The Dismal Science?

Whether you have opened The Economist (of October 19th), The Financial Times Weekend Edition (of October 20th), or even The Guardian (online), there seems to be a problem. There has been a quite thorough beating of social science, at least with opinion. The Financial Times Weekend magazine dedicated itself to looking at physics, and while containing the more abstract concepts that have recently been developed, it also looked at the current state of “science”. The foundation of science is our use of empiricism, providing evidence in which to prove a hypothesis, the use of regression to examine the relationships between variables, and questioning our own answers. This is how ‘we do’ science.

The FT notes that at the turn of the 21st century there were claims that the century of breakthrough in physics was over, and now in its place we would see a revolution in biology pertaining to our understanding of biotechnology and genetics. This revolution hasn’t seemed to have happened yet, at least that is my belief. If anything physics has maintained its place as the breakthrough science, just earlier this month Peter Higgs and Francois Englert won the Nobel Prize for their contribution to our understanding of the Higgs Boson – a key step in understanding how mass is created and possibly the absence of it. It is obviously difficult to compare the sciences, and argue for which one is making the most ‘progress’. I am obviously biased because I take physics as a subject, and it has been a personal love of mine. However, maybe a bit of physics in economics would not hurt. By this I mean physicists are often attracted to explaining what seems to just be phenomena, the obvious is given simple and straightforward explanations, but it is the extraordinary that demands their attention.

This consideration of the natural sciences brings me onto the social sciences, and what the underlying theme was behind the FT, Economist, and the Guardian. Are the social sciences really sciences? Or are they just for lack of better wording social studies. Economics has become infamous as a result of the financial crisis, at the time we lacked explanation, our models failed to predict the crisis, and we have not really flourished in resolving it – whatever the growth figures suggest. The economist looked at a behavioural study completed in the early 90s known as the Mere-exposure effect; recent re-trials of the experiment have resulted in data that does not support the original hypothesis. Here lies the issue with social science, us. We have known this since the beginning; it’s not really an original thought: In economics we usually lament that consumers are not always rational, we make decisions on innate emotions which “don’t make sense”. So how can we actually make dependable models?

Moreover, why do we rely upon models that were developed over half a century ago to still attempt to predict, or change our economic situation? Can we allow ourselves to have mainstream economics? Clearly we thought that we need not worry about economic policy or research that would help when in economic crisis at the turn of the century, as that is what defined the 20th century, The Great Depression, The World Wars, etc. The respective crises had led to economists of the calibre of Galbraith, Keynes, Friedman, and Hayek all to consider how economies truly function. Thus we had an age of macroeconomic consideration, and the development of models which we have used up to this day. Aditya Chakrabortty from the Guardian says that those theories which have made up mainstream economics, has led to the current generation of economics to be in denial, and not consider the fact that we may have changed. Clearly this represents a problem, as the models haven’t changed.

The natural sciences are able to prove and disprove hypotheses, on the other hand social sciences especially economics lately only seem to be able to provide an opinion. When looking at economic courses at universities it is clear that maths is essential in part for microeconomics and statistical analysis. Alongside this you have the expected neoclassical and Keynesian theories. To some extent, this teaching of economics has not resulted in the desired results. There is a generation of economists who are making use or at least referring to models which by now possibly don’t actually provide an accurate observation of market, consumer, and supplier behaviour. Charkrabortty in his article states that economics should be a “magpie” subject, being taught with history, politics, and philosophy. I quickly noticed that this is how it was once done, all one has to do is look back to Adam Smith, David Hume, or David Ricardo. They were men of many traits and abilities, notably philosophy and history.

I believe to move economics into the 21st century we must recognise the plurality of the subject. When considering any model we often make note of the assumptions we place, when we apply these models to the real world it is necessary to remove these assumption and this can be achieved with the involvement of philosophy, politics, and history to provide at least a context to our decisions. We still as a society can become baffled with what should be simple, straightforward, “proven” economics by now. One simply has to look at the debate around HS2 in Britain. Keynesian economics suggest that we are stimulating aggregate demand to induce growth in the economy, monetarist theory would suggest that this wouldn’t work in the long run. The truth of the matter is we don’t know, here the monetarist theory is more easily defended as one can consider all the towns that will be passed by, or land that will have to be committed to the transportation. So there is debate, and we struggle to have an authoritative stance, as just yesterday the benefits of HS2 have been “lowered”.

We are at a key point in science and economics. We have the emergence of big data, which may actually enable us to predict current trends, and bring statistical analysis to a whole new scale. To do this, economics in my opinion needs to start behaving like the natural sciences in that we continually question what has been to some extent proven. Up until now we have been too comfortable with theories that ‘seem’ to work, there may be more room now for unorthodox economics, or at least involving more breadth in the base education of the subject. Look at any economics course at university and the stress is placed upon mathematics, for what is ultimately as we have established a behavioural subject, and that the Nobel Prize in economics this year further cemented as a variety of behavioural finance. The question now is how we incorporate effectively all the aspects of an ultimately extremely wide subject? It is time to either introduce more of the scientific method, or accept like history that there is a strong element of a subjective view, and how successful in a sense the subject is depends on how we view it.

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The Next Four Years

Obama has been given another opportunity to fulfil the promises he made back in 2008, it will be interesting to see how the next four years play out as The House of Representatives still has a Republican majority whereas the Senate has a Democrat majority. The economic situation is currently the biggest issue on the presidential agenda; Obama will have to reshuffle his policies and attempt to create a dynamic and stable economy for growth.

I believe that Mitt Romney had only started showing his true potential of being a good candidate for presidency towards the end of the campaign. Even though I supported him from the beginning of his candidacy, it was apparent that he would fail to gain any of Obamas voters. If given the chance I think that Romney would have been a strong president in the sense that he would put growth and prosperity of the economy at the top of his agenda. He would not have suffered from the expectation to provide more welfare for the people as is Obama’s situation.

As January begins we will begin to get a picture of how Obama intends to handle the economy, and whether or not these next four years will be prosperous ones or a fight for survival. Until then, I wish the best of luck to President Barack Obama as in the end of the day he must serve the interest of the people of the United States.