Harvard Economics Professor Raj Chetty published an op-ed in this past weekend’s New York Times titled, “Yes, Economics is A Science,” arguing, as the title hints, that economics is a science, as much as public health or epidemiology. In particular, Chetty is on the defensive after criticism over the awarding of the Nobel Prize in Economics to two economists with seemingly opposing views of the world – Robert Shiller of Yale, who likes to talk about market inefficiency and Eugene Fama of the University of Chicago, who likes to talk about market efficiency. He reminds us of the old colloquialism,”if you ask three economists a question, you’ll get three different answers.” And Chetty is right to point out that even in science, and particularly his noted public health and epidemiology, there is debate and accepted ideas can change over time and even oppose each other at one moment in time. Science, despite its image as truth, is still subject to communities of people who create knowledge with subjective biases and sometimes get things wrong. That is okay. It is still science.
However, Chetty’s rosy-colored view of economics is not going deep enough – back to the debate between Popperian and Kuhnian philosophies of science. Popper puts forward the principle of falsification to test scientific theory, where theory is changed through constant testing of whether you can falsify an accepted hypothesis. On the other hand, Kuhn holds a more socialized and subjective view of how scientific knowledge is developed. Kuhnian philosophy of science says that there are periods of “normal science” in which all studies are conducted within a particular paradigm that is not being tested for falsification. According to Kuhn, science doesn’t change in a smooth evolutionary process, as you might predict through a process of falsification, but rather through big “paradigm shifts,” in which the whole field shifts in response to eventual acknowledgement that there are just too many anomalies or other factors that cannot be explained by the dominant paradigm.
It seems to me that economics as a science has not responded to tests of falsification or even paradigm shifts in response to events that can’t be explained by the current dominant theoretical school of orthodox free market economics. Economics is somewhere even beyond what Kuhn described in science. Take the 2008 financial crisis – the labor market has been largely unable to bounce back even though financial markets appear to be “efficient” and businesses are certainly profitable, and this cannot be explained well by economic theory that just attributes the pain and suffering of workers to “frictions” or “inefficiencies.” Something larger and structural is going on here, and it cannot be accommodated for in the current mainstream theory.
Hungarian philosopher of science Imre Lakatos describes a third way to understand science that might help us understand what is happening in economics and why it has been unable to change major theoretical understandings. Lakatos explains that there are core assumptions and a protective boundary of peripheral assumptions. In economics, this is akin to understanding that the market tends to be efficient but those pesky “frictions” are the reason so many people are still unemployed or under-employed. The central notion of efficiency is the core and the idea that frictions get in the way is the peripheral assumption. Under this philosophy of science, it is basically impossible to question the core because all unexplained phenomena can be attributed to the peripheral assumptions that can be tinkered with in an ad hoc way so that we still get to believe our core assumptions.
So is economics a science? Sort of. Lakatos was describing science and his contributions can be applied to economics. But what is he describing is also the difficulties in challenging core assumptions that may block the progress of scientific thought. So maybe economics is a science, but an inefficient one. And it could be better.