The Empirical Nature of Economics: Myth or Reality?
Today, the dominant mainstream economics represented by Dynamic Stochastic General Equilibrium (DSGE) models does not easily fit the modern definition of an empirical science. This is a complex discussion that requires an exploration of the sociology of science and the diverse approaches within the economics community.
Understanding Empirical Science
The term 'empirical' is defined as 'based on, concerned with, or verifiable by observation or experience rather than theory or pure logic.' While some economists fit into this empirical framework, others do not. Ignoring empirical data and the real-world implications can be seen as willful blindness. Furthermore, the aspiration for economics to become more empirical is often seen as unrealistic due to the current prevailing theoretical approaches.
The Diversity Within Economics
Economics is not a single monolithic community, at least not one that traces its roots back to Adam Smith's The Wealth of Nations. This seminal work laid out foundational concepts regarding market value, scarcity, and supply and demand. However, its descendants today pursue diverse goals and methodologies.
A Modeler's Perspective
At one end of the spectrum are modelers and theoretical econometricians, predominantly found in academic settings. These economists focus on inventing new mathematical logic for economic processes. While some think about empirical testing, many do not worry about making their models empirically testable. It would be inaccurate to label such individuals as empirical. It is highly unlikely to hear a modeler express the view that economics is an empirical science. For them, the importance lies in the internal logic of the model rather than empirical validation.
An Analyst's Perspective
On the other end of the spectrum are economists who focus on the implications of models for observable facts. These roles can be found in academic, business, and government settings. They are often empirical in nature, using economic reasoning to understand specific realms such as labor markets, financial markets, or industry evolution. Some of these economists think deeply about scientific questions—how and why facts can reject or affirm a model and how improvements can be made. Others simply seek to understand how the world works and use economic reasoning to do so.
The Balancing Act
The relationship between theory and fact is a crucial dynamic within economics. This conversation sometimes yields fruitful insights, where theoretical implications align with empirical observations. However, there are instances where this dialogue fails to produce meaningful results. This can be frustrating for those who advocate for a more empirical approach.
Empirical Outlook and Realism
An economist with an empirical outlook might say that economics is empirical out of frustration. It can be seen as a statement of willful blindness if many economists remain theoretically oriented. However, it can also be viewed as a hope for a more grounded approach, a statement about an unrealistic aspiration. Those who spend their days observing the world and striving for grounded insights often feel this way.
Ultimately, whether or not economics can be considered an empirical science is a matter of perspective and the current state of the field. The diversity within the economics community means that the answer will vary depending on whom you ask.
While this view offers a complex and nuanced understanding, it highlights the importance of empirical data and the ongoing need for empirical validation in economics.
Keywords: Empirical Economics, Dynamic Stochastic General Equilibrium, Economic Science