Economics as a "Normal" Inexact Science

Daniel Little comments in his blog Understanding Society
on a book by Daniel Hausman, The Inexact and Separate Science of Economics (Cambridge University Press).

Economics is far from being alone in that category, hence the qualifier "normal" that I use in the title. It follows that the criticism of economics helps define the limits of its uses, not its scientific status that it shares with Galilean mechanics or Darwinian theory.

Excerpts:

« To say that a social or economic theory is true is to say that it correctly identifies a real causal process -- whether or not that process operates with sufficient separation to give rise to strict empirical consequences. Galilean laws of mechanics are true for falling objects, even if feathers follow unpredictable trajectories through turbulent gases.

Second, how can we reconcile the desire to use economic theories to make predictions about future states with the acknowledged inexactness of those theories and laws? If a theory includes hypotheses about underlying causal mechanisms that are true in the sense just mentioned, then a certain kind of prediction is justified as well: "in the absence of confounding causal factors, the presence of X will give rise to Y." But of course this is a useless predictive statement in the current situation, since the whole point is that economic processes rarely or never operate in isolation. So we are more or less compelled to conclude that theories based on inexact laws are not a useable ground for empirical prediction.

Third, in what sense do the deductive consequences of an inexact theory "explain" a given outcome -- either one that is consistent with those consequences or one that is inconsistent with the consequences? Here inexact laws are on stronger ground: after the fact, it is often possible to demonstrate that the mechanisms that led to an outcome are those specified by the theory. Explanation and prediction are not equivalent. Natural selection explains the features of Darwin's finches -- but it doesn't permit prediction of future evolutionary change. »

The whole paper is illuminating and well worth reading here. I did not read the book yet but plan to do so shortly. Here is an editorial comment:

"...challenging and stimulating...[this book] does reflect an insightful familiarity with the nature and uses of economics. Its criticisms of the discipline are not to be lightly dismissed. It is definitely recommended reading for academic economists and advanced graduate students." Social Science Quarterly.


Hat tip: Mark Toma (Economist’s View).