The Great Debate

Does it matter whether or not economics is a ‘science’?

By Allison Schrager
December 2, 2013

Recently, at the House of Sweden, there was a feisty exchange among the newest Nobel laureates. First, one of the economics winners, Robert Shiller, questioned the validity of the efficient markets hypothesis, the prize-wining idea of co-laureate Gene Fama. This prompted chemistry winner, Martin Karplus, to say “What understanding of the stock market do you really have?” He reckoned economics can’t explain the market and questioned if “the dismal science” is even a science.

That conversation demonstrates the understandable frustration people have with the economics profession. That frustration deepened with the financial crisis, which few predicted, and the anemic recovery that followed it, where economic policies failed to revive growth. It leads many to ask: “What use are economists and their theories?”

It’s important to understand that economics isn’t fortune-telling. If you judge a single economic model by its ability to predict the future, inevitably it will fail you. Economics merely aims to determine the best use of scarce resources. That requires some understanding of how different factors in the economy interact. For example, if you have limited means to boost the economy and increase government spending, what happens to income?

To answer that question, economists design models that describe how the economy functions. These models are abstractions of the real world, which is complicated and contains an uncountable number of factors. It’s similar to drawing a map: to construct a tractable map, you must make choices about what to include. If you included every tree, hill, and country road the map would be too confusing to be useful. The purpose is to understand how different, relevant factors relate to each other. That serves an important role, but it makes no guarantees. You might take a highway featured in a road atlas and a truck could slam into you on that road. But that doesn’t negate the validity of the map. Driving on a highway poses some risk and, as financial economics cautions, so do markets.

What is included or left out in an economic model is where things get contentious, but economic models are still valuable. Many maps exist of New York State that don’t resemble each other, but all are useful. For a hike in the Hudson Valley you’d use a trail map that contains every path and hill. But if you were driving from New York City to Albany, a trail map wouldn’t get you too far — you’d use a road map. Or if you wanted to understand the size and location of New York relative to Ohio, you’d look at a coarser map of the states. Each map is accurate in the right context, but often useless for other purposes.

The same could be said in economics models. In 2008 chief IMF economist Olivier Blanchard summarized the state of macroeconomics. Despite some sharp divisions around what assumptions matter, he reckoned different schools of economic thought had reached some consensus. Take Keynesian models used by policymakers or neo-Keynesian models used by some academics. They assume the government can jump-start growth by boosting demand, getting people to spend more. That might be true in the short run. But these models aren’t great at explaining how the economy behaves in the long run; neo-classical models perform better at that task.

The problem is, in economics, it’s not always clear what assumptions should be used or even the nature of the journey. Consider unemployment. Some economists reckon it would be lower if the Fed increased inflation. Other economists believe the problem is structural and requires rethinking regulation and education. Another potential problem is that the personal values of any given economist may influence the model. If you believe active government intervention improves outcomes, your model would look very different than if you believe the government creates waste and inefficiency.

Despite these disagreements, and reliance on human judgment, economic models are our best hope to figure out how to lower unemployment and inequality. Maps aren’t perfectly accurate either, but they are better than fumbling in the dark with no guidance at all.

Nonetheless, the disagreement among economists is frustrating and so is the lack of easy answers. Because all these models are valid, depending on the context, some will work some of the time. Depending on the nature of the problem or the natural evolution of the economy, the relevant issues can change. The best way to figure out which model is best is to have open and frank discussions about what assumptions were used and what was left out.

The problem is that as economics debates become more public, commentators often lose sight of that subtlety. They get attached to one model (often a stylized version of what’s taught to undergraduates), use it in all contexts, and then complain economics over-simplifies how the world really works. A lot of commentary I read seems to assume a closed economy (meaning a country doesn’t trade); that people don’t respond to incentives; and that risk and uncertainty don’t exist. Those may be valid assumptions depending on the country you are describing or the state of the economy. But we’d all be better informed if there was more discussion on what’s missing.

I am not sure why it matters whether or not economics is considered “science.” People should judge economics by its ability to provide knowledge and insight into how the economy functions. In that sense it’s what drives disagreements, like the one between Shiller and Fama, that teach us the most.

