Economics is categorized as a “social science” alongside anthropology, psychology and sociology. Which makes complete sense considering that economics studies the relationships that dictate how we produce and consume goods and services within the society. But you wouldn’t know that from the way many economists discuss economics. Too often economists try to establish economics as an empirical science grounded in some sort of natural phenomena.
I was thinking about all of this as I was reading this piece by John Hilsenrath who was discussing Hayek’s views on this matter:
“His central grievance was the field’s long-running infatuation with scientific method and certitude. It was an impossible and misleading task for economists, he said. In their “vain search for quantitative and numerical constants,” Mr. Hayek argued, economists were constantly overlooking essential facts and misunderstanding the complexity of the social mechanisms under their microscopes.”
Hayek has this dead right even if we might have disagreed on how to apply it. In the search for quantitative and numerical constants we often overlook just how much our economic system resembles the soft science and not the natural sciences. And it can lead to extremely misguided thinking on certain matters.
Of course, the economy is not grounded in anything resembling the natural sciences. There’s very little that’s “natural” about our economic system. The economy is made up of the sum of the decisions of the people who operate within that system. And the system exists, to a large degree, in our heads as records of accounting. These records can be erased, created from thin air, manipulated, etc. And the people creating those records are driven in large part by their own biases. They react inefficiently and irrationally. Mister Market, as Warren Buffett likes to say, is often manic.
This makes the study of economics extremely tricky because we’re dealing in uncertainties at most times. Thankfully, we seem to be making good progress in fields like behavioral finance, but I do worry that the “science envy” of many economists continues to plague views and progress.