Yes Economics Is A Science

 
Yes, Economics Is a Science
By Raj Chetty, Professor of Economics at Harvard 
CAMBRIDGE, Mass. — THERE’S an old lament about my profession: if you ask

three economists a question, you’ll get three different answers.
This saying came to mind last week, when the Nobel Memorial Prize in Economic
Science was awarded to three economists, two of whom, Robert J. Shiller of Yale and
Eugene F. Fama of the University of Chicago, might be seen as having conflicting
views about the workings of financial markets. At first blush, Mr. Shiller’s thinking
about the role of “irrational exuberance” in stock markets and housing markets
appears to contradict Mr. Fama’s work showing that such markets efficiently
incorporate news into prices.
What kind of science, people wondered, bestows its most distinguished honor on
scholars with opposing ideas? “They should make these politically balanced awards
in physics, chemistry and medicine, too,” the Duke sociologist Kieran Healy wrote
sardonically on Twitter.
But the headline-grabbing differences between the findings of these Nobel laureates
are less significant than the profound agreement in their scientific approach to
economic questions, which is characterized by formulating and testing precise
hypotheses. I’m troubled by the sense among skeptics that disagreements about the
answers to certain questions suggest that economics is a confused discipline, a fake
science whose findings cannot be a useful basis for making policy decisions.
That view is unfair and uninformed. It makes demands on economics that are not
made of other empirical disciplines, like medicine, and it ignores an emerging body
of work, building on the scientific approach of last week’s winners, that is
transforming economics into a field firmly grounded in fact.
It is true that the answers to many “big picture” macroeconomic questions — like the
causes of recessions or the determinants of growth — remain elusive. But in this
respect, the challenges faced by economists are no different from those encountered
in medicine and public health. Health researchers have worked for more than a
century to understand the “big picture” questions of how diet and lifestyle affect
health and aging, yet they still do not have a full scientific understanding of these
connections. Some studies tell us to consume more coffee, wine and chocolate; others
recommend the opposite. But few people would argue that medicine should not be
approached as a science or that doctors should not make decisions based on the best
available evidence.
As is the case with epidemiologists, the fundamental challenge faced by economists
— and a root cause of many disagreements in the field — is our limited ability to run
experiments. If we could randomize policy decisions and then observe what happens
to the economy and people’s lives, we would be able to get a precise understanding of
how the economy works and how to improve policy. But the practical and ethical
costs of such experiments preclude this sort of approach. (Surely we don’t want to
create more financial crises just to understand how they work.)
Nonetheless, economists have recently begun to overcome these challenges by
developing tools that approximate scientific experiments to obtain compelling
answers to specific policy questions. In previous decades the most prominent
economists were typically theorists like Paul Krugman and Janet L. Yellen, whose
models continue to guide economic thinking. Today, the most prominent economists
are often empiricists like David Card of the University of California, Berkeley, and
Esther Duflo of the Massachusetts Institute of Technology, who focus on testing old
theories and formulating new ones that fit the evidence.
This kind of empirical work in economics might be compared to the “micro”
advances in medicine (like research on therapies for heart disease) that have
contributed enormously to increasing longevity and quality of life, even as the
“macro” questions of the determinants of health remain contested.
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.
Even when such experiments are unfeasible, there are ways to use “big data” to help
answer policy questions. In a study that I conducted with two colleagues, we
analyzed the impacts of high-quality elementary school teachers on their students’
outcomes as adults. You might think that it would be nearly impossible to isolate the
causal effect of a third-grade teacher while accounting for all the other factors that
affect a child’s life outcomes. Yet we were able to develop methods to identify the
causal effect of teachers by comparing students in consecutive cohorts within a
school. Suppose, for example, that an excellent teacher taught third grade in a given
school in 1995 but then went on maternity leave in 1996. Since the teacher’s
maternity leave is essentially a random event, by comparing the outcomes of students
who happened to reach third grade in 1995 versus 1996, we are able to isolate the
causal effect of teacher quality on students’ outcomes.
Using a data set with anonymous records on 2.5 million students, we found that high-
quality teachers significantly improved their students’ performance on standardized
tests and, more important, increased their earnings and college attendance rates, and
reduced their risk of teenage pregnancy. These findings — which have since been
replicated in other school districts — provide policy makers with guidance on how to
measure and improve teacher quality.
These examples are not anomalous. And as the availability of data increases,
economics will continue to become a more empirical, scientific field. In the
meantime, it is simplistic and irresponsible to use disagreements among economists
on a handful of difficult questions as an excuse to ignore the field’s many topics of
consensus and its ability to inform policy decisions on the basis of evidence instead
of ideology.

Yes Economics Is A Science

Uploaded by

Copyright:

Available Formats

Yes Economics Is A Science

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Yes Economics Is A Science

Uploaded by

Copyright:

Available Formats

Yes, Economics Is a Science

By Raj Chetty, Professor of Economics at Harvard

CAMBRIDGE, Mass. — THERE’S an old lament about my profession: if you ask

Consider the politically charged question of whether extending unemployment

You might also like