Monday, September 24, 2012
Is Macroeconomics Science Or Engineering?
This article is primarily for academics and students of economics. It provides a good history and analysis of the battles for academic supremacy within macroeconomics. One of the schools claims to be more scientific than the other, which may more like engineering and better for policy making. Noah Smith, who just got his PhD in economics, explains why the distinction between science and engineering is not really valid. Rational expectation theory, and the DSGE models that were derived from it, are not really scientific in an important sense. They are used by most of the central in the world to forecast economic outcomes, but they do a poor job of doing that. Theories that fail to predict what happens in nature are usually disbanded in the sciences. DSGE models are still being used by central banks, and graduate students in economics spend a lot of time learning how to build models that are not very useful. Politicians who seek out economists to argue against government intervention in the economy will continue to use them to their advantage. Implicit in rational expectation theory is the idea that once people know what actions are being taken by government, they will modify their behavior, and negate the intended effects of the policies. Scientism is not the same thing as science, but it wins Nobel prizes for economists who are successful at developing economic theories that more closely resemble the real sciences by developing internally consistent models that can be expressed in equations.