Economics: Applied Logic to Empiricism

Economics: Applied Logic to Empiricism
by Mark Anderson, Columnist

April 22, 2003

"Dollars and Sense"

One of the worst things that ever happened to the organized economics profession is that it adopted empiricism as its foundation, as though economics is a natural science. Economics is not a natural science, nor should it be treated as such.

Using both empiricism and historicism for the same science is also something that deserves criticism. Historicism tells us that historical and economic events are a sequence of subjectively understood and unobservable events. How, then, can you use empricism, which demands observations and measurements, to explain historical events? Are the two not mutually exclusive?

Empiricism in economics uses statistics, numbers, and equations, to evaluate fictitiously constructed models. But, is empiricism compatible with economics, which is an applied logic? Let us consider, for a moment, an economic law - i.e., that excessive wages cause unemployment.

Now, it shouldn't be very hard for the average American to figure out that if something is too costly for them, then they cannot use it, or that you don't increase your chances of selling your labor by demanding a higher price for it. But, using econometrics within the framework of empiricism tells us nothing about relationships between variables, causality, and correlation. For example, we can look at unemployment statistics until we are blue in the face, but does this tell us anything about why they are what they are?

For sake of illustration, let us pretend that unemployment is lower, while government spending is higher, than a previous period where unemployment was higher, while government spending was lower. Now, just looking at the numbers does not tell us one thing about causality and correlation. If anybody dares to look at the numbers and suggest that, since unemployment was lower while government spending was higher, then government spending must mitigate unemployment, they would be using an argument that has a presumption of correlation in order to prove a correlation.

The task is to determine correlation between two different statistics, and in order to do that, you can't just say, "See the statistics?" We know what the data is, but the data itself does not prove correlation and is meaningless without an a priori theory.

Looking at what does exist, tells us nothing about what doesn't exist. The real question is whether or not unemployment is higher or lower than it otherwise would be at the same exact time with or without a certain factor. This is why economics is an applied logic, using argumentative rigor to explain how one actor's actions affect another actor's actions.

Under the cloak of empiricism, the organized economics profession has pretended to be "scientifically neutral," by "avoiding" a priori theory. There is nothing wrong with a priori theory, especially in the field of economics. And even they must use a priori theory when determining how they will create their statistics, and then how they interpret them. Take the unemployment rate, for example. Do we count those living on social security transfer payments as unemployed? What about government employees? Aren't government employees misemployed? What about people living on disability payments? In other words, you need a theory about what constitutes employment.

You must be using an a priori theory in order to determine how you are going to use empiricism to begin with. By avoiding, and shifting away from, a free debate, by using argumentative rigor to explain economic laws, the econometricians have set themselves up in a position where nothing they say can be disproven, nor proven, due to the very flaws of their own methodology, since statistics can be interpreted any which way you please. It is no surprise that economics has descended into the black hole of empricism with the simultaneous growth of the state. After all, government does nothing to alter external realities, does it?

Please sign my petition at: http://www.PetitionOnline.com/libeco03/petition.html ***

Click Here for Mark's Archives

Photo of the author courtesy of staff files