“Why did nobody notice it?” (Queen Elizabeth II). To some extent, everyone would like to be able to answer the question raised by Queen Elizabeth II at an academics briefing held at the London School of Economics in 2008, exactly when the Great Recession was raging on the global economy. She was questioning the ability of economists to deliver prompt and useful forecasts, and thus to inform the public debate about the threat posed by an impending recession. Admittedly, this was all but an unjustified question.
Having said that, are economists alone to blame for this? There is a set of features that render economics a science of its own kind, and that should be outlined before trying to provide a response to the point raised by the Queen.
The first idiosyncratic feature of economics as a science is the near-impossibility of making clear-cut predictions. To understand why this is the case, consider a hypothetic model that is believed by all agents to predict the value of each single variable of interest in the economy. This entails that the model will be able to predict the exact value of stocks in financial markets at any point in time. But, this also means that agents have a way to know in advance how much the stocks will be priced, and, for sure, they will want to profit from this informational advantage. The reaction of agents will render the predictions of the model completely wrong. This very stylized example hints at the first major difference between economics and the natural sciences. Extra-solar planets, for instance, won’t mock the astrophysicist who is studying them by changing their orbits precisely when he is gathering data with his telescope, or when he is designing a mathematical model to predict their orbits.
The second peculiarity of economics is the impossibility of running experiments in a fully controlled setting. Physicists, for instance, are usually able to make sharp predictions that can be verified in experimental settings, thus fully complying with the original scientific method introduced by Galileo. Economists, on the contrary, are seldom able to do so, partial exceptions being, among few others, behavioral and development economics. The reasons for this are both practical and ethical. How can one design an experiment to study the effects of an expansionary monetary policy?
The third major weakness of economics stems from its natural proximity to politics and business, which, in turn, interacts with the two already outlined limitations. In this respect, there might be bad incentives that lead to a biased development and diffusion of ideas, models, and analyses. The point is rather clear: fame and success can be achieved more easily if one is willing to comply with the requests of politicians and businesses asking for an ideological background. For sure, this issue affects other fields to some extent, but hardly in the way it affects economics: indeed, the payoffs in economics are generally higher, and the probability of being caught is lower, given the difficulty of unequivocally disproving a theory.
These critiques are meant as a way to cast doubt on the optimistic view that holds that research in economics and in other social sciences can be as rigorous as that of natural sciences. At the same time, though, they should not lead the reader to the hasty conclusion that economics is not a science. In fact, the methodologies employed in this field are, mutatis mutandis, akin to those followed by other sciences. Therefore, a good answer to the Queen’s question might sound like this: “Because the economy is very hard to analyze, and the current knowledge is probably insufficient to provide clear-cut answers: we have to study more”.