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Economics Is Not Rocket Science – It’s Even More Complicated

Courtesy of ZeroHedge. View original post here.

Authored by Gary Galles via The Mises Institute,

Over the years, I have heard multiple different things described as “not rocket science.” The implication was always that rocket science was just about the hardest thing to do, making virtually everything else easy by comparison. As an economics professor over many of those years, I have increasingly come to object to that characterization. I think the questions of social coordination that economics addresses may not require “rocket science,” but are in many ways much more complex and difficult, especially when it comes to imposing control.

After all, we have successfully sent rockets to many places in our planetary neighborhood, demonstrating a tolerable ability to solve enough of the relevant problems, yet economic policies remain known for causing more harm than help.

As Peter Boettke once led off a post, “Political economy ain’t rocket science. But it is a discipline that forces one to focus on ideas and the implementation of ideas in public policies.” And the more one tries to control, the more those ideas and implementation issues stack up against the possibility, much less the probability, of effectiveness.

In one important sense, rocket science is simply vector addition of the relevant forces. And the relevant relationships for generating rockets’ thrust are governed by physical laws and relationships that are stable and mathematically expressible. That is why one website deviated from rocket science orthodoxy, under the title “Rocket science is easy; rocket engineering is hard.” The problem is one of accurately measuring the needed information and controlling the relevant forces—that is, engineering things (often with millions of parts) so that they work as intended.

I am not in any sense demeaning rocket science or engineering. I have great respect for what their practitioners have accomplished. But there are some things about humanity and their interactions which comprise economic inquiry that are less easy to “solve” than the interactions of chemistry and physics, particularly when, as Thomas Sowell has often repeated, there is no solution to scarcity; only tradeoffs.

The problems of rocket science and engineering focus on achieving already agreed-upon goals. That means solving disagreements on goals is not a major limitation. However, the economic interactions among people are driven by the fact that we disagree on almost every specific goal—what, specifically, do we want, how, when, where, for whom, etc., not to mention who we think should pay. Rather than achieving agreed-upon goals, economics at heart focuses on resolving the tradeoffs between the conflicting desires of billions of people, and particularly the role of rights in doing so. And that is far different and more complicated than jointly attempting to achieve an already-agreed-to goal, which is one big reason why “If we can put a man on the moon, we can solve X social problem” thinking is misleading.

Many of the problems of rocket science and engineering involve physical constants which determine the relationships, such as the universal law of gravitation and equations that are stable and predict reliably. And as computing power and technology has advanced, rocket engineers have become far more capable at controlling flight. However, since economics deals with people, there are no such constants and dependable equations precisely describing the relationships. For example, the law of demand says that people would want to buy more at lower prices, other things equal. But it doesn’t tell us how much more. And that will change as other things assumed equal change. Further, there are essentially infinite potentially relevant “other things” in economic relationships, many of which will be unknown or unmeasurable at the time, rather than the much smaller number of variables incorporated in rocket science. And because people learn from their experiences, unlike molecules, relationships will change over time, but we don’t know exactly how much or how fast that will happen. Advancing computing power cannot overcome such problems. It remains the case that one cannot get from economics’ underlying principles to effective control of society.

The physics behind rocket science precludes causation from traveling backward in time. Effects cannot precede causes. But that is often not true in economic relationships. Effects begin to show up as soon as people begin to anticipate future events, not just subsequent to their occurrence (of course when anticipated events do occur, surprise deviations from what was expected will also alter expectations and move market relationships). For instance, last year, corporate stock prices rose before lower corporate tax rates became effective and fell whenever a trade war future became more likely, and this year, steel and aluminum prices and changed when threatened tariffs changed. It is as if causation can run backward in time, by way of changed expectations, with some effects happening before the cause. Further, we have no precise way to measure many such expectations (many of which are nowhere clearly articulated) and their changes.

In physics, what will happen in a reaction is independent of what you think would happen. The physical laws that apply do so regardless of expectations that may be inconsistent with those laws. However, in public policy, what policy makers and voters believe a policy will accomplish will change what is done, even if those beliefs are inconsistent with reality (e.g., higher minimum wages will increase earnings for all low-skill workers). Further, what we want to be true has an effect on what we convince ourselves to believe, which in turn affects the misrepresentations those seeking political control believe will “work” on us. And the implications for affected political representatives’ election prospects (missing from relationships in physics and chemistry) will also alter the policies chosen, often for the worse.

In physics, there is no concern over elements’ rights, violations of them or issues of fairness, justice or equity toward them. However, as America’s founders attested so vehemently, rights are at the core of social interactions and government, violations of which can justify revolution. And unlike the physical sciences, in which the goal of language is precision, in the social sciences, the language (and thus analysis) is often quite vague and inconsistent (e.g., current versions of “social justice” are inconsistent with the traditional meaning of “justice”), making clear communication, much less clear analysis, nearly impossible in many circumstances.

Some of these issues were well articulated by Jeff Jacoby in a 2009 Boston Globe article:

Economics isn’t rocket science or any other hard science, and it never will be. Human motivations, appetites, relationships, expectations--the raw stuff of economic life--cannot be perfectly modeled or reduced to an unvarying equation. Unlike the tides or electromagnetic waves or chlorophyll, human beings have free will. Men and women choose for themselves, and no economist or policymaker can ever know with perfect certainty what those choices will be.

What is the upshot of all this? Economics is not like the physical sciences, and reasoning and analogies based on the physical sciences are often misleading in economics. Further, they can be dangerous to society, particularly in the mouths of those who wish to subject others to their command and control. That is why Friedrich Hayek wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” In other words, economics is a science whose principles and logic tell us why we cannot know enough to control people, even if we do know enough to control rockets.

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