Science and Complexity: The Convergence of Climate and Economics

I continue to be fascinated by the similarity between climate science and macro-economics.  Both study unbelievably complex multi-variable systems where we would really like to isolate the effect of one variable.  Because we only have one each of climates and economies  (we can define smaller subsets, but they are always going to be subject to boundary effects from the larger system) it is really hard to define good controlled experiments to isolate single variables.  And all of this is done in a highly charged political environment where certain groups are predisposed to believe their variable is the key element.

In this post by Russ Roberts, one could easily substitute "climate" for "economy" and "temperature" for "unemployment."

Suppose the economy does well this year–growth is robust and unemployment falls. What is the reason for the improvement? Will it be because of the natural rebound of an economy after a downturn that has lasted longer than people thought? The impact of the stimulus finally kicking in? The psychological or real impact of extending the Bush tax cuts? The psychological or real impact of the November election results? The steady hand of Obama at the tiller? All of the above? Can any model of the economy pass the test and answer these questions?

The reason macroeconomics is not a science and not even scientific is that the question I pose above is not answerable. If the economy improves, there will be much talk about the reason. Data and evidence will be trotted out in support of the speaker’s viewpoint. But that is not science. We don’t have a way of distinguishing between those different theories or of giving them weights to measure their independent contribution.

I’m with Arnold Kling. This is a time for humility. It should be at the heart of our discipline. The people who yell the loudest and with the most certainty are the least trustworthy. And the reason for that goes back to Hayek. We can’t measure many of the things we would have to measure to have any reasonable amount of certainty about the chains of connection and causation.

I have heard it said that the only way nowadays to advance pure science is to be working on arcana like the first microsecond of the universe or behavior of the 9th dimension in string theory.   There is still room for a ton of useful work on the analysis, solution, and forecasting of complex multi-variable systems, even if it is just a Goedel-like proof of where the boundaries of our potential understanding can be drawn.

By the way, I wrote my own piece about the limits of macroeconomics here.

  • rxc

    I think a lot of real science still gets done, but it gets done in industry, has value to the companies that sponsor it, and does not get reported by press release or peer reviewed paper, because the companies want to keep the info to themselves. Occasionally, stuff gets out, but if the research is about particular chemical reactions that give a commercial edge, or a new material with valuable properties, that stays in-house as long as possible. I think similar work gets done in universities where the research is sponsored by private industry. Govt sponsored research is usually either classified(for good reason), or useless. The useless stuff gets published.

  • epobirs

    You can see a lot of the real science being done in corporate and academic settings by keeping an eye on publications such as EE Times. They report on the developments that will result in new products a few years down the road.

    The economists I've found the most compelling are those who avoid detailed claims and only commit to seeing useful patterns here and there.

  • Captain Obviousness

    A third area of pseudo-science that is strikingly similar to economics and climatology is nutrition. Unlike the first two, it is actually possible to devise experiments to study human nutrition. However, the reality is you can't lock people up in labs for a year and force them to eat very specific controlled diets, so diet and nutrition remains a very hand-wavey area of science (closer to epidemiology than a hard science). Also similar to economics and climatology, you have the government weighing in with official policy (i.e. the food pyramid, fat=bad grains=good, etc.) that, due to federal research grants, determines the direction of research. The government-approved healthy diet is basically the agriculture lobby-approved healthy diet: eat lots of wheat and corn but not animal fats. McGovern's congressional committee that officially established the government-approved high carb/low fat diet as "healthy" in the early 70's is laughably similar to the IPCC. This quote from McGovern, in response to someone pointing out that there is no evidence that eating animal fat is unhealthy, could easily come from the climate change or Keynesian economics debates:

    "I would only argue that senators don’t have the luxury that a research scientist has, of waiting until every last shred of evidence is in."

  • rxc

    Upon reflection, I think I have been too harsh on govt researchers. There are some parts of the govt that produce useful research results that are made available to the public. Two that come to mind are the basic health research at places like NIH and some of the basic physics that comes out of the national labs. I seem to recall that the drug companies benefit quite a bit from the NIH work, although they do their own research, as well.

    On the other hand, I still think that most of the economics research and just about all of the sociological "research" done by the govt is junk. Oh, and most of the environmental "research", as well.

  • John Moore

    There is still plenty of pure science being done in academia, although the Global Warming, err Climate Change, err Climate Chaos fad has invaded every field.

    I too have often compared climatology and economics. In fact, it makes a pretty good argument against a lot of AGW-based policy - one can well argue that even if you think you understand the science, you still don't understand the economics.

    Unfortunately the arrogant all-knowing overseers think they can predict both accurately.