The Flaw within Economics
November 8th 2006 04:12
I have always had a like for Economics and I will never forget what a friend of mine told me, back in Portugal, many years ago, when the country was in the midst of a bad recession: "If Economics were an exact science," he said "we would have been out of this problem a long time ago."
I felt hopeless at the time, but believing in Economics as I did, I felt also I owed to my friend and to myself to understand Economics methodology and to discover what today I can call its flaw.
Economics is certainly a science but it’s unlike Astronomy or Physics.
Natural sciences follow a path, mostly determined in the nineteen century, called the scientific method. The scientific method means that the object to be observed is distinct from the observer, the scientist.
So, in Astronomy the Astronomer observes stars, the object of this science, and they never mix up.
From this results that the laws the scientist discovers, and which regulate the behavior of nature, can be verified independently through experiments and yield similar conclusions for any observer anywhere.
This ensures that the laws so discovered are true by themselves.
This fundamental characteristic of the scientific method for natural sciences does not hold true for Economics.
With social sciences, like Economics, what happens is that the object of observation is people and people's behaviour.
People are the observer and are also the subject.
Now, people think, decide and act and all this influences the objectives aimed at. On the other hand, the objectives, once attained, rebound on the subjects and change them.
For example, a belief in globalisation may bring about more of it and an increase in globalisation may bring about some certain negative reactions.
This is approximately the concept of reflexivity that George Soros so illuminatingly expounds in his book: "The Crisis of Global Capitalism -- Open Society Endangered".
The subject of observation has limited knowledge of reality mostly because outcomes depend on decisions and you just cannot know the decisions everybody else will take. Note that this is not a question of better statistics, its something else. For Soros this is fallibility.
There's an unknown in everybody and that means their actions can go in any direction. This is the flaw within Economics.
The human being is just too creative, faces uncertainty with limited knowledge and the results just cannot be predicted.
If this can be accepted, then the question is: can Economics still serve us?
I think the answer is yes. Provided that the quantum flaw within Economics can be marshaled with theories that take it into account, the results can only be a better science.
And maybe Economics can then be seen, not as an exact science, which it is not, but more modestly as a science that can be of good use in many cases.
So, my old friend, take heart for I hope for a better Economics.
I felt hopeless at the time, but believing in Economics as I did, I felt also I owed to my friend and to myself to understand Economics methodology and to discover what today I can call its flaw.
Economics is certainly a science but it’s unlike Astronomy or Physics.
Natural sciences follow a path, mostly determined in the nineteen century, called the scientific method. The scientific method means that the object to be observed is distinct from the observer, the scientist.
So, in Astronomy the Astronomer observes stars, the object of this science, and they never mix up.
From this results that the laws the scientist discovers, and which regulate the behavior of nature, can be verified independently through experiments and yield similar conclusions for any observer anywhere.
This ensures that the laws so discovered are true by themselves.
This fundamental characteristic of the scientific method for natural sciences does not hold true for Economics.
With social sciences, like Economics, what happens is that the object of observation is people and people's behaviour.
People are the observer and are also the subject.
Now, people think, decide and act and all this influences the objectives aimed at. On the other hand, the objectives, once attained, rebound on the subjects and change them.
For example, a belief in globalisation may bring about more of it and an increase in globalisation may bring about some certain negative reactions.
This is approximately the concept of reflexivity that George Soros so illuminatingly expounds in his book: "The Crisis of Global Capitalism -- Open Society Endangered".
The subject of observation has limited knowledge of reality mostly because outcomes depend on decisions and you just cannot know the decisions everybody else will take. Note that this is not a question of better statistics, its something else. For Soros this is fallibility.
There's an unknown in everybody and that means their actions can go in any direction. This is the flaw within Economics.
The human being is just too creative, faces uncertainty with limited knowledge and the results just cannot be predicted.
If this can be accepted, then the question is: can Economics still serve us?
I think the answer is yes. Provided that the quantum flaw within Economics can be marshaled with theories that take it into account, the results can only be a better science.
And maybe Economics can then be seen, not as an exact science, which it is not, but more modestly as a science that can be of good use in many cases.
So, my old friend, take heart for I hope for a better Economics.
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