Is Macroeconomics Like Physics?

If you recall from the second episode, Mr. Clifford fires a shot at other academic subjects, saying Economics is the greatest of all time. Adriene chimes in with “Take that, Physics!”

As I was perusing the comment section, I expected to see some rebuttal from a physics student, and I was not let down:

Mr. Ehle here takes some swings back at the field of economics here, and there’s a lot of truth to what he’s saying. However, I think his major frustration comes from when he hears people treat economics as a natural science, instead of a social science.

A natural science (like Physics) uses empirical evidence and the scientific method to prove things. The repeatability of empirical tests is necessary for a conclusion to be deemed valid (for example, water will always freeze at 0ºC, no matter how many times you repeat it).

Unfortunately, the economy deals with so many actors making billions of independent decisions every day, so it would be impossible to create even two identical economic situations to confirm a theory. Economics does not have the advantages of physics where you can create a sterile laboratory environment to prove a hypothesis. Trust me, all economists wish this were the case.

Instead, economics is a social science, the study of humans interacting. Like sociology or political science, there is not a provable “right answer” that scientists can find from researching in a lab; there are only arguments based on theories that will predict what will happen.

However, some social scientists use positivist methods (using data and attempting the scientific method) to try to prove the correct theory. When you hear people say “The Great Depression proved…” or “The 2008 Financial Crisis proved…”, they are using real examples to suggest that scientifically, a particular economic theory is true.

The problem is that almost every economic school of thought can look at a global event and use it to suggest that their theory is true. Let’s take the 2008 financial crisis for example:

Keynesians: The financial crisis proves that the Federal Reserve was setting interest rates too high, since this caused the crash.

Austrians: The financial crisis proves that the Federal Reserve setting rates at all hurts the economy, since this caused the crash.

Marxists: The financial crisis proves that private ownership of the means of production hurts the economy, since this caused the crash.

Everyone can declare themselves the winner, but in the end it doesn’t prove anything.

Mr. Ehle is a hard scientist. He wants data and falsifiable hypotheses and the scientific method to back up claims. He wants to learn the facts about Macroeconomics. Unfortunately, Economics does not work like Physics because it is an entirely different field.

Besides, there is not an actual “greatest subject of all time.” That’s like asking for “the greatest ice cream flavor of all time.”

What is this course all about?

I heard a great quote recently that I should have paid better attention to:

“Of all your greatest heroes, none of them would read the comment section.”

But I did anyway, just to see what Crash Course fans would say about the introduction to the upcoming series. In fact, one of the top comments reflected my sentiment in my first post:

This seems like a reasonable request. Richie is asking for polycentric approach to economics instead of defaulting to neo-liberal economics. Someone took umbrage to his comment and wrote below:

comment1

To this person, the purpose of this course is to teach “high school AP economics.” In fact, this person seems frustrated that anyone would teach anything other than this.

First, nowhere on the intro video was there mention of this course’s educational intent. As far as we know, the mission statement is “to teach economics.” The series’ creator has complete creative control over the series, and I’m not familiar with any duty that Crash Course has to prepare students for their AP exams.

But poopisnotpoop’s comment begs the question. In other words, since economics is a polarizing topic for some and “truth” is not as clear as in mathematics or physics, how do you approach telling people how economics works? Do you talk about where economic ideas come from, how popular they are, and how they’ve been tested?

Most economists are familiar with the different schools of thought, but I doubt that any of them were introduced to the subject by understanding that there is not one accepted or “true” school. Different schools have different arguments and explanations for their theories, and certain schools and theories are more popular than others.

This is not how high school economics is taught, which is why most people have faith that there is one understanding of how things work, and that the government, who has the greatest control over the levers of the economy, is making the best decisions, given what we know about the “truths” of economics.

Crash Course Economics – Episode #1 in Review

Episode 1 of Crash Course gave a brief introduction to how the course is designed, who your co-hosts are, and some basic principles and definitions in economics. There was a mix of good and bad economic conclusions, so let’s dive right in:

How Does Crash Course Define Economics?

