Thursday, September 22, 2016

The Implications of Denying Economics as a Science

There are many arguments that proceed as follows. One person will propose a policy (like the minimum wage, worker protection, job safety requirements, licensure requirements, etc.). A second person will suggest that economic theory predicts bad consequences for such a policy, usually compelling enough to render a verdict against that policy. The first person will respond by saying, Well, economics isn’t really a science, so it shouldn’t inform our opinions on such matters.

This is in contrast to another kind of argument, in which one person suggests that economic theory predicts bad consequences and the other person argues that it predicts good consequences. I applaud this kind of discussion. My point in this post is to address the first kind of argument, in which one of the discussants denies that economic reasoning has anything to offer.

 I’ll start with the observation that most economic reasoning is simply common sense disciplined with some mathematics, such that the speaker defines clearly what they mean. This process of clarifying alone can make the thinker realize that an initially plausible idea is utter nonsense once it’s laid bare. Sometimes mere quantification and accounting can make it obvious that a policy is silly. And some things that are dismissed as economic “theory” are unimpeachable truths, like that “when the price of doing X goes up, people do X a lot less” and “when the cost of producing X goes up, people produce less X” (along with the inverse of these statements, which are logically implied by the statements themselves).

But never mind that. Let’s take economic nihilism as a given and concede that it’s a legitimate intellectual position. What are the implications? Basically, your hands are tied if you can’t reason in any systematic ways about economic policy. How do you predict the effects of a minimum wage if you don’t have a theoretical framework for estimating the effect on the demand for low-skilled workers? How do you render a verdict in favor of the minimum wage if you can’t do this kind of cost-benefit analysis and quantification of the trade-offs? You’d be reduced to simply arguing, “My gut tells me X is a good policy, so I support it.” But then there’s nothing left to discuss. Without a little bit of economic theory, there is no framework for identifying good and bad economic policy. Maybe you think you can appeal to a moral trump card, as in “We should enact the minimum wage because it’s just the right thing to do!” But if the practical effects of minimum wage are massive unemployment for the very poorest workers, then those effects should carry some moral weight. It’s not possible for something to be “Just the right thing to do” or “Just wrong” without any regard to their consequences.

Maybe some people think they can escape this messy business of “theorizing” by appealing to pure empiricism. But this is wrong, because you can’t evaluate data except in the context of some kind of theory. Even by calculating something so simple as a sum or an average, you are positing a theory that that number is somehow relevant to the discussion. Empiricism without theory tends to sloppy reasoning. (Don Boudreaux makes the point beautifully here in one of my favorite posts by him.) You end up making a lot of “post hoc ergo propter hoc” and “correlation implies causation” arguments.

So what are the policy implications of denying economics as a science? They aren’t the implications that the denier wishes to draw: “Now I’m free to basically pick whatever policies make me feel warm and fuzzy inside.” No, you need to set some sort of reasonable default rule for what policy *ought to be* given our radical uncertainty. Maybe democratic popularity? Unfortunately, this leads to incoherent policy, full of self-contradictions. If you put every individual policy up for popular vote, you’d get a hodge-podge of unclear laws and factions of warring bureaucracies. (Oops! I guess I mean you'd get *more* of this.)  Pure populism also tends toward *bad* policy. If you’re ideologically democratic, meaning you think that majority should rule, right or wrong, you shouldn’t dodge the question of what the populace really wants. Do they *really* want their slate of policies? Or do they *really* want economic prosperity? If the latter, then you should subvert the former, unless you think that these things are always in agreement by some obscenely unlikely coincidence.

I think the only policy default rule that makes sense is the libertarian default: don’t initiate violence unless there is overwhelming justification for doing so. Don’t threaten, harass, and arrest business owners for offering a wage that their workers all agree to, just because you think it’s too low. Don’t harass those business owners for failing to comply with a regulatory “check-list” of “thou shalt”s and “thou shalt not”s. At any rate, don’t do any of these things unless such threats and harassment reap overwhelming benefits for society. But you’d damn sure better show your work. And that requires some economic reasoning.

As an aside, I agree with the criticism that much economic reasoning is overly mathematized and abstruse. (See Bryan Caplan’s post here.) But the critiques of these approaches use…economic reasoning! As in, something in the math doesn’t make economic sense. (See Caplan’s post: “You could reply that mathematical economics shows that economic intuition is often wrong.  I beg to differ.  My experience: When mathematical economics contradicts common sense, there's almost always mathematical sleight of hand at work - a sneaky assumption, a stilted formalization, or bad back-translation from economath to English.“)

You can’t escape economics if you want to make an argument about economic policy (or *any* policy for that matter). To do so is to intellectually anesthetize yourself. If you don't have the patience for economic arguments, then you should probably refrain from having any strong policy opinions. 

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