This is a brief piece I wrote in response to a post Joe Costello, a fellow ANWF volunteer, published to his discussion group (which I would highly recommend you join). Joe and I agree on many things, but sometimes the disagreements can be just as illuminating.
While I agree with the general gist of Joe’s argument, as someone with a degree in sociology and a deep interest in economics, I would argue that economics is indeed a science. It is simply not correct that there are no fundamental laws in the realm of economics, the law of supply and demand for instance, comes to mind. However, the law of supply and demand is not the exact equivalent to something like the Newtonian laws of motion. The Newtonian laws of motion operate in an “a priori” universe, meaning the one we actually live in, while the law of supply and demand can only operate to perfection in unattainable mathematical models that assume perfect distribution of information, classically rational agents, and the like. Despite the lack of real world, “perfect” markets, it would be a mistake to conclude that the underlying mechanism of supply and demand is not universal and concrete. People do respond to price information in ways that classical economics predicts, in fact we have just lived through a grand demonstration of that law. Americans responded to an increasing supply of cheap housing-backed credit- made possible via tax subsidies, deliberately low interest rates, and other means- by increasing their consumption of this credit to ever new heights. In addition, classical economics would correctly predict that the price of housing would have to come to equilibrium (in this case a severe crash in demand) as overbuilding, credit default, and other mechanisms effectively increased the supply.
One of the areas where economics still has a long way to go is in its ability to fully understand “imperfect” markets, or precisely the types of markets we have today, and which we will always have. When we talk about “economies” we are talking about complex systems made up of human agents that are themselves complex systems. It encompasses everything we do and don’t know about the underpinnings of human behavior, and then on top of that the increasingly sophisticated social constructs we humans have devised. Any understanding of these things requires scientific empiricism or there will be no understanding at all. The fact that economics relies on models and observation is in no way a reasonable indictment of the study of economics. Meteorology also relies on increasingly complex modeling because conducting experiments with the weather is obviously next to impossible. Much of what we know about the cosmos has been learned strictly through observation. Are these not sciences?
What both Joe and I are both objecting to is not the science of economics, but the politics. The science of economics will not necessarily tell you whether and when it is a good idea to subsidize residential mortgages, or whether or when to allow the systematic spread of fraudulent financial products. These are the rules that Joe speaks of, and politics is the domain of social rules. It is worth remembering that the whole field of economics was once considered part of philosophy, and until fairly recently was commonly referred to as “political economy”. The latter is a term which I think gives proper deference to the notion that any economy is indeed a human construct inseparable from the societies that create and maintain them. The advances of empiricism may have temporarily seduced many into thinking we had minimized the political variable of this equation, but recent events should be more than enough to destroy that delusion.
What is needed now is not a retreat from the science of economics, but the converse. What if some significant portion of all those brilliant, Ivy League trained, minds had flooded the economics profession rather than Wall Street? The reason Wall Street was able to attract a highly disproportionate number of talented people was due to the “rules”. the rules that allowed people to run up huge speculative bets with other people’s money, the rules that allowed for the creation of “innovative” financial products without regard to safety or soundness, the rules that allowed pools of high-risk mortgages to be magically transformed into gold-plated bonds. What is needed now is not a repudiation of science, but a repudiation of the politics of elitism and corruption.
Ma Famille 