Friday, November 26, 2004

Is economics a science? III

Anyway, my last two posts have probably been totally incoherent, but now that all the arguments are on the table, what conclusions can we draw?

Well the first conclusion is probably that the discussion has significantly shifted away from the question "Is economics a science?" to some other question, perhaps "What is economics?" I'd just like to say a few words about a number of things I think are salient to what economics is.

Primarily, the aspect of modeling. I completely agree with Paul Krugman's view on formalism in economics:

What is true, however, is that many economists use mathematics not merely as a way to check the internal consistency of their ideas, but as an "intuition pump"; they start with a vaguely formulated idea, try to build a model that conveys that idea, and allow the developing model in turn to alter their intuitions.
Also with the qualification that
Of course, this gain in intuition sometimes comes at a cost: the modeler can become a prisoner of the assumptions embodied in his model. One often hears accusations, in particular, that model-based economics inevitably biases the field toward standard economic assumptions like constant returns, perfect competition, and perfect information. Yet this need not be true. In fact, economists like myself (and many of the others on that list of Clark winners) who have worked at length on imperfect markets have found modeling an essential discipline in the process of exploring new territory.
Modeling is a very powerful tool and is best at getting at key insights into economic phenomena. Equivalent to models are the kinds of silly stories economists weave to try and explain something. Simplification, abstraction, etc, are all part of the same sort of thing. If you are addicted to Paul Krugman like I am, read his story about a failed baby-sitting co-op and his World's Smallest Macro Model. The two together contain perhaps the key insight of Keynesian economics. This insight is not a simple counterfactual, if X then Y. It's something hidden between the mathematics, the narrative, and the reality of the situation. We can express it as a simple aphorism, "money matters," but it doesn't do justice to the beauty of the result. Only a extra portion of hard thinking does. Combine this ability of economics to nail down an insight into social and economic phenomena with clarity and the ability of economists to do very good empirical work, and the resulting tensions between the two can be very productive.

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