Is economics — really — a science?

12 January, 2018 at 18:26 | Posted in Economics | 4 Comments

As yours truly has reported repeatedly during the last couple of years, economics students all over Europe and the U.S. are increasingly questioning if the kind of economics they are taught — mainstream neoclassical economics — is of any value. Some have even started to question if economics really is a science.

economicsdemotivator_grandeMy own take on the issue is that economics has lost immensely in terms of status and prestige during the last years. Not the least because of its manifest inability to foresee the latest financial and economic crises — and its lack of constructive and sustainable policies to take us out of these crises.

We all know that many activities, relations, processes and events are uncertain and that the data do not unequivocally single out one decision as the only ‘rational’ one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.

Neoclassical mainstream economists, however, have wanted to use their hammer, and so decided to pretend that the world looks like a nail. Pretending that uncertainty can be reduced to risk and construct models on that assumption have only contributed to financial crises and economic havoc.

How do we put an end to this intellectual cataclysm? How do we re-establish credence and trust in economics as a science? Five changes are absolutely decisive.

(1) Stop pretending that we have exact and rigorous answers on everything. Because we don’t. We build models and theories and tell people that we can calculate and foresee the future. But we do this based on mathematical and statistical assumptions that often have little or nothing to do with reality. By pretending that there is no really important difference between model and reality we lull people into thinking that we have things under control. We haven’t! This false feeling of security was one of the factors that contributed to the financial crisis of 2008.

(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions. Mathematics gives exact answers to exact questions. But the relevant and interesting questions we face in the economic realm are rarely of that kind. Questions like “Is 2 + 2 = 4?” are never posed in real economies. Instead of a fundamentally misplaced reliance on abstract mathematical-deductive-axiomatic models having anything of substance to contribute to our knowledge of real economies, it would be far better if we pursued “thicker” models and relevant empirical studies and observations.

(3) Stop pretending that there are laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability.

(4) Stop treating other social sciences as poor relations. Economics has long suffered from hubris. A more broad-minded and multifarious science would enrich today’s altogether too autistic economics.

(5) Stop building models and making forecasts of the future based on totally unreal micro-founded macromodels with intertemporally optimizing robot-like representative actors equipped with rational expectations. This is pure nonsense. We have to build our models on assumptions that are not so blatantly in contradiction to reality. Assuming that people are green and come from Mars is not a good – not even as a ‘successive approximation’ – modeling strategy.



  1. How about these also?

    (7) Stop ignoring the role of banks in the economy.
    And for those economists who don’t:
    (8) Stop pretending we can have honest accounting when the liabilities of the banks, etc. toward the non-bank private sector (for fiat) are largely a sham since the non-bank private sector may not even use fiat except in the form of grubby, unsafe, inconvenient physical fiat, a.k.a. “cash”.

  2. Excellent Lars! I agree fully and have nothing more say than recommend them to read for exampel ,Gunnar Myrdal and C.Wright Mills and what they had say to those that think economics and other social sciences is a rock solid science like physics, i think they could
    handle that? P.s skickade mail till din mah. adress,beste hilsen och hälsa Fabian,Jan

    • I would add that in many cases modelling is not appropriate at all – ‘thick’ or not. And the subject must also consider quantifiable and non-quantifiable evidence. For example, if there is a record of a central bank governor saying he/she lowered interest rates because of political instability in the Middle East, that counts as primary evidence that cannot be ignored, even if it is not of the quantifiable kind.

  3. Today macroeconomics is being supported by so many kinds of schools of thought that one cannot claim it to be a true science. But it should be, because it can be properly formulated and logically explained by the application of human-engineering principles. The reason why this approach is not used is because it appears to be too difficult to understand, but for many reasons this difficulty is being overcome and then it will emerge as a closer to true science and (since no science is perfectly correct and always needs further investigation) our science will become properly viable too. For those who will never disagree that their intuitive approaches are all that counts, I say that they need to widen their minds.

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