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 civilisation 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.
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 untrue… 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 motorised 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.
for The Daily Reckoning Australia