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What is the Science of Economics? Thumbnail

What is the Science of Economics?

“It is a dreary, desolate, and indeed quite abject and distressing one; what we might call, by way of eminence, the dismal science.”

-Scottish essayist Thomas Carlyle

Carlyle’s description of economics has been popular for over 200 years, albeit mostly for his depressing depiction of it as “dismal”.  Be that as it may, dismal or not, he accurately cast economics as a “science”.  Over the past few years, the term “’science” has appeared in the press and been used by the media more than at any time in history, fueled mostly by debates about climate change and COVID.  Unfortunately, much of this rhetoric has revealed a vast ignorance about what science, or a science, is.  First of all, science is a “process”, not a thing.  It is a way of discovering things about the natural world by comparing (testing) competing hypotheses, selecting those most supported by observations and replication, and revising or rejecting them as the data indicate.  It is an endlessly ongoing process – science is never “settled”.  There are some things that are observationally true, and hence, essentially undebatable, such as the fact that water is composed of two atoms of hydrogen and one of oxygen.  But questions about complex systems remain works in progress (What is gravity?  How was the solar system formed?  What was the source of the Earth’s water?  What is the origin of plate tectonics?  And on and on).  The media is replete with references to the “settled science” of climate change; nothing could be further from the truth.

Economics is usually referred to as a “social” science as opposed to the “hard” or “natural” sciences (physics, biology, geology, etc.).  Economics is concerned with how people use and distribute resources – what could be more natural?  Economists form hypotheses, test them, and revise and reject them just as physicists do.  Regardless of labels, economics has some “truths” every bit as real as those taken for granted in the hard sciences.  One of these things is that people (and firms) are price sensitive, they buy more of something when its price falls and vice versa (demand curves are downward sloping).  It’s only when the chicken is on sale that my grocery store runs out and I have to get a rain check!

However, it seems that recently many people, including economists and others in business, are willing to simply ignore some bedrock principles of economics.  A headline in the Wall Street Journal on January 19 declared “Peloton to Raise Price of Bikes, Treadmills as Demand Slows”.  Let’s see how that works out!  Probably like other decisions that have driven the stock’s price down 85% in the past year.  We have also heard many in the media and among the political class claiming that the huge increase in government spending in the past two years has nothing to do with the current surge in inflation and that even more government spending is the way to curb it.  Milton Friedman must be spinning in his grave.  This willful rejection of economic reality is serious -- we can steer clear of Peloton management’s bad decisions, but we can’t escape the inflation storm we are riding out.  Let’s hope some cooler heads with a sense of economic reality come to prevail before we face a real disaster.

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