A long time ago I read a thoughtful critique on orthodox economics, and while I can’t do justice to the argument presented by the author (I can’t even remember who the author is!), what stuck with me was a line that criticised the tendency of policy makers (encouraged by economic advisers) to assume that certain economic phenomena were akin to physical laws in their inevitability, ubiquity, or predictability. As the years went past, I discovered that this is a common strand in arguments about economics, and while I feel it is often over-stated, there is plenty of truth in the general gist. Even the most sophisticated of economic models have to simplify many processes. This is inescapable, since to model something completely accurately would involve replicating it in full, which would be redundant and tell you nothing.
Economics is at the intersection of natural sciences and philosophy. If you spot a trend in some economic variable, because the subject matter is human interaction, there are innumerable unseen (and possibly unexaminable) factors driving it. You can make plausible ex post stories about events, but the nature of the problem means there can be several mutually contradictory stories, and each implies a different progression into the future. Economics is also not amenable to reductionism, unlike physics, because at every step one is faced with chicken-and-egg problems, circular and cumulative causation, positive and negative feedback loops of indeterminate force and scope. Then there’s the reliance on proxies, and proxies of proxies, that is made necessary by our inability to gather the requisite data (which is mostly inside people’s heads, and not even accessible in a neutral scientific manner by those people themselves).
At first glance, it doesn’t appear possible for economics to converge on the ‘right’ answer/explanation in the same way as the natural sciences seek to do.
And yet, we do see trends. We do see recurring patterns. There is a form of order, some givens. To borrow from physics terminology, there are boundary conditions.
Frustrated by the subjective nature of many socio-economic epistemology arguments, I have been slowly trying to informally assemble a list of these economic boundary conditions that all could agree on as indisputable. At least then we could have a common base that could anchor these discussions. The list isn’t long, and is very much a work in progress, so I welcome any constructive criticism, and particularly suggestions for additions or deletions.
Nothing is infinite. There is only so much to go around. (This is conceptually related, economically speaking, to the observation that human wants are effectively without end, which I believe there is good evidence for, but don’t think it is iron-clad enough to belong on this list.)
There Ain’t No Such Thing As A Free Lunch. At the most basic level, any action consumes energy (well, it’s actually a conversion of energy that increases entropy, ie less usable energy, but for our purposes this will suffice) and time. Nothing is gained without the use of resources, no matter how hidden from view that usage is.
Quantum physics aside, it is impossible to do two things at once. Therefore there is always an opportunity cost to any action, at the very least in terms of energy and time.
Everyone has a different comparative advantage in production, because everyone has different skills and different levels of skill, and therefore different opportunity costs. Even for two or more people who are precisely identical in every single way, they still have to occupy different points in space, and so will have a different comparative advantage in producing goods and services (which after all have to go somewhere else to become commodities).
I think more entries belong on this list, but I am still pondering them. Candidates include the non-perfectibility of human systems, the limitations on information gathering and processing, stuff like that. There are many concepts that approximate the kind of certainty I’m aiming for, such as diminishing marginal utility, but I want to be strict about only accepting ones that no-one can disagree with under any circumstances. I’m wary of including things claimed as immutable ‘human nature’ – even though I believe there are strong currents in human behaviour that are linked to our genes – because there is too much variation to account for. I will still argue for public policy to take these currents into account, because we should structure society around the majority.
My purpose here is to establish certain Laws of Economics as on par with (and connected to) physical laws like the Laws of Thermodynamics. Luckily, despite the caricature of economics as “the dismal science”, these economic laws can generate a happier ending than those of thermodynamics, which are encapsulated in the observations 1) You can’t win 2) You can’t break even 3) You can’t even get out of the game.
Some comments have led me to reflect on the article that galvanised me to put my amorphous thoughts on the subject down in black and white, The Expanding Domain of Economics by Jack Hirshleifer. This quote in particular is, I believe, most apt:
[I]t is ultimately impossible to carve off a distinct territory for economics, bordering upon but separated from other social disciplines. Economics interpenetrates them all, and is reciprocally penetrated by them. There is only one social science. What gives economics its imperialist invasive power is that our analytical categories – scarcity cost, preferences, opportunities, etc. – are truly universal in applicability. Even more important is our structured organization of these concepts into the distinct yet intertwined processes of optimization on the individual decision level and equilibrium on the social level of analysis. Thus economics really does constitute the universal grammar of social science. But there is a flip side to this. While scientific work in anthropology and sociology and political science and the like will become increasingly indistinguishable from economics, economists will reciprocally have to become aware of how constraining has been their tunnel vision about the nature of man and social interactions. Ultimately, good economics will also have to be good anthropology and sociology and political science and psychology.