A science can displace less adequate theory with one more adequate, but this Economics cannot do. — Ergo, it is no science. End of tale.
That ‘Economics is a science’ is either a damned lie or a hopeful delusion, but certainly an untruth. ..Because it is unable to displace less adequate theory with a more adequate one Economics remains doctrinaire — it would be a species of theology, were it not devoid of any gods, other than the joking about worship of Mammon.
You see, Economics deals in valuations in money terms, which are inherently unstable, fluctuate, and often are rather arbitrary. The valuation of currencies and some commodities, such as petroleum, are especially so.
The data used in econometric modelling suffers thus. ..Lacking a stable reality against which to test competing theories, Economics cannot sort them: ..for any loser in such a comparison may always claim the fault lies with the data, and but for …. blah blah. Data from a different time period or a different country might yield the opposite result.
Econometrics is a statistical technique — several akin techniques, really — used to test models against statistics about an economy, and if a good fit of the model with the data results, then the model must be a good one. At least, such will be claimed. However, caution needs to be observed because:
“No economic theory was ever abandoned because it was rejected by some empirical test, nor was a clear~cut decision between two competing theories made in light of the evidence of such a test.”
<< So said the author of a standard textbook of econometrics –Peter Kennedy: A Guide to Econometrics; 6th edition, 2008, Oxford: Blackwell.>>*
Econometric models of an economy have the additional burden of many economic presumptions built into their equations. Unsurprisingly, they frequently don’t predict very well. Statistical models built by applied mathematicians unencumbered with economic theory would likely do as well or better for predicting. Even a simple projection of trends often gives a good enough prediction.
However, one would still be stuck using aggregated data, which data consist of estimates with error bounds, all these aggregated (added together). Treating these as variables mathematically – as though only the centre points matter – is very iffy. ..Really, the results simply cannot be trusted.
As an example:__ Suppose a survey shows this month’s unemployment rate is o.2 of a percentage point below the previous month’s survey. ..Being the difference between two centre points, what can be safely said about the unemployment rate? … Each centre point is in a cluster of probable values, and somewhere within this is the unknown actual figure. That is how statistical surveys are.
So if the previous month’s actual figure was really o.2 below its survey centre point, while this month’s actual figure is really 0.3 above its centre point, then unemployment actually rose even though the centre points suggest a decline. … Statistically, it is not legitimate to use only the centre points. Yet, economists do so routinely, which may be very misleading.
Students of the discipline are exposed to a variety of models that are used to instruct them in proper thinking. ..Many have competitive markets of a peculiar sort at their core, which hardly at all resemble reality where oligopolists and oligopsonists populate much of the ground. ..Mathematical models typically do not reflect this because they cannot, for market price would then be indeterminate and the model incoherent.
Economics models are entities unto themselves, yet by ingrained habit economists blur the distinction between these constructs and reality, coming falsely to believe their modelling indeed .does echo. reality.
Instead, they are interpreting reality using their learnt beliefs of how an entirely imaginary economy supposedly functions, and so are arguing by analogy. ..But their reference model is a fantasy realm unlike any real economy, so suggesting actions -with unwarranted certainty- based on such modelling, is foolish. ..Yet, it is what economists do, and seemingly they believe it either actually is how the world works – or should work.
Unpack their impressive and complex models and unrealistic assumptions are hidden in the early equations. ..This is not science, but adherence to accepted doctrine. With no exaggeration, their discipline could be labelled a quasi religion.
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*Who was actually just repeating something from an earlier work — Aris Spanos: Statistical Foundations of Econometric Modelling; 1986, Cambridge University Press. _Found in The Assumptions Economists Make by Jonathan Schlefer, Harvard University Press, 2012…p275
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