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Economics is not a science like physics. We can't do controlled experiments, we can't falsify hypothesis. This leads to very muddy waters and what you are left

by mbar84 5y ago

Economics is not a science like physics. We can't do controlled experiments, we can't falsify hypothesis. This leads to very muddy waters and what you are left with are two kinds of economists: Those who tell people what they want to hear and those nobody listens to. Econometrics gives people everything they want to hear, and with a scientific veneer as a bonus. The HN crowd should however appreciate how susceptible this is to the tyranny of metrics. Claude-Frédéric Bastiat warned of this over a century ago with his parable of the broken window: Think not only of what you can see (the glazier who is employed to repair the window), but also of what you cannot see (the alternative purchase of a suit) had the window not been broken.

deleted 5y ago
[deleted]
imtringued 5y ago
Neo classical economics is actually a regression even vs classical economics. The moment it became a hard science it lost the human element and became someone's optimization fetish even though nobody can even know what it optimizes for. The even worse part is that some assumptions don't even work in once you look at the math of e.g. accounting. Keynes and Silvio Gesell and Wolfgang Stützel are much closer to how our accounting system known as money works even though both of them lived during a gold standard where it was normal to bend some accounting rules like digging out new gold to create more money or just bend them outright by printing money without any asset backing it.
- LudwigNagasena 5y ago
  >The even worse part is that some assumptions don't even work in once you look at the math of e.g. accounting. Assumptions don't need to be absolutely true, they have to be good enough to have predictive power. >Keynes and Silvio Gesell and Wolfgang Stützel are much closer to how our accounting system known as money works I doubt.
eclat 5y ago
The chief danger to our philosophy, apart from laziness and woolliness, is scholasticism, … which is treating what is vague as if it were precise… F. P. RAMSEY. From Popper’s The Open Society and its Enemies
charcircuit 5y ago
>We can't do controlled experiments Why not?
- mbar84 5y ago
  Because people aren't lab mice. My favourite example are claims wrt. experiments for the Universal basic income. These experiments always pertain to people who receive more money than previously, but somehow never include a proportional group of people from whom the money is taken away. To do this experiment correctly, you would have to pick a random sample of the population and do the redistribution regardless of what any of the participants want.
  - nautilius 5y ago
    So, if you would want to test if, say, a pair of shoes improves running performance, it's not enough to compare to peers without change, or the situation before the new shoes, but you will reject the study unless you also have a third group where you break people's legs? How would that be necessary?
    - mbar84 5y ago
      UBI cannot be implemented unless somebody pays for it. It's necessarily redistributive. All existing experiments only look at one half of the equation. I think it's a fair question to ask what the effect will be on people who on net will pay more than before this system was introduced. Breaking peoples legs is not a prerequisite for others to run faster.
      - MatthewMob 5y ago
        Of course not, there are a plethora of factors that would alter the effectiveness of UBI, looking at it so simply and then rejecting it outright is dishonest. Money would majorly come from those who have the greater means to pay larger amounts into the system, and on the hypothesis that bettering the material conditions of those in the lower and middle class will necessarily lead to increasing productivity and thus (and 'thus' is a large leap) greater general income that can partly be paid back into the system in a cycle.
zwaps 5y ago
Economists do plenty of experiments. As for Econometrics, I agree that studies employing observational causal inference in statistics are much harder (and harder to swallow) than experiments. Usually. But perhaps, if you dig a bit deeper and ask yourself things like: "what makes a hypothesis falsifyable" or, "could there be a hypothesis falsifyable by observational data?". Have your ever written down the exact exclusion condition (or exogeneity condition or whatever) you use in your experiment? You might find out something interesting. Controlled experiments, much like any econometric (or statistic) technique, require identification assumptions. And of course, these can not be proven. Even though many people believe it is so, experiments are not really different in kind, the assumptions are just usually easier to believe. Not always, though, which can also be fun. Even in an experiment, you - in fact - observe reality only once. In other cases, however, we find out that our assumptions about the identification in the experiment were wrong, due to factors we didn't know about. This happens even in physics (shocker, I know). Keep an open mind, would be my advise. Your critiques are well known, and in the broad sense tackling them is the business of statistics. By the way, there are indeed smart people here and there. A good heuristic: If your find yourself rejecting entire disciplines, like econometrics, all while implictily using auction theory, regulation, pricing etc. in your amazon, ebay, cellphone, or energy grid, you are probably on the wrong peak of a Dunning Kruger curve.
