But let’s focus on the choice of a 2% target. After the high inflation of the late 1970s and early 1980s, when it reached over 20% in the UK, central banks were left scrambling to find some new theoretical model to deal with rising prices. The first central bank to propose an inflation target of 2% was in New Zealand. But where did they get it from? Apparently, from thin air.
Recently, I came across this one story that suggested the choice of 2% was the result of an off the cuff remark by then New Zealand finance minister, during a TV interview, who told reporters he would be happy with an inflation between 0% and 1%. This led the governor of the central bank at the time, Don Brash, to factor in an inflation bias of roughly 1% to arrive at the magical number of 2%. Michael Reddell, a colleague of Brash’s at the time at the Reserve Bank, admitted: “It wasn’t ruthlessly scientific.” Brash himself admitted as much: “It was almost a chance remark. The figure was plucked out of the air to influence the public’s expectations.”
economics can use the scientific method but is not nor will ever be a science.
That’s why we make a distinction between:
People in formal and social sciences don’t put “scientist” on their business card because the popular understanding of the term is a natural scientist in a lab coat doing controlled experiments. You don’t get a nice clean lab to do controlled experiments on societies, economies, or ancient ruins. When you study those things, your degree still usually says “Bachelor of Science” and not “Bachelor of Arts” because the terms “sciences” and “arts” are more expansive than the way we use them in every day conversation.
a social science uses the scientific method, but experiments can’t really be replicated because of the moral and ethical implications of experimenting and deriving conclusions when studying humans and their interactions.
economy is the most egregious because theories are applied in real societies with, sometimes, disastrous results. economists are taken way to seriously for their scientific output. psychology comes a close second because of exactly the same problem. not because those “scientists” come up with theories or hypotheses but because they apply, and test, faulty and incomplete conclusions to the real world.
ps: i didn’t know about the formal sciences definition, but they do make sense.
edit: just to add my biggest pet peeve with economics is that economists derive conclusions from incomplete data and different schools of economy use different metrics for the same concept. one case is that a few years ago uk changed how they measured gdp so that the numbers looked better and nobody called them out, and that happened because everybody has different metrics for assessing gdp. its all made up and the numbers don’t matter.