Economists like to pride themselves on their job and how scientific it is. Politics might be full of emotional rhetoric and unthought out ideas, but economists rely solely on cold hard facts. Flicking through my old textbooks, I see many references to “thinking like an economist” where we were supposed to cast aside fallacies and view the world with a rational and scientific eye. If only it were so. In reality, economics lacks the basis in real world evidence, the scientific method, and predictive power to be considered a science and is instead a highly politicised topic.
(Debates about whether economics is a science usually draw comparisons and analogies with science subject like physics. Unfortunately almost no one has studied both economics and physics so such analogies are unverifiable and can be used to claim absolutely anything).
The first major reason why economics is not a science is that a lot of it is not based on evidence. If you study economics you will spend a great deal of time studying perfect competition, a state of affairs that almost nowhere exists. Utility is another concept which plays a huge part in economics that is so vague and undefined that it is hard to know if it exists or how you can possibly maximise it. Rational actors, efficient markets, supply and demand are all concepts that are assumed without evidence to be true. In fact, textbooks are surprisingly evidence free and embarrassingly divorced from reality. Not that it gets any better as it goes on, my masters was an impenetrable maze of incomprehensible gobbly-gook taken to such an extreme level of abstraction that it resembled what I imagine a monkey and a keyboard would produce. (No, I didn’t enjoy it, why do you ask?) Economic journals can be so theoretical and abstract that it sometimes seems as though they are arguing over how many angels can stand on the head of a pin. What makes matters worse is that the evidence exists, it is not as though we are trying to find the Higgs Boson, there is no excuse for the failure to describe the real world and rely on excessively theoretical models.
After all, if economics truly was based on impartial evidence then it would have long since dropped many of its ideas that have been since debunked. There is a whole school of economic thought primarily devoted to showing that people are not rational and in fact use many heuristics and biases, yet economic students still receive the same 19th century view of utility maximising rational actors as though it was fact. I have thoroughly investigated the evidence regarding welfare benefits and unemployment and found no connection, yet many economists still claim increasing welfare will increase unemployment. The economic crisis should have lead to a serious rethinking of economics, yet it is depressing to think of how little has changed. A subject which still teaches that markets are efficient even after they spectacular implode cannot call itself a science or claim to be evidence driven.
Economics lacks a crucial element of the scientific method, the ability to repeatedly test hypothesises. There simply is no neutral control in the real world to test theories and policies against. For example, it would be great if we could test how best to respond to a recession by having one country implement a Keynesian stimulus and another conservative austerity and compare the results. However, that simply isn’t possible as the variables would be enormous (the different economy size, structure, culture and a thousand other differences even between neighbours). Crucially, it is almost impossible to repeatedly test a hypothesis. How can you be sure a policy that worked one way will work the same way next time? Milton Friedman argued that the Great Depression was due to a collapse in the money supply and that had the Federal Reserve kept it steady it would not have happened. Yet it wasn’t until 80 years (from the Great Depression to the Great Recession) later that we could test this hypothesis and found it wanting (and still we only have one serious piece of evidence against it).
This hasn’t stopped economists from trying to compare different countries or US states, but these usually require a heavy reliance on proxies which capture only a small piece of the picture at best. You occasionally see articles comparing (for example) the unemployment rate in California and Texas as if it was an experiment to test whether Democrats or Republicans had more effective economic policies, but these are so crude as to be useless. There are some useful experiments in economics (the Ultimatum Game for example) but these are very limited in scope. They only work in certain restricted circumstances on an individual level and are really the exception that proves the rule (although Dan Ariely and others do some very interesting experiments).
Economics has little predictive power, another important feature of science. In fact asking an economist what the consequences of a certain policy will be is the same as asking for their best guess. What will happen if we raise the minimum wage? Maybe unemployment will rise or maybe it will improve the living standards of the poor. What about printing huge quantities of money? Maybe it will destroy the economy in a wave of hyperinflation or maybe nothing much will happen. What if we reduce regulations on the financial sector? Maybe it will lead to a more efficient and prosperous economy or maybe it will destroy it? What if we raise taxes and have a strong welfare state? Maybe it will destroy the incentive to work and lead to an inefficient economy or maybe it will create some of the richest countries in the world (Scandinavia for example).
The thing about science is that your beliefs do not change the facts. Evolution is real and happens even if people don’t believe it is. Atoms are the same regardless of what theories we have about them. However the theories of economics (like social sciences) changes how people behave. Telling people that everyone acts in their own self-interest becomes a self-fulfilling prophecy and studies have found that studying economics makes you more selfish. Teaching that markets are efficient and self-regulating leads to people failing to intervene even when danger signs are flashing. For example many argued that we didn’t need to regulate banks tightly or do anything about the housing bubble because the market was efficient.
There is also the very important fact that economics has a strong political element (to the point that in the 19th century it used to be considered the same subject as politics). My textbooks used to pretend that economics was value free and that economist’s job was merely to create wealth, it was up to politicians to decide what to do with it. It cannot be ignored that some of the most important issues in politics (especially at the moment) are economic issues. Questions such as how best to end the recession, deal with budget deficits, unemployment, the public sector, immigration, poverty etc are all a combination of economics and politics. It is mere fantasy to pretend that economists can act as neutral judges above political bias. Everyone has a bias, a viewpoint, a series of ideas and assumptions upon which they interpret the world.
There is an unfortunate degree of arrogance among the economics profession who see themselves as scientists superior to the social sciences. This physics envy has to go and economists must see themselves for what they really are. Economics is a social science that studies human behaviour not abstract atoms. None of this is to say that economics is useless or rubbish, just that it is looking at things in the wrong way. The field of economics is extremely important to us all, which is why realism is needed all the more. Economics cannot progress as a subject until economists drop their delusions of grandeur. It is better to live as a Duke than dream of being a King.