PHOTO: People walking by are seen through a crystal ball held by street performer Dawn Monette, during lunch hour in Vancouver May 10, 2013. REUTERS/Andy Clark   

23 comments so far | RSS Comments RSS

Most economic models have a very limited focus. One might tell you what to do if you want to increase nominal GDP, another what to do to lower unemployment, another to how to improve the savings rate and another how to raise median household income. These are not always exactly the same things. Some models indicate trade-offs among economic goals that are individually desirable but to some extent in conflict with one another. Others not so much although those models may result from overly optimistic assumptions. Policy makers need to have some understanding of what policies are conducive to general well being, (in line with the Constitution’s stated purpose to promote the general welfare). Existing models are neither broad nor clear enough to help them with seeing the Big Picture — which is why they tend to fall back upon some combination of ideology and special interest lobbying to inform their judgments. Economics has a long way to go before it can safely claim to have a well integrated and well validated understanding of the full implications of policy alternatives.

Posted by Adam_Smith | Report as abusive

hmmm … there is no economic model that will give us “hope to figure out how to lower unemployment and inequality,” without a major ETHICAL shift in our priorities and values. Any map, well drawn or not, cannot get you anywhere you do not want to go. Right now, INEQUITY is the path of our economic players as a collective.

Posted by NIkiV | Report as abusive

What a strangely archaic — in fact, 19th century view — of science we get from this author, yet quite in keeping with the way social science research is practiced in the United States: mechanistic, with building-block causality. The references to maps and models as being abstracted versions of reality is valid when you are practicing civil or mechanical engineering but not when you are trying to give an account of how society works.

The question she needs to ask herself — and this advice applies equally to the physical scientists who criticize neoclassical economics for its lack of predictive power — is whether the approach of methodological individualism, instrumentalism and equilibration is the right one. Just one example: Why does economics needs to look for microfoundations to macro phenomena? Why not look for macrofoundations to microphenomena?

If Charles Darwin had followed the Newtonian model of forces acting objects to understand biological events our understanding of life on earth would have been impoverished. If Alan Turing had used the model of natural selection to understand machine learning we would have got nowhere.

Each science needs to develop its own ‘paradigm’ (a widely misunderstood term). What doesn’t take us far at all are the middle-brow ramblings of an economist steeped in conventional — sorry, Victorian — wisdom.

Posted by arunmotianey | Report as abusive

It’s as much a science as psychology and similarly purposed. The purpose of both is manipulation of those that prefer to follow. For most people it is better to take the advice of an expert who steals from them than to live with the results of their own decisions. Getting ripped off by someone else means that person is evil or stupid or greedy. Acting on your own and failing means you are a stupid failure. Most people will learn to not trust themselves with important decisions because they would prefer not to critically analyze themselves. This is of course planned failure on their part, since it is obvious that all economists and psychologists are fakey ripoff artists. But hey, at least it wasn’t their own fault, it was that shrink or financial advisor’s fault. Remember america to follow and not think. There are experts out there willing to take the blame and your money. You can be sure that you are a patriotic consumer of the garbage that grows our economy and thus you will get into heaven and that guy who ripped you off will go to hell, although he’ll likely enjoy himself while you are alive.

Posted by brotherkenny4 | Report as abusive

The Greed Factor is pretty difficult to include and even tougher to define

Posted by fred5407 | Report as abusive

This editorial is IMO one of, if not the most well written essay’s I’ve read regarding the science of economics.

I believe that one of the most accurate comments that you made lies in the 3rd to last paragraph. You state “….all these (economic) models are valid, depending on the context, some will work some of the time.”

For most people therein lies the problem. People want answers, but there really aren’t any concrete answers. As economic conditions and the world around us changes (read progress) our models change. Economic assumptions change. They must. Financial professionals constantly remind us that past performance doesn’t predict future results. How many people really internalize that concept?

Economics is a science but as you know it is a social science. As such it will always be as imperfect as the people and societies it seeks to understand.

Posted by Missinginaction | Report as abusive

Science has a well defined epistemology — a way of deciding whether statement are true — which is what allows the advancement of knowledge.

Economics would like the status our society accords to science (hence, social “science”), but does not follow scientific epistemology and has no epistemology of its own. It is often called by economists a “way of thinking” rather than a science. This is why a boundless amount of rubbish is published under the title of economics. There is no accepted way of providing or disproving economic claims — which calls into question the author’s assumption that she has been given a tool that helps provide knowledge or insight into how the world functions.

