The Economist as Scientist
Economists try to address their subject with a scientist’s objectivity. They
approach
the study of the economy in much the same way a physicist approaches the study
of matter and a biologist approaches the study of life: They devise theories, collect
data, and then analyze these data in an attempt to verify or refute their theories.
To beginners, the claim that economics is a science can seem odd. After all,
economists do not work with test tubes or telescopes. The essence of science,
however, is the scientific method—the dispassionate development and testing of
theories about how the world works. This method of inquiry is as applicable to
studying a nation’s economy as it is to studying the earth’s gravity or a species’
evolution. As Albert Einstein once put it, “The whole of science is nothing more
than the refinement of everyday thinking.”
Although Einstein’s comment is as true for social sciences such as economics as
it is for natural sciences such as physics, most people are not accustomed to look-
ing at society through a scientific lens. Let’s discuss some of the ways economists
apply the logic of science to examine how an economy works.
2-1a The Scientific Method: Observation,
Theory, and More Observation
Isaac Newton, the famous 17th-century scientist and mathematician, allegedly
became intrigued one day when he saw an apple fall from a tree. This observation
motivated Newton to develop a theory of gravity that applies not only to an apple
falling to the earth but to any two objects in the universe. Subsequent testing of
, Newton’s theory has shown that it works well in many circumstances (albeit not
in all circumstances, as Einstein would later show). Because Newton’s theory has
been so successful at explaining observation, it is still taught in undergraduate
physics courses around the world.
This interplay between theory and observation also occurs in economics. An
economist might live in a country experiencing rapidly increasing prices and be
moved by this observation to develop a theory of inflation. The theory might
assert that high inflation arises when the government prints too much money.
To test this theory, the economist could collect and analyze data on prices and
money from many different countries. If growth in the quantity of money were
completely unrelated to the rate of price increase, the economist would start to
doubt the validity of this theory of inflation. If money growth and inflation were
strongly correlated in international data, as in fact they are, the economist would
become more confident in the theory.
Although economists use theory and observation like other scientists, they
face an obstacle that makes their task especially challenging: In economics,
conducting experiments is often impractical. Physicists studying gravity can
drop many objects in their laboratories to generate data to test their theories. By
contrast, economists studying inflation are not allowed to manipulate a nation’s
monetary policy simply to generate useful data. Economists, like astronomers
and evolutionary biologists, usually have to make do with whatever data the
world happens to give them.
To find a substitute for laboratory experiments, economists pay close attention
to the natural experiments offered by history. When a war in the Middle East inter-
rupts the supply of crude oil, for instance, oil prices skyrocket around the world.
Economists try to address their subject with a scientist’s objectivity. They
approach
the study of the economy in much the same way a physicist approaches the study
of matter and a biologist approaches the study of life: They devise theories, collect
data, and then analyze these data in an attempt to verify or refute their theories.
To beginners, the claim that economics is a science can seem odd. After all,
economists do not work with test tubes or telescopes. The essence of science,
however, is the scientific method—the dispassionate development and testing of
theories about how the world works. This method of inquiry is as applicable to
studying a nation’s economy as it is to studying the earth’s gravity or a species’
evolution. As Albert Einstein once put it, “The whole of science is nothing more
than the refinement of everyday thinking.”
Although Einstein’s comment is as true for social sciences such as economics as
it is for natural sciences such as physics, most people are not accustomed to look-
ing at society through a scientific lens. Let’s discuss some of the ways economists
apply the logic of science to examine how an economy works.
2-1a The Scientific Method: Observation,
Theory, and More Observation
Isaac Newton, the famous 17th-century scientist and mathematician, allegedly
became intrigued one day when he saw an apple fall from a tree. This observation
motivated Newton to develop a theory of gravity that applies not only to an apple
falling to the earth but to any two objects in the universe. Subsequent testing of
, Newton’s theory has shown that it works well in many circumstances (albeit not
in all circumstances, as Einstein would later show). Because Newton’s theory has
been so successful at explaining observation, it is still taught in undergraduate
physics courses around the world.
This interplay between theory and observation also occurs in economics. An
economist might live in a country experiencing rapidly increasing prices and be
moved by this observation to develop a theory of inflation. The theory might
assert that high inflation arises when the government prints too much money.
To test this theory, the economist could collect and analyze data on prices and
money from many different countries. If growth in the quantity of money were
completely unrelated to the rate of price increase, the economist would start to
doubt the validity of this theory of inflation. If money growth and inflation were
strongly correlated in international data, as in fact they are, the economist would
become more confident in the theory.
Although economists use theory and observation like other scientists, they
face an obstacle that makes their task especially challenging: In economics,
conducting experiments is often impractical. Physicists studying gravity can
drop many objects in their laboratories to generate data to test their theories. By
contrast, economists studying inflation are not allowed to manipulate a nation’s
monetary policy simply to generate useful data. Economists, like astronomers
and evolutionary biologists, usually have to make do with whatever data the
world happens to give them.
To find a substitute for laboratory experiments, economists pay close attention
to the natural experiments offered by history. When a war in the Middle East inter-
rupts the supply of crude oil, for instance, oil prices skyrocket around the world.
