Economics Is a Science

Robert Shiller on Economics – Is It a Science?

By  Pater Tenebrarum

Fresh from winning an economics prize awarded by a central bank (the Nobel prize for economics was established by Sweden's central bank and only uses Nobel's name in memoriam: “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”), Robert Shiller asks in a recent article: “Is Economics a Science?”

The article doesn't start out all that well from our perspective, but there are also a few points made in it we can agree on. We will comment on several excerpts below. Shiller begins as follows: 

“I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?”

“One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.” 

(emphasis added)

This is what we meant when we said it doesn't start out all that well, although it certainly begins by asking a good question. However: Necessarily focused on policy? The discovery of fundamentals can be safely ignored? As Ludwig von Mises pointed out (see also further below), economics is the best elaborated branch of the science of human action, but we don't believe that there are no longer any fundamentals left to discover. 'Best developed' is not tantamount to 'fully elaborated, nothing left to find out'.

To name an example, Friedrich Hayek never did write that more in-depth book on capital theory he was once planning to write (his interests shifted to other sociological and political topics). Although a number of contemporary economists have made valuable contributions, surely capital theory could benefit from additional work? Just saying. 

What is truly cringeworthy though is the equivalence between economics and 'engineering' Shiller is proposing. Yes, many economists and their work are of course involved in 'social engineering', but that really shouldn't be their job. We are not saying that economists should not give advice (the Lord knows, some good advice is sorely needed), but unfortunately most of the advice dispensed nowadays is downright dangerous, precisely because it attempts to provide politicians with a scientific fig leaf for social engineering. The truth is though that there is really nothing to successfully 'engineer', since the economy is not an engine, to put it bluntly. Oddly enough, Mr. Shiller himself seems to realize that to a certain extent, as you will see further below. 

“The problem is that once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.” 

Let us not forget that Paul Krugman also received a Nobel prize. Admittedly, so did Friedrich Hayek when Keynesianism was seemingly blown to smithereens in the 1970s (unfortunately it was merely zombified and has risen from the grave again), but Krugman surely is proof positive that political posturing doesn't pose the slightest obstacle to winning the prize. Admittedly there is a lot of interaction between economics and politics. Nevertheless, as a science economics should be wertfrei, i.e., axiologically neutral. Shiller is quite correct that the sincere pursuit of the truth is precisely what it is, or should be, about.

Shiller then writes quite a bit about how genuine science attempted to differentiate itself from pseudo-sciences and crackpot theories in the course of history. We will skip over that part, as it is not really relevant.