Paul Krugman wrote about some research by the IMF that he finds very exciting, Crowding In and the Paradox of Thrift. What the research shows is that since the bursting of the housing bubble and the subsequent financial crisis, government borrowing has not “crowed out” private sector investment. In fact, it is just the opposite. When governments cut their spending, so did businesses. This does not come as a surprise to me, and despite Krugman’s excitement, it certainly doesn’t come as a surprise to him. This is, after all, exactly what Keynes showed was happening in the economy eighty years ago.

This is why economics isn’t a science — or at least a very good science. There is a major part of the field that seems to think that Keynes was proven wrong by Friedman and Lucas and all the rest. Apparently, that’s how they think science works. Someone has a theory that seems to work and then something goes wrong and shows the theory doesn’t work. So a whole new theory is developed and the old one is just discarded. This is not, not, not how science works. Let me try to explain with the help of the ideal gas law.

If you’ve ever taken a chemistry course, you’ve been introduced to the ideal gas law: PV = nRT. Put in more or less English: the pressure times the volume of a gas is equal to the total number of atoms times a constant times the temperature. This is only a theoretical law that applies to a perfect gas that doesn’t exist in the real world. But it still works remarkably well for real gases as long as the system isn’t changed too quickly. Regardless, if you’ve learned about the ideal gas law, you were doubtless first taught about Boyle’s law, which says that pressure times volume is a constant — that as volume increases, pressure decreases. And you were also taught about Charles’ law, which says that volume divided by temperature is a constant — that as temperature increases, so does volume.

When I was learning this stuff, I thought Boyle’s law and Charles’ law were stupid. They we built into the ideal gas law. Who needed them? Well, we need them because we need to understand how science works. Boyle’s law was discovered by Richard Towneley and Henry Power in 1661. Charles’ law was discovered in 1802 by Joseph Louis Gay-Lussac. The ideal gas law was first formalized in 1834 by Émile Clapeyron. The ideal gas law incorporates the two earlier laws. If you use the ideal gas law and hold temperature constant, you get Boyle’s law. If you use the ideal gas law and hold the volume constant, you get Charles’ law. If you did not, then the ideal gas law would be wrong.

Similarly, quantum mechanics and relativity reduce to classical mechanics under normal conditions. Statistical mechanics reduces to thermodynamics on the macro scale. This second example is particularly relevant to economics because the idea of microfoundations is so important to the field. But did the models with their microfoundations reduce to a regular old Keynesian model when a clear demand shock hit the economy? Well, some did. But if the field as a whole isn’t able to dismiss theories that don’t duplicate previous — correct but incomplete — models, what is the field doing? The real business cycle models seem to have been designed to explain the oil shocks of the 1970s. Good for them! But if a field comes up with a radical new theory for every new bit of data, it isn’t doing science.

So we find ourselves in an economic situation that Keynes would have found very familiar. Yet even a true Keynesian like Paul Krugman has to continue to go around and push research that shows what all the economic models should show. The economy is not performing up to its potential. There is already too much savings for the amount of investment that people want to do. If the government cuts spending, all it will do is reduce demand in the economy. This isn’t hard — I know because even I understand it. But a good part of the economics profession wants to discount this for ideological reasons. This isn’t science. I would call it theology, but that would be an insult to theologians who mostly do a better job than economists.