Monday, September 13, 2010

Economics IS a science, BUT...

In the Financial Times today (free registration is required but worthwhile) there is a provocative column by Gideon Rachman arguing that economics is a "pseudo-science" and that historians ought to get more of a hearing. There is also a more valuable discussion in an embedded video between Rachman and Martin Wolf (who makes a lot of eminently sensible points and clearly wins the "debate" in my view).

OK, so what are the criteria we should look at to see if economics is a science? Rachman uses a clever trick and pulls a quote from a winner of the Nobel prize for economics, Joe Stiglitz, who wrote that science was "defined by its ability to forecast the future." Actually, he didn't define science that way; he said "If a science..." is defined that way then economics is in trouble because it didn't forecast the crisis. Rachman seizes on the forecasting definition. But it doesn't take long to realize that many sciences do not forecast the future at least not in the sense of accurately predicting exactly when and where certain things will happen. Astronomers can't stake their claim to forecasting the future since the astronomical future won 't be known until long after they are all dead. And biologists don't predict future evolution of most species. And climate scientists didn't predict global warming fifty years ago. And meteorologists didn't predict Hurricane Katrina in advance of its formation. Earthquake scientists can't tell me the day when Vancouver will be hit by the "big one."

I don't think anyone can seriously argue that forecasting the future is the rule for membership in the science club. Rather it's something about being able to systematically understand the mechanisms at work in the field of study. With that understanding you may get predictive ability or you may not depending on the complexity of the system and how well evolved the science has become. Economics is a science since it consists of a set of mechanisms that help us understand the economy. But the subject matter is highly complex, and it keeps on changing. A crisis is a particular combination of effects that causes the current situation to fall apart. It involves individual agents and their interactions in ways that are hard enough to model and close to impossible to predict.

Two more points.

First, even when astronomers predicted the sun revolved around the earth, they were still doing science. Just not doing it very well. Partly because of limited knowledge--it was a young science. Partly becuase the science was infected by religion. That's my worry about economics. It's a science where certain types of secular "religion" have taken hold. We have to shake of this religion to make progress.

Second, in contrast to the humble vision of historians espoused by Rachman, we know from the case of Niall Ferguson that they are not content to say: "Actually, chaps, it was a bit more complicated than that." Instead look at what Ferguson says in another column in the FT: "there invariably came a point when money creation by the central bank triggered an upsurge in inflationary expectations." That sure sounds a lot like someone who has looked at history and elucidated a general law that holds in all situations. Or how about this one: "American stimulus can end up benefiting Chinese exporters; and at a time when there is much under-utilised capacity, so that deflation is a bigger threat than inflation." Ferguson is doing economics in this sentence; he's just not doing it very well. There is no way to see Ferguson as following what Rachman approvingly deems the true function of the historian: "to concentrate on the particular and the specific and to puncture the pretensions of social scientists, with their constant and futile effort to derive general, predictive laws from the study of the past." We can't get by without economics as a science. We have to have some analytical framework that holds across particular instances in history or we would have no basis to formulate policy. We have to do it better. Theories need to be confronted with historical evidence. But we need to do the maths too.

Monday, September 06, 2010

Churchill's 4 Greatest Hits


1. On May 13th, 1940, Churchill gave his first speech as prime minister. He had been appointed only 3 days earlier on May 10th, the day Hitler launched a quadruple invasion of France, Belgium, Holland, and Luxembourg.
I have nothing to offer but blood, toil, tears, and sweat. We have before us an ordeal of the most grievous kind.
We have before us many, many long months of struggle and of suffering.
You ask, what is our policy? I will say it is to wage war by sea, land, and air, with all our might and with all the strength that God can give us, to wage war against a monstrous tyranny never surpassed in the dark and lamentable catalogue of human crime. That is our policy.
You ask, what is our aim? I can answer in one word:
Victory.
Victory at all costs—Victory in spite of all terror—victory, however long and hard the road may be, for without victory there is no survival.
2. On June 4th after the completion of the evacuation from Dunkirk, Churchill again addressed the House of Commons. Although the formal surrender of France did not occur until June 22nd, everyone must have seen it coming. The foremost question in English minds was whether an invasion of Britain would soon follow.

We shall not flag or fail. We shall go on to the end. We shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender.
3. On June 18th "in order to counter panic over the coming news of the French armistice" (Roberts, 2009, p. 85) Churchill spoke again:
Let us therefore brace ourselves to our duties and so bear ourselves that, if the British Empire and its Commonwealth last for a thousand years, men will still say, "This was their finest hour."
4. The Battle of Britain that followed the invasion of France (beginning July 10th, 1940) reached its "zenith" according to Andrew Roberts' Storm of War on September 15 which is "today celebrated as Battle of Britain day." A full month before (August 15th) Churchill, referring to British fighter pilots, gave a line that I will always think of with great affection.
Never in the field of human conflict was so much owed by so many to so few.
And that appears to be the last of the wartime speeches that gave us the immortal lines that I knew as rock lyrics ("finest hour" in the "Finest Worksong" by REM, "never surrender" in a Corey Hart song!) before I even knew their true author and the context in which he spoke them.

I believe we owe an enormous debt to Churchill for those words. They make me proud of our history and of our language. They also may have tipped the balance and kept Britain in the war when there were many who might have made "terms" with Hitler leading to occupation and a Vichy-like state instead of what Roberts refers to as "Last Hope Island." It would be almost 5 years after those speeches before the Nazis were defeated. But it was that summer of 1940 when mere words never mattered more.