Defending Economics as a Science

This entry was a long time in the coming. After countless arguments with many physics, maths and chemistry guys on why economics is a science, I should really put it down together.

The main grouse people have against economics is that there are too many assumptions. "If everything but prices are kept constant, and prices are dependent on quantity, then how does quantity demanded change" is what Aashik asked. Yes, a brilliant question that had me perplexed for some time. To be honest, I myself had this grouse against economics, but it all got sorted out once I heard Ritwika speak at the VC Memorial debate. Economics is an abstraction away from reality that will help explain reality.

For example, just today morning while I was thinking about the motion of a pendulum. In a real world, there is the wind speed, the the friction and so many things. However, what we learn in classes is a simplified version where there are no externalities at play. Why do we do that? So that we can have a basic framework over which we can then go on to add the other externalities.

Exactly what economics does. We take a phenomenon, we strip it down to the basics, analyse the basics, and then try to put back everything. For example, did you know that over 95% of the food grain production in India can be explained by a Cobb-Douglas function using barely five or six variables, which does not include the monsoons? That is amazing accuracy for something as unpredictable as agricultural output. The result? That agricultural output depends significantly on availability of credit and net sown area. Both are stagnating in India, hence alarm bells need to go off and hence we really need to work on this. Hence, for our future to be secure, we need simplifications and models such as these.

The second argument leveled against economics as a subject is 'how can you rationalise human behaviour?'. Well, the idea is the same as above. You take something complicated (such as the human mind), you strip it down, then understand it, and then build in the different layers. Intuitively beautiful ideas such as the multiplier effect are such beautiful examples of this 'rationalisation' process at work. True, the size of the multiplier in the real world is much smaller than what it is in theory, but there are economic arguments for that too.

Yes, to the detractors one must give one argument - economics is not a science in the same mold as physics and chemistry (I do not include mathematics, because mathematics is the language of science, rather than a science itself). Honestly, that is not what economics aspires to be, either. To think of it, I'm sure it's easier to discover secrets than to, proverbially, rationalise the human mind. Economics sits on a very exalted position of being a bridge between the arts and the sciences. We put together psychology and differential equations, history and optimisation in a beautiful manner.