Posted by Poppycock | Report as abusive

Unfortunately, there are plenty of ninkenpoops that don’t know anything about economics and yet criticize it… like if reading a few articles in Reuters makes you an expert on the matter. This is the type of comment I hate:

“What doesn’t take us far at all are the middle-brow ramblings of an economist steeped in conventional — sorry, Victorian — wisdom.” Posted by arunmotianey

Arumotianey… your comment is idiotic, to say the least. Let me tell you, Economics wouldn’t be a science if it couldn’t explain anything. Although economic models don’t explain everything, they are the best explanations of what we see in markets. There was one post from another reader that better explains why Economics is always misunderstood:

“Economics is a science but as you know it is a social science. As such it will always be as imperfect as the people and societies it seeks to understand.” Posted by Missinginaction

It is exactly as he said. Actually, arunmotianey, your silly criticism might be more close to Victorian era thinking than anything I have seen so far. By the way, this was a great blog post by Allison Schrager.

Posted by CommanderOtto | Report as abusive

Every science theory has to operate in a finite environment. Economics needs untainted capitalism to operate. When government gets oily hands into the pot things will be different. In a dictator-run country don’t expect anything that’s “market driven.” When government arbitrarily bail out non-performing business, distorting the very basic competition principle, why would “economics” have any meaning?
I am against reducing a theory’s precision by adding a “social” prefix. Sociology is a science of its own and it’s extremely precise in predicting social behaviors at quantitative levels.
In the end of the day science theories are not crystal-balls that tell future to people, but handles people use to shape future.
When a “social pound” becomes lighter, do you blame the scale, or the seller?

Posted by Whatsgoingon | Report as abusive

You seem confused, let me set you straight. Economics is not a science because there is no rigour at all, being rather a branch of political “science”, instead of Science. Those economists who are not blinded by bias are generally on the outer fringe. How could Economics have any firm foundation when if you changed the rules of the game (politics) you change the outcomes in the real world? There is no Nobel prize in economics, due to Alfred Nobel’s well-placed scorn for economics, only a prize awarded in honor of Nobel.

I will quote Micheal Hudson here: “Although economists define their discipline as the science of allocating scarce resources among competing ends, when resources really get scarce they call it a crisis and turn matters over to the politicians.”

In this country, where sloppy thinking is the norm, people get confused by a simple and dishonest label, the “social sciences.” This little piece of advertising spin has managed to confuse generations of idiots into thinking that it has something to do with Science, which is the application of human knowledge to the attempt to discover the nature of Reality, whatever that may be. This simple confusion was a conscious deceit on the part of the humanities, which are a valid area of study, to pretend to have the certainty that only comes from Science proper.

This certainty is the result of centuries of work, now unified into the Modern Synthesis. Predictive power is in fact an important component, and one of the main reasons that economics will never be a Science: writing papers to explain things that happened in the past is a fine academic pursuit. But the fantastic speculations, wrongly called theories and hypotheses in economics before the real work has been done, are incapable of any useful predictions, primarily because they require that the real world bend to suit them, not the other way about.

That economics is useful is beside the point. In fact it forms part of MY point, that the utility of economics as a tool to push whatever fashionable policy or the rulers is exactly what is wrong with it. There is no verifiable way to show one or the other position is true, and because of this we are swayed this way and that by the pronouncements of politicians dressed in academic clothes to adopt whatever policies they favour. Here is a very telling point indeed from the author, who feeds us more of the same spin she internalized, though I must commend this rare candid moment: “The problem is, in economics, it’s not always clear what assumptions should be used or even the nature of the journey….Another potential problem is that the personal values of any given economist may influence the model.”

Exactly. There is the meat of the issue. Like a historian who searches for evidence in support of her thesis, but cannot see other evidence, Economics lurches from one fad to the next, with no rigour to separate the wheat from the chaff. As long as it is a useful tool of those who seek to control others, which should be for ever in my estimation, it will be less than a dismal science. It will not be science at all.

Posted by Benny27 | Report as abusive

You have it completely backwards. First, you are flat wrong about sociology. It is anything but precise. Second, your fantasy about “real free markets” never have and never will exist, except in the jungle, where no law of man operates. Economics is but a construction to explain certain behaviours in certain political systems. as such it has no wider meaning or applicability outside of our institutional structures.

In fact the practice is more like a religion, in that people begin with questionable axioms and then strenuously work to prove them, despite impressive counter evidence. Much as the Churchmen did in the medieval ages, and to a similar lack of valid effects.

