Physics Envy

There are the so-called “hard sciences,” like physics and chemistry. Then there are the “soft sciences,” like psychology, biology, and economics, which have often aspired to build models that are as precise, quantitative, and “hard” as those of physics. The appeal of Newtonian physics these last 400 years has been its simplicity and its ability to derive equations that elegantly express the behavior of the natural world. 

But the allure of physics is much more than its basic equations such as Newton's F = ma or Einstein's E = mc²; it's the capability to predict the future behavior of things. These straightforward equations allow one to predict what will happen tomorrow, based on what we see today. That ability to prognosticate shows us that there is order to the physical universe.

This capacity to predict has a great attraction to soft-science economists and psychologists. If they can boil down their social sciences into similar elegant equations or postulates, they will then achieve what physicists have long done: simply describe how things behave and how they will go in the future.

The problem with economics is that it is nowhere near as mathematically precise as physics. This annoys economists, because every lay person feels qualified to weigh in on economics (thinking they understand this very complex process), as they tend to leave physics and its often complicated equations to the erudite scientists. For example, what happens in the theoretical world of particle physics seems to have little to do with my daily existence (or my ability to understand it), but what happens to the Federal Reserve's interest rate, I can feel in my bank account.

A central issue here is that science is studying the natural world—which is consistent and repeatable—while economics studies the unpredictable, if not sometimes whimsical, behavior of human beings. So in the late 19^th century and into the 20^th, several leading economists tried very hard to give economics a solid mathematical foundation. The school of economics led by Milton Friedman at the University of Chicago helped to put economics on what they believed to be a rational, mathematical basis. This process reached an apogee in the 1990s, when economists like Alan Greenspan (who spent nearly 20 years as the chairman of the Fed) became lionized as the gurus of economic “scientism.”

Instead of realizing the prosperous future that their models predicted, however, things went disastrously wrong. Greenspan's policies—implemented by Bill Clinton—fueled a speculative bubble that badly burst in 2008. So today a number of economists are waking up to the fact that economics is a field that is neither as quantifiable nor predictable as they'd thought. 
 
Furthermore, research shows that people do not make economic decisions based on rational thinking. We are impulsive and many of our choices are driven by our subconscious urges. We are not mathematical in our behavior. Thus, market transactions do not behave as straightforwardly as the laws of nature, in a concise mathematical way.

So physics envy on the part of “soft” scientists has largely been a misplaced attempt to quantify the squishy discipline of economics. This was outlined nicely in a 2010 paper: “Warning: Physics Envy May Be Hazardous to Your Wealth,” by two professors at MIT. It's taken a few years for some economists to accept that their discipline is not precisely mathematical or even very predictable. The authors of this paper point out that, although the attempt to make economics a mathematical science has brought some insights into the market place, “physics envy has also created a false sense of mathematical precision in some cases.” 
 
My former career was in physics, largely because I liked the simplicity and consistency of that hard science. Economists have learned in recent years to give more weight to the erratic choices that we make in the market place. Maybe that might help avoid another Great Recession, as happened in 2008.