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The science of economics

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Friday, June 7, 2013, 8:57 p.m.
 

Science has earned much respect in modern society. Scientific pursuits require maturity, open-mindedness, intelligence and hard work. And scientific findings hold regardless of the nationality, sex, religious beliefs and the political affiliation of those who uncover them.

Just glance into your kitchen. The microwave and refrigerator — and the electricity-distribution system that powers these appliances — would be impossible without modern science. Ditto for so many other features of our daily lives.

Yet we must be careful to keep science in perspective. A careless understanding of science promotes a very unscientific attitude.

Science, as we think of it today, covers only a partial range. The full range of science includes not only physics, chemistry, medicine and the other hard sciences but any and all searches for understanding that are systematic, unbiased and rooted in human curiosity that prizes reason and evidence above dogma and authority.

Economics, for example, is no science like physics, but it is indeed a science. Its practitioners seek with open minds and unobstructed intellectual give-and-take to better understand the operation of systems of human exchange — including, of course, the operation of commercial markets.

One of the scientific findings of economics — a finding as firm as any conclusion of the hard sciences — is that the mix of what should be produced and made available for consumption cannot possibly be determined by science. That determination, if it's to be remotely correct, can be made only by market competition in which everyone spends his or her own money.

The number and quality of sofas, MP3 players, automobiles, pairs of jeans, toasters, bulldozers — you name it — that is “correct” for the economy to produce is discovered only in an ongoing and unplanned market process. Suppliers spend their own resources in efforts to earn profits by producing goods and services that consumers willingly buy. Many of these efforts are competitive (for example, Amazon.com competing with Sears to sell retail goods) and many are cooperative (for example, Amazon.com using FedEx to deliver retail goods to consumers).

No genius or committee of scientists plans market outcomes. Importantly, no such genius or committee could possibly match, much less outperform, the unplanned competitive market at determining what should be produced.

To see why, ask yourself how many pairs of dress shoes are “right” for you to buy over the next two years. You might have in mind some rough number now, but you know that your precise answer depends on too many factors to account for today: Will your fashion sense change? Will you get a new job that requires you to dress up more (or less) than in your current job? Will you meet a new girlfriend or boyfriend who wants you to dress up more (or less) frequently than you do now? And importantly, what if the price of dress shoes skyrockets — or falls through the floor?

There is no scientifically correct answer to the question.

Making the matter even less scientific is the fact that each of us has different tastes in dress shoes. Whatever number of dress shoes you choose to buy over the next couple of years will be right for you but probably not right for me — and certainly not right for each of the other 310 million Americans.

If the above sounds obvious, it has surprising implications — as I'll show in my next column.

Donald J. Boudreaux is a professor of economics at George Mason University in Fairfax, Va. His column appears twice monthly.

 

 
 


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