Many criticisms of Economics arises from its inaccuracy in prediction, especially catastrophic events like Recessions. I wanted to write a quick piece addressing this.
Introduction
First, most people seem to think Economics is just Macroeconomics and estimating the health of the economy. Economics is much much more than that, the sub-fields and its applications are plentiful. In addition, the criticisms often come from the fact that it can’t predict exogenous shocks and its models don’t represent reality. It is difficult to incorporate those kinds of random shocks into models because you risk the chance of overfitting. The details in constructing models can get incredibly nuanced and won’t fit in this piece. As to representing reality, models are often developed under context and if the criteria are not met then a model per se won’t be helpful. When trying to understand something in the world, you look for models that were developed accounting for similar conditions/constraints in what you see.
If Economics didn’t exist, the discipline would have simply been named something else. The study of the efficient allocation of resources, production, and consumption of goods is an innate component of human life. From the simplest origins of trade in our ancestors to the counter-intuitive concepts developed in modern times like comparative advantage, Economics has been with us and continues to develop its models of the world to understand the variables and systems that are intertwined in data generating processes.
Methodology
Economists follow the scientific method. It’s trivial that they do.
They accumulate empirical facts, formulate theoretical models to explain those facts, derive a possible hypothesis and subject it to intense scrutiny. However, like any science, sometimes people diverge from the ideal scientific method. The “file drawer problem” and publication bias exists in Economics as well as other disciplines. Often we see academic papers published if they prove a result, we don’t see the failed experiments too often.
Prediction
“Economics couldn’t predict the Financial Crisis and Great Recession. Why should I ever listen to economists?”
The point of economic theory is not to predict, that is a major misunderstanding people have.
It is a common question to arise from the doubters of economics. The accuracy/existence of forecasting is not a necessary condition for a science to be useful. There is so much more than forecasting/predicting to a science. Paleontologists and evolutionary biologists can’t forecast, Meteorologists, seismologists fail to accurately forecast events, sometimes with deadly consequences. If failure to predict critical events was the hallmark of a pseudo-science, then much of science wouldn’t be a science.
Carl Sagan credited economics for its long-range economic forecasting, the strongest predictive matter is in the long run when systems are stationarity subject to assumptions and certain criteria. Prediction in the short-run contains a high degree of stochastic processes and volatility.
Macroeconomics is just one subset of economics and macroeconomic forecasting is a subset of macroeconomics. Judging the validity of an entire discipline for the perceived failure of a sub-sub-discipline is illogical. I know a lot of criticism on Economics is targeting the Macroeconomics that shows up on the media most often and in public policy references. Very few people talk about Microeconomic Theory and Econometrics which in my opinion is the most exciting and scientifically accurate portion of Economics. Macroeconomics is an incredibly complex system and requires people of interdisciplinary backgrounds given the nature of the task in modeling aggregate economies. That is why people from other backgrounds with Ph.D.s in Physics, Math, and Statistics come in and provide insight as to new models. There’s even a name for the applications of methods developed in Physics to Economics, it’s called Econophysics!
Conclusion
Economic models are approximations of reality, valid when applied to certain contexts. It is composed of a large library of models, each of which is valid in a given class of contexts where its critical assumptions are empirically valid. An example is General Relativity and Newtonian physics which have a wide scope of applications, more than an economic model but are not valid at the quantum level, the sub-atomic particle range. There are pros and cons to models in every science.
A lot of this credit is to the writers of faq_methods — Economics
Please see the link for answers to common criticisms, doubts, and misconceptions of Economics above.
