Why economics is not a science

28 Aug, 2013 at 11:25 | Posted in Economics | 4 Comments

It would be a real tragedy if the takeaway from recent events becomes that you should listen to impressive-looking guys with good tailors who stroke their chins and sound wise, and ignore the nerds; the nerds have been mostly right, while the Very Serious People have been wrong every step of the way.

images-16Yet obviously something is deeply wrong with economics. While economists using textbook macro models got things mostly and impressively right, many famous economists refused to use those models — in fact, they made it clear in discussion that they didn’t understand points that had been worked out generations ago. Moreover, it’s hard to find any economists who changed their minds when their predictions, say of sharply higher inflation, turned out wrong.

Nor is this a new thing. My take on the history of macro is that the notion of equilibrium business cycles had, by the standards of any normal science, definitively failed by any normal scientific standard by 1990 at the latest. The original idea that money had real effects because people were surprised by monetary shocks fell apart in the face of evidence of business cycle persistence; the real business cycle view that nominal shocks didn’t actually matter after all was refuted by decisive evidence … Yet there was no backing off on this approach. On the contrary, it actually increased its hold on the profession.

So, let’s grant that economics as practiced doesn’t look like a science. But that’s not because the subject is inherently unsuited to the scientific method. Sure, it’s highly imperfect — it’s a complex area, and our understanding is in its early stages. And sure, the economy itself changes over time, so that what was true 75 years ago may not be true today — although what really impresses you if you study macro, in particular, is the continuity, so that Bagehot and Wicksell and Irving Fisher and, of course, Keynes remain quite relevant today.

No, the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions and uses hard math instead.

Paul Krugman


  1. Sometimes I wonder if Krugman is the only contributor to its blog. He seems to endorse different positions on different posts, or at least what seems to be irreconcilable positions. Is he really aware of all the problems in mainstream economics (new-Keynesians include)? Or is he criticizing some of them while maintaining others? Who are the economists he is talking about? Does he belong to this group? Partly belong to? Is he afraid of taking the argument to its logical conclusion (which call for a paradigm shift)? Disturbing…

    • Just questions 🙂

      • Well, I can’t prevent myself to see some opportunism in that kind of behaviour. I may be completely wrong. I can also imagine how hard it would be to repudiate a significant part (if not all) of its own work.
        Whatever the reasons, what is really annoying is this diffuse ambiguity. Of course one does not always need to destroy an entire paradigm every time a problem arises. But here, some of its criticisms are very destructive for neoclassical framework as a whole, so also very destructive for positions he defends.
        I know that internal consistency is not an asset of neoclassical economics, but I have difficulties understanding it at the individual level. It is not that he changed his mind (who never does?), it is that he seems to maintain two conflicting positions at the same time.

  2. “they made it clear in discussion that they didn’t understand points that had been worked out generations ago.” Victoria Chick makes the same point here:


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