never be confirmed for, at least two reasons.It simply would be impossible to gather enough data to support it given the sheer number and variety of economic decisions made at any one time, and available data clearly shows that when it comes to economic behaviour human beings do not always maximize utility and producers do not always prioritize profits. Thirdly, it is argued that people act independently based on full and relevant information. People’s behaviour is always within a specific or even unique context, therefore independence, full and relevant information cannot be assumed to exist or be available in the way Economics assumes it is. If Economics is a human science, it is a very human science and therefore liable to be wrong, unpredictable and over-confident in its own abilities more often than not.

In our obsession with classifying and categorizing everything, there is sometimes a tendency to over-focus on how to label something rather than to work out how to make it better at what it does. If the brief history of the 21^st Century has taught us anything it is this, data is being generated at such a rate in all spheres of human knowledge that one of the inevitable consequences has been a breakdown of barriers between fields of study and a welcome increase in collaboration between disciplines. This has resulted in an explosion of successful lines of multidisciplinary inquiries and is likely to continue to grow at an exponential rate. The IB, with TOK at its heart, has always promoted a holistic and interconnected approach to learning; let others like Robert J. Shiller fret about whether Economics truly is a science, in the end as a species we have tended to be more successful when we focus on what we have in common rather than what sets us apart.