Economics Is the Dominant Social Science Because of Its Methodology

Lazear (2000) claims that economics is the dominant branch of social science and that its influence has expanded in recent decades.

By almost any market test, economics is the premier social science. The field attracts the most students, enjoys the attention of policy-makers and journalists, and gains notice, both positive and negative, from other scientists. …. At least during the last four decades, economics has expanded its scope of inquiry as well as its sphere of influence. (pg. 99)

He argues that the influence of economics is due to the methodology (orthodox) economics employs. [1]

In particular, he suggests that a major reason for the dominance of economics is its (mostly mathematical) rigor. [2]

[T]he ascension of economics results from the fact that our discipline has a rigorous language that allows complicated concepts to be written in relatively simple, abstract terms. The language permits economists to strip away complexity. Complexity may add to the richness of description, but it also prevents the analyst from seeing what is essential. (pg. 99 – 100)

Rigor need not take the form of mathematics, but much of economic rigor relies on its mathematical precision. (footnote 2, page 100)

The power of economics lies in its rigor. Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing the theory, and revising the theory based on the evidence. Economics succeeds where other social sciences fail because economists are willing to abstract. The old joke about a stranded, starving economist assuming a can opener to open a can of food pokes fun at our willingness to assume away what we believe to be unimportant or difficult details. (pg. 102 – 103)

Additionally, Lazear suggests that the tools and methodology of economics are broadly applicable and that this has further contributed to the dominance of economics.

The economic toolbox can be used to address a large variety of problems drawn from a wide range of topics. (pg. 99)

Three Distinguishing Points of Emphasis in Economics

Lazear argues economists emphasize three themes which other social sciences do not: an assumption of maximizing rational agents, the concept of equilibrium, and an emphasis on “efficiency”.

Our rigorous language can be used in many ways, but over the years, three themes have become fundamental in economics. First, economists assume that individuals engage in maximizing rational behavior. Second, economics adheres strictly to the importance of equilibrium as part of any theory. Third, economists place a heavy emphasis on a clearly defined concept of efficiency. (pg. 100)

And from the abstract:

[E]conomics stresses three factors that distinguish it from other social sciences. Economists use the construct of rational individuals who engage in maximizing behavior. Economic models adhere strictly to the importance of equilibrium as part of any theory. Finally, a focus on efficiency leads economists to ask questions that other social sciences ignore. These ingredients have allowed economics to invade intellectual territory that was previously deemed to be outside the discipline's realm. (pg. 99)

1) Maximizing Rational Agents

Orthodox economists assume the existence of rational individuals and firms that are capable of maximizing their self-assessed well-being.

First, economists assume that individuals engage in maximizing rational behavior. …. The starting point in economic theory is that the individual or the firm is maximizing something, usually utility or profit. Economists, almost without exception, make constrained maximization the basic building block of any theory. (pg. 100)

Few economists are willing to concede that individuals simply do not know what they are doing. We may permit imperfect information, transaction costs, and other intervening variables to muddy the waters, but we do not model behavior as being determined by forces beyond the control of the individual. Most sociologists, by contrast, argue that understanding the constraints is more important than understanding the behavior that results from optimization, given the constraints. (pg. 100)

(Related: Critics of this assumption have pejoratively labelled these assumed rational actors “Homo Economicus”. You can learn more about Homo Economicus and its critics here.)

Prediction Is Possible & Should Be A Goal of Economics

For Lazear, the assumption of rational economic actors is important because it allows economists to make predictions about behavior in novel situations.

The emphasis on maximization is important because it allows an analyst to make predictions in new situations. When individuals are assumed to maximize something, a well-defined and predictable behavioral response to any stimulus can be derived. (pg. 100)

Here Lazear provides his answer to two major questions in the philosophy of economics: is prediction possible in economics & should it be a goal of economics?

He suggests here that prediction should be a goal of the social sciences.

And he argues that the assumption of maximizing rational economic agents allows economists to achieve this goal.