Our first co-host, Mr. Clifford, defines economics as “the study of people and choices”. This is a pretty great definition, especially considering the alternatives. Depending on his preferred school of economic thought, he could have easily said economics is the study of “classes and prosperity,” “institutions and planning,” or “statistics and predictions”. Instead, Mr. Clifford went with people and choices which will become important later on when the show gives examples of choices.

The Good

The first example of what a human choice looks like couldn’t be more relatable to the audience: watching a YouTube video. YouTubers compete for your attention, and by proxy, ad revenue. YouTube content is a serious business as our hosts know, and the popularity of some channels over others will determine the actual wealth of the content creators.

Our second co-host, Adriene, even goes into defining opportunity cost: “the cost of watching this video is the video you’re not watching.”

I would have been satisfied with this explanation, but Adriene goes so far as to give a great example of opportunity cost in having a large military state:

Military spending in the United States is over $600 billion per year. That’s close to what the next top 10 countries spend combined…the opportunity cost of [each] aircraft carrier could be hospitals, schools, and roads.

This statement is pretty profound in one sense, considering that some people and economists continue to write that any kind of government spending is good for the economy regardless of what it is, even if it’s for a fake alien invasion.

What is not mentioned, however, is that the opportunity cost of these aircraft carriers could also be non-government spending in the marketplace. In other words, if the money spent on aircraft carriers were refunded to taxpayers (or never taken in the first place), people could decide for themselves what they would prefer to spend that money on. It could be towards their healthcare bills, their kids’ college tuition, or buying consumer goods, any of which might be more important to them than another aircraft carrier.

This is a good example of Bastiat’s broken window argument or “the unseen”, which says that it’s easier to see the stuff paid for (in this case, the aircraft carrier) than that which could have paid for.

The Bad

The YouTube video selection example was a great illustration of the marketplace, but I thought next examples were a little strange.

“But what if I’m watching this at school,” you ask. “What if I’m forced to watch this?” Well, you weren’t forced to go to school. You could ditch, you could drop out, you could move to a country that doesn’t have compulsory education.

Wait, isn’t that a contradiction? Doesn’t something legally compulsory require coercion or force? Parents have a legal obligation to send their kids to school, under the threat of significant fines or jail time, sometimes for the student. It doesn’t matter if school gives you anxiety or you’re being bullied, you still have to go. And you obviously can’t just move to another country; runaways are sent back to their legal guardians.

This is quite different from choosing which YouTube video to watch. You don’t get fined or jailed for not watching a YouTube video. To a child, compulsory education is not the marketplace.

Another problem I had with the videos was a lack of distinction of individual and government action:

Is there a way to ensure there will never be another traffic fatality? Yes, we can crush all the cars, close the roads, and force everyone to walk. Do you want to decrease the number of people convicted of murder? You could decriminalize murder. You want to end the unethical treatment of elephants? You can kill off the elephants, in an ethical way of course.

Are these questions directed at me? I can’t do any of these things.

I can choose one YouTube video over another, but I cannot choose an alternative road system, legal system, or what other people do with their elephants.

You know driving has risks, that you might get in a car accident, but you still drive.

Adriene has now switched the subject to what I personally decide to take as my transportation method. The power to choose whether to drive is different from deciding to crush all the cars and force everyone else to walk. I have control over myself and my actions, but I don’t get to decide how other people act.

Assessment

I was pleased and entertained by the introductory episode of Crash Course Economics. The big economic principles it taught are generally unobjectionable, but some of the word selection and examples are either confusing or misleading. The 10-minute video has a lot more to unpack, and I’ll try to expound on some of the interesting choices of words and implications before the next video comes out. I’ll also include some thoughts from other economists I’ve asked to contribute to the blog.

Like what I wrote? Hate what I wrote? Feel free to comment below.