Not so very long ago we often heard this: "The business cycle has been repealed."
Economics, it was suggested, was such a complete, mature science that the experts could engineer "soft landings," sparing us the pain of recession and the heartache of depression. All we needed to do was put our faith in the economists. This was also about the time we heard about "the end of history."
In a book review from the summer of 1997, economist Paul Krugman wrote:
Anyone who reads the business press knows that the mood these days is one of "what, me worry?" optimism. After six years of fairly steady growth with surprisingly quiescent inflation, every major newspaper and magazine has either suggested or flatly declared that the business cycle is dead -- that the recession of 1990-91 was the last such slump we will see for many years to come.
Well, that was then, and this is now. It seems economists didn't understand the economy quite so completely as they had thought. Not only have we had a "hard landing," we're looking into the maw of a possible depression. Indeed, some parts of America may already be in depression. Maybe the experts didn't wield as much control over the economy as they assumed. And history? History is back, and with a vengeance.
I'll leave it to today's social scientists to determine whether the social scientists of the 1990s suffered from delusions of grandeur, or just good old-fashioned hubris, but given the reversals in the economy of late, one might ask:
Is economics really a science?
In a "hard science," like physics, prediction is paramount. A star that you'd think would be obscured in an eclipse of the sun is nevertheless visible, just as Einstein predicted. Without the ability to predict, a "science" isn't truly a science.
The paucity of predictive ability in economics is illustrated by economist Alan Greenspan's surprise at the current downturn. (Slashing interest rates to the bone might produce a bubble? Who knew?.) Lester Thurow, another economist, thought neither America nor Japan would be able to compete with the European Union in the economic arena. But Europe is a mess, and pretty soon, Europe won't even be Europe. (If you doubt that, check out America Alone by Mark Steyn.)
In addition to prediction, the hard sciences involve measurement. In 1969, for example, the hard sciences enabled us to do what no man had done before: We "slipped the surly bonds of Earth" and went to the Moon. We were able to do this (and on the first attempt) because we had made all the measurements. We knew precisely how much fuel would be needed, and how much oxygen the crew would require (we included a little extra for good measure). In the 1940s, we invented a device that produced a form of energy no one had ever seen. We knew precisely how much fissile material would be needed to achieve critical mass, and how much force to use in slamming the hemispheres together, and it, too, worked on the first try. These are examples of real science.
One of the things practitioners of a "soft science" do when trying to gain stature for their discipline is to "mathematize" it. It can't be all just theory; it must incorporate data if it's to be taken seriously as science. So, economists start devising formulae, applying numbers to things, and amassing mountains of "data."
But just what are these things economists apply numbers to? Are they the discrete measurable phenomena we find in the hard sciences? What are consumer confidence, productivity, gross domestic product, and the other economic phenomena?
The things to which economists apply numbers are nothing less than the constructs of economists. They are things that economists come up with, things they invent. They are abstractions, and as such are highly debatable. In his new book Enough: True Measures of Money, Business and Life, former head of Vanguard Mutual Fund Group John C. Bogle writes: "By worshipping at the altar of numbers and by discounting the immeasurable, we have in effect created a numeric economy that can easily undermine the real one." [p. 100]
Measurement in economics, then, is highly problematic. How do you measure GDP? Again, that depends on what it is. What do you include in GDP? Should the "product" of homemakers be included? GDP is a measure of the health of an economy. But as we drift further into becoming a nation of consumers, not producers, how do we measure our product? Our apparel, consumer electronics, and other manufacturing industries have been shipped abroad -- so is our post-industrial economy's GDP to be measured by our burger flippers and baristas? What's more, we have economists changing the criteria by which they measure, as they've done in dating recessions.
When you measure GDP, you must wait for the data to pour in. And this data will come from numerous sources, some of which will be unreliable, even corrupt. And then, the number will be revised. The 4th quarter of 2008 first showed a 3.8% contraction of GDP. But it's been revised down to 6.2%, and even that will surely be doubted and debated.
Measurement in the hard sciences is much more straightforward. If, for instance, you want to know what a cubic inch of gold weighs, you refine gold, pour it into a mold, and put it on the scales. Each such cube of gold will weigh the same, roughly. But if you could refine gold to absolute purity and control the number of atoms in each such cube, each such cube would be literally identical in weight. This kind of precision in measurement is pretty much outside the realm of the social sciences.
It is precisely this imprecision and tentativeness that allows everyone to think his opinion about the economy might have about as much validity as the next guy's. Folks don't do that with the hard sciences; folks don't have opinions about physics. (Except for the wacky ideologues who believe physics and, for that matter, reality itself, is a social construct. See Sokal Hoax.) In physics, there are ways to prove things. So folks defer to physicists. But in economics, things are often a matter of opinion. That's why you see major disagreements between economists over basic things. Economics may be more akin to the humanities than to the sciences.
Continued in Part 2...
Jon N. Hall is a programmer/analyst from Kansas City.