Posted by Benny27 | Report as abusive

The existence of Keynesian economics is enough proof that economics is not a science but, just so much MUMBO-JUMBO to keep a select group employed at a high salary.

Posted by 1DukeZ | Report as abusive

I am of a sciences background, my old friend from HS was economics type. Our only common ground is understanding of math, formula’s etc. I asked him about his favorite models, how the models factor in greed, a corrupted tax code as well as elected for sale to highest bidder(S), as unknown, variable, trade laws, floating value, adjustment or what since they are not really predictable. Also which models show impact the big boys in/out puts, China, Brazil,Japan etc.

His reply was “we consider such things, but have yet to in any manner, know how to handle such things, so we fudge it. His other comment was “I have yet to see any economist(s) fired for being wrong, nor get into details why their predictions failed/exceeded etc”. His only regret was fellow economists whose forecasts were missed so companies laid off, even when making profits, “that needs examination as is not pro growth”. So it goes

Posted by chuck2 | Report as abusive

An academic economics that seeks to explain how capital can be reproduced without explaining its inherent anarchy and catastrophic cycles — which is to point out its inherent destructiveness — is of course bound to fail in its predictive success. This we see repeatedly. These various schools of economics cannot become ‘scientific’ because the shared premise is metaphysical — explaining the necessity of capitalist social relationships.

Once you discard the necessity of those capital-centered social relationships you can construct an economic practice and theory that is socially functional without catastrophe and cyclical destruction…

Posted by wilhelm | Report as abusive

Business is an ART and not a science.

Posted by izrahim | Report as abusive

Economics is empirical and is based on the observation that, with certain exceptions (where demand in “inelastic”) people will buy more of something when the price is low and less of something when the price is high. Most recent Nobel Prizes involve applying very sophisticated math to special cases of the law of supply and demand, particularly to financial market situations. Investors on Wall Street and in the City of London use those models every day to make obscene amounts of money, and those trading exercises can be considered hypotheses about the way the markets will work (investments) followed by experimental confirmation by what the market actually does (profits). So it’s scientific, but it’s about probabilities, because there are so many variable and not all of the data is known. The efficient markets hypothesis is the hypothesis that all available information about a traded item is encoded into its price. One can argue about whether that is or is not the case in actuality, but it has been confirmed that markets do tend to behave as though all available information about a traded item is encoded into its price.

Posted by Bob9999 | Report as abusive

“It’s important to understand that economics isn’t fortune-telling. Economics merely aims to determine the best use of scarce resources.” If that were true, it would make sense to fire all our politicians in Congress and hire expert economists to come up with annual national budgets consistent with national income.

OK, I’ll suggest that. Not because it’s logical, but because such option obviously can’t do any worse than what we are doing!

“…in economics, it’s not always clear what assumptions should be used or even the nature of the journey…the personal values of any given economist may influence the model. If you believe active government intervention improves outcomes, your model would look very different than if you believe the government creates waste and inefficiency.” It seems abundantly clear that having the world’s economists milling around independently gazing at the lint in each other’s navels (or pursuing similarly useless ideas) is about as useful as a field of unharnessed horses.

“…the real world…is complicated…you must make choices…”. Ahhh, there is wheat among the chaff! Today’s “economics” is merely the politicalization of numbers without possibility of consensus.

I think our eye is on the wrong ball. Economics should not be about studying stale tea leaves and attempting to predict the future. I’d like to think that imaginative economists would rise to meet a challenge of increasing economic effectiveness, efficiency and sustainability in both commerce and government.


“Some…economic goals…are individually desirable but to some extent in conflict with one another.” It is not economics, but individual economists that should relentlessly seek “…a well integrated and well validated understanding of the full implications of policy alternatives.” Probably wouldn’t hurt open-minded politicians either, although if that flavor isn’t extinct, it is most certainly endangered.


“…no economic model…[can take] you where you do not want to go.” WELL SAID! It is not enough to put one foot in front of the other again and again. Progress always requires a destination and a credible course that goes there.


I loved the Michael Hudson quote: ”…when resources really get scarce [economists] call it a crisis and turn matters over to the politicians.” And yes, “…sloppy thinking is the norm…”.

Every day we read how our society is becoming more and more poplarized and ungovernable. It is, and I’m not sure how “we, the people” can reverse that dead-end trend. If unchecked it will certainly kill our society, and yet our politicians today live in a perfect world in which they can endlessly blame thosed on “the other side of the isle” for their own incompetency, intransigence and lack of progress on issues that are the same year after year.