Lazear repeats his claim that prediction should be an aspiration later in the essay.

The goal of the scholar is to make sense of the data, to reconcile the puzzles, and if completely successful, to bring them into a general framework that allows predictions to be made. (pg. 141)

By contrast, Lazear argues, other social sciences that do not begin with the of maximizing rational actors are unable to make predictions about individual behavior in novel situations.

Other social sciences that are unwilling to assume maximization are in the position of being unable to predict in new situations. (pg. 100)

(You can view a table listing what other writers think about the issue of prediction in economics here.)

Tradeoffs

Lazear then argues that an important corollary emerges from the assumption of maximizing rational economic agents: an emphasis in economics on trade-offs.

A corollary of maximization is that on the margin, there are always trade-offs. The notion that there is no free lunch is central to economics. The simple, but crucial concept of opportunity cost lies behind much of the ability of economics to extend into other areas. (pg. 101)

He argues that other social sciences – which do not deploy the methodology of orthodox economics – do not place the same emphasis on tradeoffs.

And, Lazear claims, this difference constitutes part of the reason why economics is the dominant social science: its emphasis on trade-offs allows it to deal with social phenomena better than its neighboring disciplines.

Other social sciences do not place the same weight on explicit recognition of the tension between costs and benefits, which reduces the ability of these fields to grapple systematically with social phenomena. Thinking about trade-offs gives rise to related thoughts on substitutability. Economists place emphasis on choice. Things are not technologically determined. This is true for consumers and producers alike. There is no fixed number of jobs. Firms can trade off between employing labor and capital, and workers can choose between labor and leisure. (pg. 101)

(Noteworthy aside: Lionel Robbins argued that a scarcity of means (e.g. time) coupled with humanity’s unlimited wants (e.g. leisure, income) - and the tradeoffs this necessitates - is actually the defining feature of economics.)

2)    The Concept of Equilibrium

A second distinguishing theme which, according to Lazear, makes (orthodox) economics superior to other social sciences is its use of the concept of equilibrium.

Lazear likens the use of equilibrium analysis in economics to the its use in the physical sciences.

As we discuss below, Lazear believes that this methodological similarity with the physical sciences helps make economics a science.

Second, economics adheres strictly to the importance of equilibrium as part of any theory. (pg. 100)

[A]s in the physical sciences, equilibrium is a central concept in economics. Virtually all economic theories have as primary desiderata that the behavior described must be consistent with some notion of equilibrium. Economic theory usually consists of modeling the behavior of agents. Then, behavior of the individual actors is aggregated to examine what happens when they interact. Often, this is in the context of a market. The economist's most familiar tools are supply and demand[.] …. Although the behavior of individuals who lie behind the supply and demand curves is inherently interesting, it is the interest in equilibrium itself that distinguishes economics from other social sciences. To be sure, other social sciences discuss spillover and feedback effects, but among social scientists, only economists insist on a physical-sciences-style equilibrium as part of the analysis. (pg. 101)

3)    Emphasis on “Efficiency”

A third distinguishing theme which, according to Lazear, makes (orthodox) economics superior to other social sciences is an emphasis on is the concept of “efficiency”.

Third, economists place a heavy emphasis on a clearly defined concept of efficiency. (pg. 101)

[M]uch of economics is driven by the notion that efficiency is important. Adam Smith's [1776] concept of the invisible hand is a guiding principle in economics. Individuals acting in their self-interest further the general goals of society. (pg. 101)

The idea that competitive equilibrium is efficient appears in the literature since the time of Marshall. (pg. 101-102)

