Is economics science? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 22 October 2013
Is economics science? A  A  A

Baltimore, Maryland

Another dull day on Wall Street. Nothing to report. So, let us return to the exciting place we were visiting yesterday - the world, red in tooth and claw...pre-history! Ten thousand years BC. Twenty thousand. One hundred thousand.

We continue our look at the difference between civilization and barbarism. But before we begin...let's pause to gasp and wheeze. That's what happened to us when we read, in the New York Times, that:

    Yes, Economics Is a Science

    I'm troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

    It is true that the answers to many "big picture" macroeconomic questions - like the causes of recessions or the determinants of growth - remain elusive.
Elusive? They're as elusive as a dead Abominable Snowman or a live Elvis. That is, they don't exist. At least, not where these economists are looking. You can't get reliable answers out of quack economic science.

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The author of this Times' opinion piece is a Harvard professor of economics. Of course, who else would believe that there was anything the least bit scientific about economics?
    Consider the politically charged question of whether extending unemployment benefits increases unemployment rates by reducing workers' incentives to return to work. Nearly a dozen economic studies have analyzed this question by comparing unemployment rates in states that have extended unemployment benefits with those in states that do not. These studies approximate medical experiments in which some groups receive a treatment - in this case, extended unemployment benefits - while "control" groups don't. These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates.
What? This is science? Science requires controllable initial conditions...and hypotheses that you can prove un-true...and reproducible results. Economics meets none of these requirements. As practiced today, it is just guesswork and slippery statistics used to justify sleazy policies. For example, does the example above mean that a state can extend unemployment benefits and increase the length of average unemployment by a week? Not at all. In an economy, there are thousands of influences on unemployment - jobs on offer, real wages, demographics, inflation. No one can say which of them will come into play at any given time...or what effect it will have. There are no discreet factors that can be isolated and studied. There is no way to build up a proven body of economic knowledge. And you can't improve the world by contradicting the decisions of individuals, using economics to inform policy decisions.

Theoretical science and applied science can do amazing things - even send a motorized vehicle to another planet and operate it remotely. What can economics do? What has the profession ever done? Does our economy grow any faster with economists running the Fed? Do we recover from setbacks any quicker? Do people become wealthier? The answer to all these questions is 'no.' The US economy functioned better before economists began meddling with it.

Can you think of a single achievement of the economics profession? We can't.

Now, back to 10,000 BC...or maybe 5,000 BC.

Real money as we know it arose along with marriage and the golden rule. These innovations allowed people to live together, peacefully, and to do business with one another. Trade, savings, investment, the division of labor - these are the bedrock innovations upon which modern capitalism rests.

For the first 195,000 years of his existence, man tended to engage in win-lose transactions. Wealth could not be readily increased. There was only so much hunting territory. And only so many women. The way to get more was to take something away from someone else. One person gained. The other lost. Naturally, the loser did not hand over his possessions without a fight. Typically, we guess, he was killed...or driven off.

This is not to say that most people did not live peacefully. And not to say that there weren't nice people who did nice things. We don't know. We weren't there. But it is not hard to imagine that violence was as common as flint. Any major changes in the relative wealth, status or power of men - individual or groups - had to be achieved primarily by violence. There was just no other way to get ahead.

There is nothing particularly shocking about this. Primitive man's conduct was little different from any other predatory animal. All lived by killing. The more they killed the more 'prosperous' they were.

Nor was man the only predator who targeted his own kind. Recent observations show that chimpanzees, in the wild, conduct murderous 'wars' against neighboring groups - organizing raids and ambushes to kill rival males.

Nor did the killing stop after civilization had been introduced. Instead, it grew more sophisticated...with large, professional armies and some of the sharpest minds put to work on the challenges of military engineering and mass homicide.

But after civilization evolved - and it is still evolving, of course - killing needed a false mustache. It had to be disguised as 'patriotism'...or protecting the homeland...or a fight for 'lebensraum'...or 'manifest destiny'...or a 'war against terror'... or the Monroe Doctrine...or making the world 'safe for democracy'...or some such claptrap.

Meanwhile, the rate of return from fighting declined. You could still kill - nothing in pre-history probably came close to the death toll in the 1914-1945 period. But in the new, modern world homicide didn't pay off as it used to. Much of the fun and profit was removed. You could kill a man. But it was unseemly to take his property as your own, his wife into concubinage and his children into slavery. Instead, the rate of return went negative. You flattened an opponent - and you found yourself responsible for the care and maintenance of the widow! You had to come up with funds to rebuild your adversary's economy. You had to provide police protection...and poll wardens.

America's entire imperial enterprise has been a losing proposition. The Philippines, WWI, WWII, Korea, Vietnam, Afghanistan...the net return on investment was starkly negative, though probably none so deeply in the red as the war against Iraq, estimated to cost as much as $5 trillion, with no discernible off-setting gain of any sort.

But while the rate of return from violence declined, the rate of return from cooperation increased. The win-win deal did not simply transfer wealth; it added to wealth. This is, of course, the world that Adam Smith described in his "Wealth of Nations." By specializing in what they can do best...and trading with others...individuals, and nations, grow richer. They increase the world's total wealth, not just move existing wealth around.

More to come....

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "Is economics science?"


Oct 27, 2013

Enlightening discussion about evolution of human civilization vis a vis barbarianism.


Manoj Kumar Mondal

Oct 22, 2013

Economic events, unlike events in physical sciences, are influenced by a large number of factors of varying intensities, some observable some not, some visible some imperceptible. Empirical studies in Economics try to generalize the causal behavior based on a limited number of highly visible factors. May a times, some major determinants remain outside the purview of the studies. That may be one reason for unreliability of economics theories. However, economic theories are guidelines and should be used alongside deep knowledge of the surroundings and should be reviewed frequently so as to refine strategies.

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