Parallels Between Economics and Natural Sciences

Physics might seem like the dream science. It speaks the language of mathematics – so precise, so logical and so absolute. It forms part of the foundation of other natural sciences. This is what makes physics unique. Although it seems like a worthy aspiration to chase after, it is not always attainable. This is due to the limits of the scientific method being used, as well as the subject at hand: human nature, which involves free will and emotions. As such, to end with a truism: be yourself, everyone (physics) is already taken. This brings the issue of the scientific method into light. The natural scientist, it is claimed, can experiment by isolating what their hypothesis applies to so that their predictions are not upset by outside variables. An astronomist may close off the solar system as if it was an aquarium – celestial mechanics requires only mass, location, and velocity for a full description of phenomena. On the other hand, social phenomena are endlessly ramified. It is impossible to identify all variables involved in say the fluctuations of stock market prices and cut them off clearly. Furthermore, there are no two people or social contexts the same. So, repeated experimentation isn’t truly effective. An obvious counterclaim would be the principal (but also magic word) – ceteris paribus. For example, we can predict that if the price of beef increases – ceteris paribus – the quantity of beef demanded by buyers will decrease. Determinants like a change in the price of substitute goods, a change in the level of risk aversion among buyers and many more can be ignored if we’re simply studying the relationship of two variables.

Meanwhile, in physics, Galileo's laws of falling bodies seem to be the essence of simplicity, but that is because they disregard the friction and resistance of the air. If they did not do so, they would have to take into account the shape and material of the falling body and be endlessly complex. Nonetheless, no one has tested the two concepts in a truly closed experiment system. But both have still seen significant applications in the real world. Law of supply and demand it naturally makes sense, almost as a syllogism and does not need a comprehensive scientific methodology. Meanwhile, we’ve never really had a vacuum to test Galileo’s laws of falling bodies in; despite that, it still forms the foundation of laws of motion. Thus, good theories don’t always need perfect models with abundant empirical evidence. We know the limits of economics – the constants held in physics and natural sciences tend to hold true throughout the universe, while economics cannot compare its assumptions to these unchanging aspects of the physical world. In macro for example, “Events are constantly taking macro people by surprise.” So to use a metaphor from Ronald Giere; theories are like maps – the test lies not in arbitrarily checking random points but in whether people find it useful to get somewhere.

We should not be afraid of storytelling and use qualitative approaches. This is pertinent to developmental economics. If an empirical approach was taken, most economic problems would merely be technical. Yet, it’s not possible because of the many variables with the interplay of politics and power, and above all, it would be useless. Good mathematics is fruitless against the greed of rulers (which albeit imprecise, is the general cause of poverty in many countries). How does one use the scientific method to cure moral corruption, lurking in economic and political institutions, as well as exploitative colonial pasts, which create oppressive regimes and terribly inefficient economies? An example is the experience of Ghana’s Prime Minister, Kofia Busia in 1971. After coming into power in 1969, he pursued “pursued unsustainable expansionary economic policies and maintained various price controls through marketing boards and an overvalued exchange rate.” These economic policies were adopted not because there was a shortfall of better economic ideas to pursue, but because it was good politics. It enabled Busia to transfer resources to politically powerful groups, for example in urban areas who needed to be kept content. In cases like these, it is better to consult historians or politicians to identify the root causes and prevent history to happen again.

In common sense, we will find that restraints in power and independence of economic and politics would be great. We don’t always need the scientific method backed by empirical evidence to understand that if these politicians had a moral code, things would probably be better. Asking your intuition and consulting the big story makes it naturally apparent that having inclusive political institutions ensuring human rights. After all, at the heart of the economics, it is a social science. Though this seems like simple logic, the search for “scientism”, ignores how economics is socially constructed and humans are dynamic and complex. It is said “nothing in physics chooses”, particles go about their existence by mechanical causation. Yet we are not particles adhering to immutable laws; free-will and emotions enable us to make choices and behave in irrational and unpredictable ways. We cannot change the speed of light with our will, but we’ve seen Keynes’ ‘animal spirits’ (1936) defy models of prices and behavior. Both 1890s and 1930s depression in the U.S saw elements like a sudden crash in confidence, triggering bank crises, as well as persistent money illusions where people would rather accept unemployment than pay cuts. A change in context and economic ideology will change people’s behavior. That is enough to alter existing models. It is true that some things can be modeled. It can be argued that “irrational behaviors are just anomalies”, in response to exceptions to laws and models. If not, what have economists been working on for so long?

Game theory, general equilibrium theory, macroeconomic models and so many more theories have offered breakthroughs in economics and some have been awarded Nobel prizes. With all things, we should always consider the extent they can be applied. After all, we can never truly measure and predictably variables like “confidence” that is outside of physics jargon. While numbers are useful, it is critical to keep in mind their limitations and look at the interplay of emotions and politics. Our decisions permeated with ethics and values. For this reason, we shouldn’t only study people like particles. Taking this position has the power to bridge the gaps in classical theories derived from a purely mathematical approach. Some economic problems such as the tragedy of commons is not merely a question of technical analysis. It taps into the ideas of morality and what individuals want. With demerit goods, for example, one can sketch out a graph about negative externalities, say carbon dioxide pollution, and show the size of negative externalities closing after taxation. People don’t like paying taxes - that’s a fairly mechanical reasoning. However, a more sustainable solution, in the long run, is to nudge people into more effective decision making. Perhaps statistical analysis could offer evidence of a “nudge” policy’s effectiveness, it’s not the right place to find ideas for solutions. This is where behavioral economics comes in, and economists can consider the ideas of morality.

So, apart from envying physics, some economic questions could benefit from collaborating with other siblings ‘soft sciences’ like psychology to offer wholesome solutions. Let us take the position deep into the heart of economic assumptions - the rational agent. At face value, this man who relentlessly seeks to maximize profit and utility is somewhat scary. Luckily, most of us abide by moral codes and values, which simply cannot be accounted for in models or assumptions. Fairness, for example, is one of these values. Various studies and experiments indicate that “considerations of fairness can trump economic motivations”. Fehr and Gächter, for example, proved via a game “that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher.” There is no physical/natural counterpart to the idea of fairness or morality. Perhaps fairness can be taken into account in mathematical models of markets. But the humanity underpinning it worth noting - understanding the conditions these occur in would liken to the psychology of empathy than natural science, which is less capable of measuring degrees of emotion. Apart from observing data, it’s worthy to also observe how we ourselves might respond to decisions. Parallels between economics and natural sciences are present. The strive for the precision of natural sciences can be helpful, but it’s important not to forget that often economics is a social and ethical exercise. After all, Adam Smith began with social philosophy. When we face questions of what to produce or for whom to produce, we deal with people - which is often hard to be quantified.