Students all over the world are increasingly questioning if the kind of economics they are taught — mainstream economics — really is of any value. Some have even started to question if economics is a science.

Two ‘Nobel laureates’ in economics — Robert Shiller and Paul Krugman — have lately tried to respond:

Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show …

220px-Robert_J._Shiller_2017My belief is that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles …

But all the mathematics in economics is not … charlatanism. Economics has an important quantitative side, which cannot be escaped …

While economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields.

Robert Shiller

krugLet’s grant that economics as practiced doesn’t look like a science. But that’s not because the subject is inherently unsuited to the scientific method. Sure, it’s highly imperfect — it’s a complex area, and our understanding is in its early stages …

No, the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions and uses hard math instead.

Paul Krugman

Economics — and especially mainstream economics — has lost immensely in terms of status and prestige during the last years. Not the least because of its manifest inability to foresee the latest financial and economic crises and its lack of constructive and sustainable policies to take us out of these. We all know that many activities, relations, processes and events are uncertain and that the data do not unequivocally single out one decision as the only ‘rational’ one. Neither the economist nor the deciding individual can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.

Mainstream economists, however, have wanted to use their hammer, and so decided to pretend that the world looks like a nail. But pretending that uncertainty can be reduced to risk and construct models on that assumption has only contributed to financial crises and economic havoc.

So how do we put an end to this intellectual cataclysm? How do we re-establish credence and trust in economics as a science?

Five changes are absolutely decisive.

(1) Stop pretending that we have exact and rigorous answers on everything. Because we don’t. We build models and theories and tell people that we can calculate and foresee the future. But we do this based on mathematical and statistical assumptions that often have little or nothing to do with reality. By pretending that there is no really important difference between model and reality we lull people into thinking that we have things under control. We haven’t! This false feeling of security was one of the factors that contributed to the financial crisis of 2008.

(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions. Mathematics gives exact answers to exact questions. But the relevant and interesting questions we face in the economic realm are rarely of that kind. Questions like “Is 2 + 2 = 4?” are never posed in real economies. Instead of a fundamentally misplaced reliance on abstract mathematical-deductive-axiomatic models having anything of substance to contribute to our knowledge of real economies, it would be far better if we pursued “thicker” models and relevant empirical studies and observations.

(3) Stop pretending that there are laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability.

(4) Stop treating other social sciences as poor relatives. Economics has long suffered from hubris. A more broad-minded and multifarious science would enrich economics.

(5) Stop building models and making forecasts of the future based on totally unreal micro-founded macromodels with intertemporally optimizing robot-like representative actors equipped with rational expectations. This is pure nonsense. We have to build our models on assumptions that are not blatantly in contradiction to reality. Assuming that people are ‘lightning calculators of pleasures and pains’ is not a good – not even as a ‘successive approximation’ – modelling strategy.