Wednesday, April 17, 2013

Final Proof: Economics is not Science

Consider, if you will, the following analytic proposition:
  1. If someone wanted to make a statement about the physical world,
  2. To that end formulated a precise mathematical and/or logical model,
  3. On the basis of that model made a prediction for a specific situation,
  4. And then the precise situation arises, but the predicted result fails to materialize.
If such a situation ever came true it is safe to claim that everybody — everybody — would concede, that the model in question must be wrong. The only discipline where this is not the case is economics. Watch the following exchange between David Stockman, economist and author of The Great Deformation, and Saru Jayaraman, activist and author of Behind the Kitchen Door, on Real-Time with Bill Maher. The guests are seen debating the fact that in the USA tipped servers in restaurants get only a minimum wage of $2.13 an hour (and are actually paid nothing because the amount covers just the necessary taxes). Watch:

Here's the summary of what we're witnessing:
  • Stockman claims (5:57) that a higher minimum wage would "destroy jobs".
  • Jayaraman disproves (6:52) this claim with evidence that in California where in places servers are paid the higher national minimum wage the number of restaurants is growing faster than ever.
  • Stockman replies to his claim being disproved that (7:30) "People will never agree about the facts but it's logical: If you raise the cost of running a business on the margin you are going to eliminate the employment on that business ... [crosstalk]".
Well, first, no, it's only economists that will never agree — or care — about the facts. People with brains actually do, and second, no, it's not logical, it's wrong. Jayaraman has just proved with facts that what Stockman claims did not happen.

I know of no other discipline that is equally impervious to factual evidence as economics. Note especially that when Stockman claims that the reasoning behind his claim is "logical" then the underlying assumptions or the theory that makes this reasoning inescapable must be wrong. Period. There is no escape from that if economics claims to be a science. And if — what is often heard — economics is not an "exact science" then it simply cannot make any such exact or inescapable claims. I thought we left behind already centuries ago such claims that whatever contradicts the Bible cannot possibly be true. In fact, the only quasi-science where facts are irrelevant if the theory says otherwise (to paraphrase Stockman's assertion above) is economics. The inescapable conclusion therefore must be that economics cannot be science.

I'd love to see a student of economics take this video to class and then confront the professor why economics is the only discipline in the world (apart from religion) where factually disproved claims are still maintained, taught and defended tooth and nail as "logical".

Further reading:
Brian Davey, Economics is not a social science