I’d like to see a national “Advisory Board” of volunteer citizens open to all who can read (and choose to) and think for themselves (who choose to) that have actually paid income tax for not less than a decade. This Board could use the Freedom of Information Act to have the IRS verify the nevessary payment of tax on a “yes-no” basis.

It could similarlyaccess the most recent budgets proposed by both liberals and conservatives. The first course of business would be to distill all this into budgetary line items for discussion and debate. Presumably, over time, it would be possible agree as to the number and wording of such line items.

Then all participants would assign a “Score of Importance” from 0 to 10 to each. The listing of line items would then be listed with the highest scores at the top and the lowest at the bottom. Cut off the bottom half and vote again. Continue until the list is of comprehensible number.

Now ask Congress to provide a figure for Available Revenue in the coming year. Then all participants would assign revenue to each line item in any amount except that the total thus assigned may not exceed available revenue.

By such means American citizens can by consensus define the society they want that they can and will support. Until this is done there is NO LIMIT to the size of our government and NO LIMIT to the tax revenue that will be collected to support it. Our choice?

Posted by OneOfTheSheep | Report as abusive

Mathematics is also not considered a science, which is not to say it’s not rigorous. The author gives a very reasonable and balanced take on the pros and cons of economic models. The problem is in that people in power take the predictions of these models as though they were mathematical fact, setting policies based on random variables like GDP. More cynically, they take advantage of the unprovability of economic predictions to commission research supporting their preferred austerity policy, for example. If economics is merely a helpful tool, lacking in predictive power in general, it should not be used as a driver for policy.

Posted by brianpforbes | Report as abusive

The primary driver in modern economy is technology. Each technology has its own intrinsic characteristics that limit and constrain its use and applications in commerce by humans.

Current economic theories, financial systems and legal principles were developed in simpler times to constrain, limit and control human activities related to innovations and novelties – starting with tulips.

For each primary technology, there are clusters of associated technologies that also need to be integrated into the economic, social and political activities for them to be effective. Economic theories are the means by which these technology adoption cycles are implemented.

Economic theories and financial systems do not factor in the natural potential and limits of the emerging technologies and resistance generated by technologies currently in use. Steam engine, railroads, internal combustion engine, jet engine, telephone are examples of past technology adoption cycles.

The constraints imposed on the technology cycles by economic theories more often than not inhibit their adoption, turning progress with them in fits and starts — and often in bubbles.

We need better ways of managing, introducing and propagating innovations, especially technology innovations, into the economy.

Posted by mattathil | Report as abusive

Economic theories are not limeted to cover macroeconomic fats but also provide significant insights in microeconomic decisions. There are so many global and local facts to be considered while studing and predicting an event in a global market place which prevent some accurance in the outcomes. The article calls our attention to the fact people consider economist with more power they have and create lots of expectation to predict the future, which is almost the same of managing the caos theory. Its really important to carefully study past events to better understand and learn the real-time situation, but the future can not be 100% guaranteed not only by economist but also the gurus with a crystal ball. The fact is that most people need some answers, guidance, and directions for their lives and decision. Our brain as well needs to get some conclusions as well some “certainties” to make us feel better. I respect economic theories as a guidance but I don’t put too much expectations on their predictions.

Posted by CarlosSilva | Report as abusive

“We need better ways of managing, introducing and propagating innovations, especially technology innovations, into the economy.”

Yes. We are letting fossil fuel magnates and weapons manufacturing magnates determine what we develop, and it is ruining everything. How can we manage innovation for the benefit of most of us, not just the powerful few?

Posted by Oma | Report as abusive

Another question, one that niggles every time I read about economics: how does this highly intelligent, educated, sophisticated writer think we can have ever expanding economies in a world of finite resources . . . and that while the population grows exponentially???

Posted by Oma | Report as abusive

Ahhhh Oma, finally someone mentions the 800 lb. gorilla in the room, so to speak. When I studied economics years ago (no PhD but I do hold an undergraduate degree in the discipline) the head of our department defined Economics as follows:

“Economics is the study of how we might satisfy man kinds unlimited wants with limited resources.”

When questioned on this definition he always pointed the inquisitor to the word “might”.

The goal is to satisfy all the wants, but the goal is a moveable feast and it’s obvious that the probability of reaching is pretty remote. We can always hope though.

Posted by Missinginaction | Report as abusive

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