Russ Roberts, econ professor at George Mason University, podcaster of EconTalk, blogger on Cafe Hayek, writer the Keynes vs. Hayek Rap and skeptic of the econometric models wrote about the “science’ of economics in Saturday’s the Wall Street Journal. Here’s some key paragraphs posted on Cafe Hayek.
If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That’s hard enough. But they can’t tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.
We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.
The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one’s thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don’t know and what we may never know. Admitting that publicly is the first step toward respectability.
I also believe other fields that have recently (in the last 50 -100 years) adopted rigorous math also fall into the trap of thinking that their field is much more scientific than is really the case. I call this seduced by sophistication.
Math provides a veneer of science to non-scientific things. Such math is purveyed by economists, business consultants, investment managers, statisticians, psychologists, educators, medical researchers, nutritionists, climatologists and more to sell their services and peddle their influence.
I’ve witnessed this seduction firsthand in my career. While there are some benefits to be gained from modeling, the danger comes in not understanding its limitations. This mistake is made by people who should know better – the people running the models.
They confuse the models with the real world, rather than realizing the models are simplistic representations of the real world that lack effective treatment of some very important real world factors and relationships.
Nassim Taleb writes about such mistakes in his books The Black Swan and Fooled by Randomness.
Read up on Professor Roberts and Taleb’s writings. Don’t let yourself be seduced by sophistication.