- mbar84 5y ago
  I understand the argument and I accept the idea of natural experiments in principle. The most difficult thing with all of these is the ceteris paribus (holding all else constant), or as a second best, correcting for known confounding factors. This is in such stark contrast to a lab setting, where an adversarial scientist can regard a hypothesis as wrong and construct an experiment to prove it so, only to find out that the hypothesis isn't falsified. With statistics and models on the other hand it always devolves into discussions about variables, confounding factors and there's never a satisfying resolution, especially on controversial results. The number of places for bias to creep in are way to many. I think the econometrics people have gone down a hopeless path, guided by wishful thinking and demand from people who want us to be able to make statements about things which we just cannot do. The parts of economics that are valuable are not based on econometrics, but upon reasoning from first principles: Incentives, supply and demand, game theory etc. under which I would argue all of your examples fall.
abdullahkhalids 5y ago
Please note that the origins of modern science in Europe lie in astronomy [1]. Astronomy has always has been and is an observational science, yet has been enormously successful at creating models of what we see in the skies. Would you critique astronomy the same ways as economics? What is the critical difference? [1] Yes, there was a lot of simultaneous work in other areas as well.
- ZeroGravitas 5y ago
  A more revealing symmetry is what happened in Astronomy when a powerful political force didn't like the answer the scientists were coming up with, Galileo vs the Church. (More recent examples are climate change and COVID, but let's not get too controversial). So when we criticize "economists" are we criticizing the scientists like Galileo and Copernicus that were right and got their books banned, or are we criticizing the ones that supported the political power of the day? Note that some of those scientist would have genuinely believed their 'church-approved' theories. Just their opponents couldn't challenge them openly without incurring wrath. And would generic criticism of "scientists" have benefitted science or the established political power at that time?
- grey-area 5y ago
  What is the critical difference? Economics is a dismal science and models rarely predict real word outcomes correctly. It’s more akin to astrology than astronomy.
- runeks 5y ago
  > What is the critical difference? Whether the stuff you’re observing can read and understand your observations, and then choose to do the exact opposite.
  - toyg 5y ago
    Schrodinger's cat problem on a social level, basically.
- esarbe 5y ago
  > What is the critical difference? - Astronomers cannot influence the system they are describing; there's no feedback. In economics there is. - Astronomy describes systems with a few, simple particles whose inner state is not relevant to the behavior at large. Economics describes (tries to..) systems with many complex 'particles' whose inner state is essential to the behavior at large. Not saying that this is what's fundamentally separates astronomy from economics, just pointing out some potential differences.
gtsop 5y ago
> Economics is not a science like physics. It's not that economics can't be a science like physics. It's that (most) economists don't treat it like a science.
- LudwigNagasena 5y ago
  It's actually the opposite. Lots of economists (maybe overzealously) discard any statement that doesn't have a model behind it.
- stkdump 5y ago
  I think the problem is that economics needs to take human behavior into account, which it tries to do via game theory, which in turn relies on rational actors. I don't think individual human behavior is predictable like that. You could argue that we don't need to model individuals, only large groups of people. But the problem is that often the behavior of some individuals has a huge effect on large groups. Contrast that to physics, where we have been very successful with predicting the behavior of masses both on small and on large scale, with relatively few exceptions.
  - cospaia 5y ago
    You are on to something with ”behaviour”, ”actors”, and ”rational” . Ludwig von Mises defined ”rational” as ”aiming to an end, using means”. That means that even someone performing a dance to produce rain is a rational actor. He formulated the axiom that ”humans act”. And then derived his theory from that. The science is named Praxeology. A big difference from the natural sciences is that you really can't falsify a theory using empirics. There is no way to repeat an experiment, because reality has been reconfigured. Therefore axiomatic theory is what you have to rely on. Which is not too bad. After all sciences like geometry also make do without empiricism. (There is no way to empirically disprove that a triangle has an angle sum of 180 degrees.)
- cospaia 5y ago
  No, it can't be a science like physics. It is a science anyway. Just not like physics.
Dracophoenix 5y ago
I've always understood the parable of the broken window to be about opportunity costs. I don't see how it was a warning about metrics.
- mbar84 5y ago
  It's both. I don't think it's too much of a stretch to broaden what he meant by seen/unseen to also refer to econometrics models which incorporate only some things (that can be measured/seen) and not others (that are unmeasured/unseen). The seen/measurable: employment in the production of windows. The unseen/unmeasurable: missing employment in the production of suits.

