October 22, 2011

Why economics isn't even social-science scientific

It doesn't matter the school of thought, whether Keynesian, New Keynesian, neo-Keynesian Vienna School, Chicago School's tweaking of Vienna, or something brand new.

Most economics isn't even at the psychology or sociology level of social-science level of science. And, outside of the research-based behavioral economics, this is true for economics in general.

Take this Australian economist who claims that Keynesians of various stripes are wrong about how debt works in a fiat money society.

He's got interesting ideas. But, especially his three anti-Keynesian talking points at the end? They're not falsifiable. First, you can't falsify a whole society. Second, I don't think they're falsifiable even by computer simulation. Even using "falsify" more loosely than an ardent Popperian, they're really just not falsifiable.

Therefore, they're really not "theory," even in a loosely used sense of falsification. They're policy prescriptions. They're really statements of, "People should believe this about how debt works in a fiat money society."

And, thus, per Hume, with that "should," he's totally jumping the is/ought shark. But, it's not just him; as noted, my take is that most economics is not social-scientific science, but policy prescriptions.

In this particular case, I think they're some interesting policy prescriptions. But, they're not scientific.

Some are good. Others are somewhat straw men, like some claims about New Keynesianism, and, per Wikipedia, ignoring the links between modern monetary theory's roots and original Keynesianism.

Beyond that, here's some specific criticism of MMT.

The only way any macroeconomic theory can be close to scientific is to start by incorporating researched findings from behavioral economics.

At the same time, per Mitchell's blog, and per the main Wikipedia entry about MMT, it does appear at times to be generally "progressive" in its political stance, as noted here:
One commentator today noted that monetarism was neither right- or left-wing. I disagree. The whole edifice of mainstream economics – indeed its roots – are ideologically disposed towards what we call right-wing thinking. Modern mainstream economics is an extension of the marginalist school which emerged in the second half of the C19th to combat the fears the industrialists had about the growing popularity of Marxism.
However, in that same post, Mitchell lauds the Chinese for, in part, being free of democratic constraints. But, both it and New Keynesianism seem to assume too much about people's, or institutions', behavior as rational economic actors. And Mitchell assumes too much about the wisdom of China's leaders, to boot.

So, I think Krugman is right when he says MMT just isn't right. And, while it may not be right-wing, beyond being overly rationalistic, it is a monetarist policy.

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