The importance of efficiency is not that it is an apology for the status quo. Efficiency is a concept that, together with equilibrium, pushes economists to do a particular kind of analysis. When economists model a situation and the resulting equilibrium is inefficient, usually there are trades that could have occurred that are implicitly or explicitly ruled out. The analyst or his critics are induced to ask what the reasons are and what market or other institutions could arise to remedy the situation. Thus, the focus on efficiency when combined with equilibrium prevents the economist from being content with partial answers and half-truths. The notion that efficiency is a natural outcome motivates a larger series of questions and initiates deeper analysis. It also permits economists to make clear, unambiguous policy statements, although the assumptions that lie behind welfare economics are somewhat controversial. Still, Pareto optimality is a well-defined concept that allows us to take an axiomatic approach to issues over which other fields can only wring their hands. (pg. 102)

Other social scientists generally ignore equilibrium considerations. In part, this is intentional, reflecting a belief that equilibrium takes too long to reach and too many things change before a given equilibrium is ever attained. For the most part, however, it is simply taken as a given, much as equilibrium is taken as a given for economists. In sociology and psychology, equilibrium is rarely considered. For economists, it is a necessary component of the model. (pg. 102)

Economics is a Science

Lazear claims that economics is a science because, he argues, it deploys a scientific method of theorizing, testing the theory, and then revised the theory as necessary.

Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing the theory, and revising the theory based on the evidence. (pg. 102)

Also, from the abstract:

Economics is not only a social science, it is a genuine science. Like the physical sciences, economics uses a methodology that produces refutable implications and tests these implications using solid statistical techniques. (pg. 99)

For Lazear, the rigorous methodological approach of (orthodox) economics, its assumption of maximizing rational agents, its use of equilibrium analysis which mimics the physical sciences, and its emphasis on “efficiency”, allow it to develop testable and refutable hypotheses.

And, he argues, this makes economics a science.

Economics has been successful because, above all, economics is a science. The discipline emphasizes rational behavior, maximization, trade-offs, and substitution, and insists on models that result in equilibrium. Economists are pushed to further inquiry because they understand the concept of efficiency. Inefficient equilibria beg for explanation and suggest that there may be gaps in the underlying models that created them. (pg. 142)

Because economics focuses so intently on maximization, equilibrium, and efficiency, the field has derived many implications that are testable, refutable, and frequently supported by the data. (pg. 142)

(You can view a table listing other writers’ answers to the question of whether economics is a science here.)

Economics Has Been Imperialistic

After describing the methodology of orthodox economics, Lazear argues that economics has been “imperialistic”.

He defines economic imperialism as the use of the tools and methodology of economics to answer questions that were, until recently, considered the domain of other social sciences. [3]

[E]conomics has been imperialistic[.] …. Economic imperialism is defined as the extension of economics to topics that go beyond the classical scope of issues, which include consumer choice, theory of the firm, (explicit) markets, macroeconomic activity, and the fields spawned directly by these areas. The most aggressive economic imperialists aim to explain all social behavior by using the tools of economics. Areas traditionally deemed to be outside the realm of economics because they do not use explicit markets or prices are analyzed by the economic imperialist. (pg. 103)

Additionally, those issues that lie at a deeper level than those of traditional economics are also part of economic imperialism. Economics is extended to consider questions that are inside the "black box." For example, microeconomics historically took the firm as an entity. Modern economics examines the structure of relations within the firm, including issues of personnel policy and market strategy that have traditionally been outside the scope of economic analysis. Historically, economists assumed that firms would simply do what was best for maximizing profits, without attempting to describe the details on how profit maximization is best achieved. (pg. 104)

Much of economic imperialism is analogous to looking inside the atom. For many purposes in physics and especially chemistry, taking the atom as the relevant unit of analysis is appropriate. For example, chemists tell us that water is made from the combination of two hydrogen atoms with one oxygen atom. But for other purposes, such as the production and harnessing of nuclear power, it is necessary to understand that the atom is made up of electrons, neutrons, and protons and to understand how they interact with one another. The same is true in economics. For many questions, it is sufficient to think in terms of an individual, a household, or a firm. But the economic imperialists have not been content with answering questions that can be dealt with at that level of abstraction. They have tried to understand the preferences of the individual, the composition of the household, and the internal workings of the firm to answer more questions that are of interest to social scientists. (pg. 105)