by mbar84 5y ago

deleted 5y ago

[deleted]

imtringued 5y ago

Neo classical economics is actually a regression even vs classical economics. The moment it became a hard science it lost the human element and became someone's optimization fetish even though nobody can even know what it optimizes for. The even worse part is that some assumptions don't even work in once you look at the math of e.g. accounting. Keynes and Silvio Gesell and Wolfgang Stützel are much closer to how our accounting system known as money works even though both of them lived during a gold standard where it was normal to bend some accounting rules like digging out new gold to create more money or just bend them outright by printing money without any asset backing it.

LudwigNagasena 5y ago
>The even worse part is that some assumptions don't even work in once you look at the math of e.g. accounting. Assumptions don't need to be absolutely true, they have to be good enough to have predictive power. >Keynes and Silvio Gesell and Wolfgang Stützel are much closer to how our accounting system known as money works I doubt.

eclat 5y ago

The chief danger to our philosophy, apart from laziness and woolliness, is scholasticism, … which is treating what is vague as if it were precise… F. P. RAMSEY. From Popper’s The Open Society and its Enemies

charcircuit 5y ago

>We can't do controlled experiments Why not?

mbar84 5y ago
Because people aren't lab mice. My favourite example are claims wrt. experiments for the Universal basic income. These experiments always pertain to people who receive more money than previously, but somehow never include a proportional group of people from whom the money is taken away. To do this experiment correctly, you would have to pick a random sample of the population and do the redistribution regardless of what any of the participants want.
- nautilius 5y ago
  So, if you would want to test if, say, a pair of shoes improves running performance, it's not enough to compare to peers without change, or the situation before the new shoes, but you will reject the study unless you also have a third group where you break people's legs? How would that be necessary?
  - mbar84 5y ago
    UBI cannot be implemented unless somebody pays for it. It's necessarily redistributive. All existing experiments only look at one half of the equation. I think it's a fair question to ask what the effect will be on people who on net will pay more than before this system was introduced. Breaking peoples legs is not a prerequisite for others to run faster.
    - MatthewMob 5y ago
      Of course not, there are a plethora of factors that would alter the effectiveness of UBI, looking at it so simply and then rejecting it outright is dishonest. Money would majorly come from those who have the greater means to pay larger amounts into the system, and on the hypothesis that bettering the material conditions of those in the lower and middle class will necessarily lead to increasing productivity and thus (and 'thus' is a large leap) greater general income that can partly be paid back into the system in a cycle.

zwaps 5y ago

Economists do plenty of experiments. As for Econometrics, I agree that studies employing observational causal inference in statistics are much harder (and harder to swallow) than experiments. Usually. But perhaps, if you dig a bit deeper and ask yourself things like: "what makes a hypothesis falsifyable" or, "could there be a hypothesis falsifyable by observational data?". Have your ever written down the exact exclusion condition (or exogeneity condition or whatever) you use in your experiment? You might find out something interesting. Controlled experiments, much like any econometric (or statistic) technique, require identification assumptions. And of course, these can not be proven. Even though many people believe it is so, experiments are not really different in kind, the assumptions are just usually easier to believe. Not always, though, which can also be fun. Even in an experiment, you - in fact - observe reality only once. In other cases, however, we find out that our assumptions about the identification in the experiment were wrong, due to factors we didn't know about. This happens even in physics (shocker, I know). Keep an open mind, would be my advise. Your critiques are well known, and in the broad sense tackling them is the business of statistics. By the way, there are indeed smart people here and there. A good heuristic: If your find yourself rejecting entire disciplines, like econometrics, all while implictily using auction theory, regulation, pricing etc. in your amazon, ebay, cellphone, or energy grid, you are probably on the wrong peak of a Dunning Kruger curve.

