Thursday, December 2, 2010

Macroeconomics, Science, and Engineering

Robert Johnson and I have been discussing the extent to which economics is a science (or a "soft science") in the comment section of this post. The very term "soft science" is like nails on a chalk-board to me. I find it completely vacuous. I'll loudly proclaim that there are varying complexities of the systems that various scientists study and that this needs to be taken seriously - but this doesn't really speak to the scientific quality of that field of study. Social science is not the half-way point between the "sciences" and the "humanities". "Social science" is the name we give to certain sciences because our self-absorption and self-aggrandizement revolts against the idea of classifying economics as a sub-branch of primatology.

Anyway - I can't really comment much longer on that post, but at the end I was getting the sense that a lot of the difference between my views and Robert's views might be emerging from the fact that I separate questions of science, engineering, and forecasting. To me they are very different things. One is the pursuit of understanding through the scientific method. Another is the application of that understanding to problem solving. The third is the application of that understanding to piercing through the "dark forces of time and ignorance that envelope our future". All are noble pursuits. All are rightfully done by economists with varying degrees of success. All are quite distinct, though. I think we are quite good at economic science, and somewhat less good at economic engineering and forecasting (we are probably better at engineering and forecasting than meteorologists, worse at engineering but better at forecasting than geneticists, and worse at both engineering and forecasting than astronomers).

Anyway - all I intended to do here was to quickly point readers to an essay that Greg Mankiw wrote a while back on the macroeconomist as an engineer and the macroeconomist as a scientist. Here's a good selection from the beginning:

"To avoid any confusion, I should say at the outset that the story I tell is not one of good guys and bad guys. Neither scientists nor engineers have a claim to greater virtue. The story is also not one of deep thinkers and simple-minded plumbers. Science professors are typically no better at solving engineering problems than engineering professors are at solving scientific problems. In both fields, cutting-edge problems are hard problems, as well as intellectually challenging ones. Just as the world needs both scientists and engineers, it needs macroeconomists of both mindsets. But I believe that the discipline would advance more smoothly and fruitfully if macroeconomists always kept in mind that their field has a dual role."


  1. The comparison of an economist to an engineer is false.

    When an engineer is hired to build a bridge, and that bridge collapses, the construction company will never ever hire the man again. An engineer is judged for output and results.

    An economist, be him a wonk or an academic theoretician, is just an intellectual. An intellectual is a person the end result of whose work is ideas. Unlike a stable bridge built by a good engineer, or steady revenues maintained by a good salesman, there is nothing to judge the end result of an intellectual's work (ideas) other than another intellectual. And there is nothing to weigh that intellectual's criticism other than another intellectual. No market for the academic version of credit rating agencies exists. In truth, there is no end result, only inputs that serve as basis for other inputs.

    The wonk is not an engineer; he is still an intellectual. His own money is not at stake. His employer, the government, never has any money of its own. And the wonk is charged with making decisions for other people using other people's money. All he has to do is give inputs, and when other people's lives are ruined because of his policy decision, he bears no cost personally.

    Indeed, since it is so complicated to evaluate statistical results, an intellectual can hide behind unfalsifiability. He can simply say his policy was not implemented well enough or his policy was successful or his policy prevented further damage, and there will be other consenting intellectuals to agree with him. Even if they don't, it would not matter, since his employer loses nothing from a bad decision. Unlike Steve Ballmer, who made one mistake with Kindle, still brought Microsoft record-breaking profits, and still got his salary cut in half for Kindle, the economist is saved from the fact that he can not be judged for output, he does not have to bring output, and there is no way of measuring his output.

    In the end, there is no dual role of macroeconomics as the esteemed N. Gregory Mankiw suggests. There is only one role. Inputs, inputs, and inputs. The intellectual is a curse, a parasite, and a liability on our society since the days of the men in Medici's court, and is to always be suspected and not fully trusted, whether he is Adam Smith, Milton Friedman, John Maynard Keynes, Ludwig von Mises, Friedrich Hayek, or John Hicks.

  2. Prateek -
    I'm not sure I agree with you. First, one engineer or engineering firm is responsible for very specific engineering projects. Responsibility can be traced. This is not true at all for the sort of social engineering that economists do. It's very hard to trace. The social engineering that economists do is also largely just advice given to a regularly elected group of several hundred non-economists (ie - Congress). If you find me an engineering project where it is hard to trace specific design elements to a given engineer, and where the implementation is actually done by a committee of non-engineers who only work off the advice of engineers, then I would wager their accountability arrangements would be relatively comparable to that of economists.

    Now, where accountability can be more easily tied to specific engineers they do face accountability. A personal finance advisor or an institutional investor who derives insights from financial economics to apply that consistently fails at his job will be fired. They have somewhat more of a margin of error, of course - because we expect steel and concrete to behave more predictably and less stochastically than economies. But within those bounds, such planners and investors are absolutely held accountable.

    The rest of your post seems to just describe the efficiency of the price mechanism. Clearly I don't disagree with you on that point.

    he intellectual is a curse, a parasite, and a liability on our society

    Hmmmm... I would place a higher premium than you on the search for understanding and the men and women who do it and the men and women who would like to do it but don't have the resources to. Your dating of this issue is especially shocking. I would say that Italy, at about the time of the Medicis, was precisely where humankind started to get things right.