It has never been much of stretch between economics and politics. Historians, political scientists, and economists alike have believed that economics can exert a strong influence on politics, both at the national and international levels. This connection, however, has nothing to do with economic imperialism. Economic imperialism in the realm of political economy consists of the use of economic methods to understand political processes. (pg. 135)

“Economic Imperialism” Has Been A Success

He considers economic imperialism – that is, the use of the methodology of economics to consider subject matters that traditionally fell within the scope of other social sciences – a success because, according to Lazear, it has been influential.

Economists generally believe in the market test. Economic imperialism can be judged to be successful only if it passes this test, which means that the analyses of the imperialists must influence others. The effort to extend the field measures its success by inducing others to adopt the economic approach to explore issues that are not part of classical economics. One possibility is that scholars outside of economics use economic analyses to understand social issues. Political scientists, lawyers, and sociologists come to use the methods of economics to answer the questions that are of interest in their fields. Another possibility is that economists expand the boundaries of economics and simply replace outsiders as analysts of "noneconomic" issues, forcing noneconomists out of business, as it were, or at least providing them with competition on an issue in which they formerly possessed a monopoly. Below, it will be argued that both routes have been followed with success. (pg. 104)

The most successful economic imperialists have used the theory to shed light on questions that lie far outside those considered traditional. The fact that there have been so many successful efforts in so many different directions attests to the power of economics. (pg. 142)

Summary

Lazear argues that (orthodox) economics has become the dominant social science.

It has been “imperialistic” in that it has brought its tools to bear on questions that were previously considered the domain of neighboring disciplines.

He considers “economic imperialism” – that is, the use of the methodology of economics to consider subject matters that traditionally fell within the scope of other social sciences – a success because, according to Lazear, it has been influential.

Lazear argues that economics has become dominant because of:

1)    Its rigorous (mostly mathematical) approach,

2)    The broad applicability of its methodological approach,

3)    Its assumption of the existence of maximizing rational agents,

4)    Its use of physical sciences-style equilibrium analysis, and

5)    Its emphasis on the consideration of the “efficiency” of outcomes.

He argues that these features of modern economics allow for the formulation of testable and refutable hypotheses.

And, for Lazear, this makes (orthodox) economics a science.

Moreover, he argues that the assumption of maximizing rational agents allows economists to make predictions about how economic actors will behave in novel situations.

And he suggests that prediction is a valid goal for economists to set themselves.

Footnotes

[1] Lazear never uses the terms “orthodox” or “heterodox” economics, but it’s clear he is referring to the methodological approach of the former. It’s worth noting the distinction because the methodological approaches of differing schools of thought and traditions within economics vary widely.

[2] Lazear also briefly suggests that the rigorous methodology of economics does have a weakness.

But the weakness of economics is that to be rigorous, simplifying assumptions must be made that constrain the analysis and narrow the focus of the researcher. It is for this reason that the broader-thinking sociologists, anthropologists, and perhaps psychologists may be better at identifying issues, but worse at providing answers. Our narrowness allows us to provide concrete solutions, but sometimes prevents us from thinking about the larger features of the problem. This specialization is not a flaw; much can be learned from other social scientists who observe phenomena that we often overlook. But the parsimony of our method and ability to provide specific, well-reasoned answers gives us a major advantage in analysis. (pg. 103)

[3] Lazear does acknowledge that many things which would be considered outside the realm of contemporary economics were considered by classical economists.

It is always a bit dangerous to claim that an area was not part of classical economics. There are very few topics today that cannot be argued to have some roots in the writings of the classical economists, especially Adam Smith. (footnote 8, pg. 104)

 

Written By: Aiden Singh Published: November 16, 2020

 

Sources

Edward Lazear. Economic Imperialism. The Quarterly Journal of Economics. February 2000. Vol. 115, No. 1. pg. 99-146.