mbar84 5y ago
I understand the argument and I accept the idea of natural experiments in principle. The most difficult thing with all of these is the ceteris paribus (holding all else constant), or as a second best, correcting for known confounding factors. This is in such stark contrast to a lab setting, where an adversarial scientist can regard a hypothesis as wrong and construct an experiment to prove it so, only to find out that the hypothesis isn't falsified. With statistics and models on the other hand it always devolves into discussions about variables, confounding factors and there's never a satisfying resolution, especially on controversial results. The number of places for bias to creep in are way to many. I think the econometrics people have gone down a hopeless path, guided by wishful thinking and demand from people who want us to be able to make statements about things which we just cannot do. The parts of economics that are valuable are not based on econometrics, but upon reasoning from first principles: Incentives, supply and demand, game theory etc. under which I would argue all of your examples fall.

abdullahkhalids 5y ago

Please note that the origins of modern science in Europe lie in astronomy [1]. Astronomy has always has been and is an observational science, yet has been enormously successful at creating models of what we see in the skies. Would you critique astronomy the same ways as economics? What is the critical difference? [1] Yes, there was a lot of simultaneous work in other areas as well.

ZeroGravitas 5y ago
A more revealing symmetry is what happened in Astronomy when a powerful political force didn't like the answer the scientists were coming up with, Galileo vs the Church. (More recent examples are climate change and COVID, but let's not get too controversial). So when we criticize "economists" are we criticizing the scientists like Galileo and Copernicus that were right and got their books banned, or are we criticizing the ones that supported the political power of the day? Note that some of those scientist would have genuinely believed their 'church-approved' theories. Just their opponents couldn't challenge them openly without incurring wrath. And would generic criticism of "scientists" have benefitted science or the established political power at that time?
grey-area 5y ago
What is the critical difference? Economics is a dismal science and models rarely predict real word outcomes correctly. It’s more akin to astrology than astronomy.
runeks 5y ago
> What is the critical difference? Whether the stuff you’re observing can read and understand your observations, and then choose to do the exact opposite.
- toyg 5y ago
  Schrodinger's cat problem on a social level, basically.
esarbe 5y ago
> What is the critical difference? - Astronomers cannot influence the system they are describing; there's no feedback. In economics there is. - Astronomy describes systems with a few, simple particles whose inner state is not relevant to the behavior at large. Economics describes (tries to..) systems with many complex 'particles' whose inner state is essential to the behavior at large. Not saying that this is what's fundamentally separates astronomy from economics, just pointing out some potential differences.

gtsop 5y ago

> Economics is not a science like physics. It's not that economics can't be a science like physics. It's that (most) economists don't treat it like a science.

LudwigNagasena 5y ago
It's actually the opposite. Lots of economists (maybe overzealously) discard any statement that doesn't have a model behind it.
stkdump 5y ago
I think the problem is that economics needs to take human behavior into account, which it tries to do via game theory, which in turn relies on rational actors. I don't think individual human behavior is predictable like that. You could argue that we don't need to model individuals, only large groups of people. But the problem is that often the behavior of some individuals has a huge effect on large groups. Contrast that to physics, where we have been very successful with predicting the behavior of masses both on small and on large scale, with relatively few exceptions.
- cospaia 5y ago
  You are on to something with ”behaviour”, ”actors”, and ”rational” . Ludwig von Mises defined ”rational” as ”aiming to an end, using means”. That means that even someone performing a dance to produce rain is a rational actor. He formulated the axiom that ”humans act”. And then derived his theory from that. The science is named Praxeology. A big difference from the natural sciences is that you really can't falsify a theory using empirics. There is no way to repeat an experiment, because reality has been reconfigured. Therefore axiomatic theory is what you have to rely on. Which is not too bad. After all sciences like geometry also make do without empiricism. (There is no way to empirically disprove that a triangle has an angle sum of 180 degrees.)
cospaia 5y ago
No, it can't be a science like physics. It is a science anyway. Just not like physics.

Dracophoenix 5y ago

I've always understood the parable of the broken window to be about opportunity costs. I don't see how it was a warning about metrics.

mbar84 5y ago
It's both. I don't think it's too much of a stretch to broaden what he meant by seen/unseen to also refer to econometrics models which incorporate only some things (that can be measured/seen) and not others (that are unmeasured/unseen). The seen/measurable: employment in the production of windows. The unseen/unmeasurable: missing employment in the production of suits.