  3. "...hide behind unfalsifiability."


    But it was a good read. My problem with Mankiw's argument is that (I believe) successful science produces knowledge that engineers can make use of. The fact that, as Mankiw admits, the past 30 years have seen little no important progress in economic engineer strongly suggests that there's been little or no progress in economic science either. Mankiw clearly thinks I'm wrong and claims there is some kind of disconnect between the production of knowledge and the use of that knowledge to do engineering, but he never makes clear what the disconnect really is. Shouldn't newly generated economic knowledge usually, if not always, impact economic engineering?

  4. "A personal finance advisor or an institutional investor who derives insights from financial economics to apply that consistently fails at his job will be fired."

    I'm not confident about that statement at all. You might read Eric Falkenstein for an insider's take on that question.

  5. You might want to look at my recent post on public choice theory and the links I provide there as an elaboration of one "disconnect":

    Another disconnect is what I outlined to Prateek - that our social engineers are a very funny kind of engineer. They are engineers that work on projects where it's hard to connect any given design element to any given engineer, and they are engineers who are really just hired as consultants by a committee of several hundred non-engineers who actually do the real engineering work themselves. That will necessarily introduce a disconnect and make engineering work tough!!!

    The economy is also very complex as I've said many times so far, and I'm sure I sound like a broken record. We haven't made that many advances in engineering the climate, but its not a sign that climatology hasn't made progress. It's just very hard and when we do finally try to engineer the climate (as I'm sure we will some day), it will be a very precarious endeavor. I don't think that raises any questions in anyone's mind about the work done by the scientists, though. It's simply a reality that constrains the engineer.

  6. Watson and Crick did their work in the early fifties... how many decades did it take to do genetic engineering?

  7. I'm not confident about that statement at all. You might read Eric Falkenstein for an insider's take on that question.

    OK - I'll agree on this. I don't want to make the case too strongly. But within limits it is certainly true. Professions always have a way of protecting themselves. Maybe a better example is doctors. There are consequences when they make mistakes in their engineering of human anatomy, but they don't just get fired. The human body is a complex system, just like the market - and they're both complex in a way that a bridge isn't.

  8. Your piece on Public Choice Theory is most excellent.

    And your counter-argument is strong: "Maybe a better example is doctors. There are consequences when they make mistakes in their engineering of human anatomy, but they don't just get fired. The human body is a complex system, just like the market - and they're both complex in a way that a bridge isn't."

    Actually, I had no idea that Krugman had also evaluated interests and motives of policymakers in his columns, because he seems to do the opposite when he said austerity policies are a fashionable fad. Bill Anderson also has kept asking with some perplexity why one would think people in government have any self-interest in not spending more. But the Krugman/DeLong argument that some politicians deliberately want a crisis is bold and perhaps outrageous, but plausible and strong.

    Of course, my statement calling intellectuals a curse and a liability is very unfair, but when I think of the fact that von Mises lived off generous Rockefeller donations or that Keynes was the beneficiary of a little stringpulling by his father and advanced towards intellectual fame through a treasury position or that Smith had slandered some of his own mentors - I just feel that economists dangerously betray much ego and an interest not in improving lives but in fame and money through using entire nations as experimental grounds for ideas. de Medici bankrupted his republic, and I feel his advisors may have been responsible.

    However, I also always felt that a committee of hundreds of implementing politicians will fail to understand and properly implement either Keynesian economics, or Friedmanite economics, or any kind of economics. It's because the politicians don't have the same level of specialization and years of reading the subject, and would probably just do what they want to do irrespective of what an economist advises them. And if the policy fails, maybe the economist is justified in saying that his views were not considered or understood.

  9. Well, I'll have to reread it but I believe that was Yglesias's argument wasn't it - Krugman and DeLong didn't quite go that far. The worst they've gone is "these people think we need to suffer".

    Bill Anderson, as usual, sounds fairly confused in his thinking. What is in a politician's interest is to be re-elected. Sometimes that interest is served by spending too much, sometimes it is served by spending too little.

  10. Sorry for posting back to what is now an old discussion, but Eric Falkenstein has said clearly something that I've been hinting at, but haven't been able to verbalize or support.

    "For example, I find many economic models excessively rigorous because such theories do not add precision or clarity to an idea, only faux sophistication. Thus, Romer's growth theory, or Krugman's increasing returns to scale theory, did not add clarity to an existing debate, only false rigor to ideas more clearly and accurately stated in words. Note that even Romer and Krugman don't build arguments on their models, rather they merely use them for presenting their bona fides. The models are mainly for proving one is clever as opposed to making a novel point. A formalization of well-known arguments that disingenuously presents itself as 'new' theory is bad because this leads to a wasted focus. Further, some models become so convoluted they make falsification impossible, allowing an intellectual error to persist for a generation as true believers can always point to different parameterizations that work (eg, input-output macro models, large-scale Keynesian macro models, stochastic discount factors)."

    You can see his whole post here:

    Does this clarify my position? Do you find Falkenstein's argument compelling at all?

  11. I still can't let it go...

    Scott Sumner writes:

    "...if the term "bubble" is to mean anything useful, it must contain an implied prediction of the future course of asset prices."

    That's kind of what I've been arguing about science and prediction.


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