Maybe Economics Is A Science, But Many Economists Are Not Scientists

by Paul Krugman

Raj Chetty stands up valiantly for the honor of his and my profession, arguing that economics is too a science in which careful research is used to falsify some hypotheses and lend credibility to others. And in many ways I agree: there is a lot of good research in economics, maybe more than ever as the focus has shifted somewhat from theoretical models loosely inspired by observation — which, as he suggests, was my forte — to nitty-gritty empirical work.

But while there are clearly scientific elements in economics, a lot of economists aren’t behaving like scientists. Look at Chetty’s examples of scientific work that informs current policy debates:

Consider the politically charged question of whether extending unemployment benefits increases unemployment rates by reducing workers’ incentives to return to work. Nearly a dozen economic studies have analyzed this question by comparing unemployment rates in states that have extended unemployment benefits with those in states that do not. These studies approximate medical experiments in which some groups receive a treatment — in this case, extended unemployment benefits — while “control” groups don’t.

These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates.

Other economic studies have taken advantage of the constraints inherent in a particular policy to obtain scientific evidence. An excellent recent example concerned health insurance in Oregon. In 2008, the state of Oregon decided to expand its state health insurance program to cover additional low-income individuals, but it had funding to cover only a small fraction of the eligible families. In collaboration with economics researchers, the state designed a lottery procedure by which individuals who received the insurance could be compared with those who did not, creating in effect a first-rate randomized experiment.

The study found that getting insurance coverage increased the use of health care, reduced financial strain and improved well-being — results that now provide invaluable guidance in understanding what we should expect from the Affordable Care Act.

OK, he’s right that these two examples show how evidence could be used to inform policy debate (although understanding the effects of unemployment insurance, I would argue, requires embedding it in a macro story about how the number of jobs is determined.) But are such results actually being used to inform policy debate? Have conservative economists like Casey Mulligan said “OK, we were wrong to argue that extended unemployment benefits are the cause of high unemployment”? Have economists who oppose Obamacare said, “OK, we were wrong to say that Medicaid hurts its recipients?”

You know the answer.

And it’s not just policy debates. Whole subfields of economics, notably but not only business-cycle macro, have spent decades chasing their own tails because too many economists refuse to accept empirical evidence that rejects their approach.

The point is that while Chetty is right that economics can be and sometimes is a scientific field in the sense that theories are testable and there are researchers doing the testing, all too many economists treat their field as a form of theology instead.

The New York Times