Saturday, August 4, 2018

Deep Thinking Physicists Smash the Shallowness of Positive Economics

It is commonplace amongst mainstream economists to empirically test their theories, or in deeper econometrics to even "discover" economic laws via empirical correlations.

Economists of the Austrian school have rejected these empirical methods as defective for the study of the sciences of human action. They view such empirical activity in economics, and other social sciences, as a kind of physics envy.

The Austrian school Nobel prize winner Freidrich Hayek discussed this physics envy most directly in his book, Counter-Revolution of Science.

Ludwig von Mises discussed the alternative parxeological approach (the study of human action via the deductive approach from basic premises), in several writings including, The Ultimate Foundation of Economic Science: An Essay on Method and Epistemological Problems of Economics.

 Murray Rothbard outlined the positivist (empirical) model of scientific method this way:
At the risk of oversimplification, the positivist model of the scientific method may be
summarized as follows:
Step 1. The scientist observes empirical regularities, or “laws,” between variables.
Step 2. Hypothetical explanatory generalizations are constructed, from which the
empirically observed laws can be deduced and thus “explained.” 
Step 3. Since competing hypotheses can be framed, each explaining the body of empirical laws, such “coherence” or consistent explanation is not enough; to validate thehypotheses, other deductions must be made from them, which must be “testable” byempirical observation.
Step 4. From the construction and testing of hypotheses, a wider and wider body of
generalizations is developed; these can be discarded if empirical tests invalidate them, or
be replaced by new explanations covering a still wider range of phenomen.  
He also noted quite accurately:
 As one distinguished economist lamented, “Economics nowadays often seems like a third-rate sub-branch of mathematics,” and one, he added, that the mathematician himself does not esteem very highly. 
Thanks to a new book, Lost in Math: How Beauty Leads Physics Astray by Sabine Hossenfelder, one has to wonder if the economic positivists are only mimicking a very shallow physics methodology when going the empirical route. That the deeper thinking physicists have gone in a more praxeological direction.

Hossenfelder points out that
Albert Einstein, who really needs no introduction, worked himself into a state in which he believed that thought alone can reveal the laws of nature: "I am convinced that we can discover by means of purely mathematical constructions the concepts and the laws connecting them with each other, which furnish the key to the understanding of natural phenomena. ... In a certain sense, therefore, I hold it true that pure thought can grasp reality, as the ancients dreamed." 
And this from Hossenfelder (my bold):

String theory has to date no experimental evidence speaking for it...
Richard Dawid, in his book used string theory as an example før the use of non-empirical theory assessment. By this he means that to select a good theory, its ability to describe observation isn't the only criterion. He claims that certain criteria that are not based on observations are also philosophically sound, and he concludes that the scientific method must be amended so that hypotheses can be evaluated on purely theoretical grounds.