In the comments of my latest post, as well as the second front of this war going on here, we’ve been raising the usual issues that come up in this debate on the empirical method in economic science. I have to be brief, but let me summarize my perspective:
(1) Many people simply assume that to be scientific, a discipline must use what we learned as “the scientific method” in fifth grade. Namely, the idea that economists must use their models or theories to generate falsifiable predictions, and then look at the actual observations to see which theories perform the best. We can never know an economic law for sure–just like we can’t “prove” a law of physics–but that’s what it means to “do science.” Well, if that’s your view, then I am saying economics is not a science. However, I would dispute your view; I claim that there can be a science–economics for example–where what we learned as “the scientific method” is not a fruitful approach.
(2) “What’s the alternative?!” you ask in shock. My answer: Everything you get in a good introduction to “thinking like an economist.” Consider the classic essays from the great French liberals. Consider Henry Hazlitt. Consider Steve Landsburg’s Armchair Economist–it’s in the very title, for crying out loud. In fact, go look at the textbook and syllabus that a free-market economist who champions the empirical method uses for his/her first-year students. I will bet you that the vast majority of what they teach involves getting the students to think a new way, rather than saying, “We’ve gone out and tested these propositions numerous ways; trust me, this is how the economy works.” The way you get someone to “believe in” free trade isn’t to show numerous empirical studies. No, you give him something by Bastiat (or Thomas Sowell) and he’ll say, “Whoa, I never thought about it like that before.”
(3) What is the empirical success of the empirical method in economics? Eighty years since central banks caused the last worldwide depression–according to various schools of thought, though the details differ widely–we now have central banks, under the expert leadership of Ivory Tower-trained economists, causing the second worst worldwide economic calamity in modern times, and again according to economists from across the spectrum (with details varying). Is there anything remotely analogous in physics or chemistry?
The supreme claim of the engineers, chemists, and physicists is, “We put a man on the moon.”
In contrast, Ben Bernanke, Larry Summers, and Christina Romer can say with pride, “We put a man in an empty region of space where we erroneously thought the moon would be. Of course that man is dead now, but what do you want from us? This is macroeconomics, not rocket science.”
(4) Don’t misunderstand: I’m not knocking counterfactual analysis. What I’m saying is that if you can’t predict very well, then using the empirical method in constructing your counterfactual is very dubious. It is precisely the logical, deductive approach that makes you very confident in your counterfactuals, in a world of highly unpredictable absolute movements.
Let me give an example: Suppose a guy is on trial for embezzling $1 million from his firm. He doesn’t deny that he took the money, but he claims the company benefited. His evidence is that the shareholder equity and stock price of the firm went up, all during the period of his embezzlement. The prosecutor is at first rattled by this, but then says, “Well of course, the company would be even richer had you not taken that $1 million!” But the defendant says, “How do you know that? Have you conducted empirical investigations of this assertion? I want scientific evidence for your counterfactual claims.”
Now sure maybe the prosecutor could try to come up with something, but can we all agree that the best course of action here–the truly “scientific” thing–would be an appeal to the pure logic of mathematics and accounting, rather than digging up studies of past embezzlement cases, where issues of correlation/causation have been satisfactorily handled?