While praising economics for its departure in the last 3 decades toward more realistic assumptions and more empirical attention, he claims that economics is not yet a science because it lacks predictive power. By predictive power, he means one ought to be able to forecast the effects of a change in policy. Although this was attempted in the 1950s - by finding out exactly what a demand curve's parameters are - it was a flop.
My position is that the predictive power of any theory derives from how good the theory is, this point is noted by philosopher sahab. The other point of note is that no where do they talk about the new institutional economics, which offers a very powerful alternate.
To be clear, there are two kinds of new institutional economics, one deals with macro-level institutions (property, policy, regulation) this has Douglass North as its master and chief. The other deals with micro-level institutions (contract, transactions) this has Oliver Williamson as its headmaster.
One often neglected component of the Williamson type of institutional economics is the abandonment of the price-quantity framework. Williamson notes this in his Nobel prize lecture where he quotes Herbert Simon:
"In the physical sciences, when errors of measurement and other noise are found to be
of the same order of magnitude as the phenomena under study, the response is not to
try to squeeze more information out of the data by statistical means; it is instead to find
techniques for observing the phenomena at a higher level of resolution. The corresponding
strategy for economics is obvious: to secure new kinds of data at the micro level."
Observing economic phenomenon from the contract level is a genuinely different approach as it observes the same process through a higher level of resolution (this is not the same thing as observing the process in a more disaggregated manner). Fitting demand curves turns out to give poor predictions perhaps because demand curves are not the most appropriate tool.
So, before we judge whether or not economics can predict anything, we must first agree on what is the appropriate way to analyze economic behavior. That neither the host nor the guest on the show mention the idea in the above paragraphs indicates the some of the lessons of the new institutional economics haven't sunk in. But they are not alone. Even the eminent Samuel Bowles and Herbert Gintis in a 2004 article in the Quarterly Journal of Economics, one of the top journals to publish in, claim that the price-quantity framework is what is so wonderful and great about economics. No sirs, not quite.
For further support of this notion (that new institutional economics isn't as mainstream as it is thought to be), consider the following points
Paul Joskow claims that the reason electricity deregulation has proven to be a failure in the US is not understanding the lessons of the new institutional economics. If one of the leading lights (ha ha) in the business admits to this what hope has the ordinary economist.
Being in an agriculture and resource program, I have never once heard of Steven Cheung's outrageously brilliant 1983 paper on the notion of an externality. Cheung claims externalities are present in each and every transaction, there is nothing special about them, all trade is conducted to minimize (or maximize) the impact of "externalities". So all the policy and talk and publishing activity is misled by incorrect thinking. This is not to say that the "best" policy in any case will necessarily be different than one suggested by conventional thinking, but it works the wrong way, and so it is more likely to suggest incorrect policies than correct ones. If you live in the circles that most resource economists do, these statements contain the capacity to completely overturn the field. Yet, not a whisper of this to be found in the usual first or second year courses.
