Over the past few centuries, the natural sciences, - e.g. physics, chemistry, biology, - have developed a variety of principles and models. These have enabled them to analyze and predict the behavior of our highly complex physical systems under widely different conditions. But the situation is quite different in the social sciences, - e.g., economics, sociology, political science. It’s much more difficult to make accurate predictions in social systems, - whose key components are people, organizations and their intricate interactions, - because of their highly fluctuating behaviors.
I was reminded of this major distinction between physical and social systems by a recent issue of Foreign Affairs, which focused on How to Survive Slow Growth. “[G]rowth has ground to a halt almost everywhere, and economists, investors, and ordinary citizens are starting to confront a grim new reality: the world is stuck in the slow lane and nobody seems to know what to do about it,” notes its introductory article. Several prominent authors wrote about various aspects of the economic slowdown. But in the end, they didn’t arrive at consensus reasons for the slow growth or how long it will likely last, - years or decades.
In the lead article, - The Age of Secular Stagnation: What It Is and What to Do About It, - Harvard economics professor Larry Summers wrote: “As surprising as the recent financial crisis and recession were, the behavior of the world’s industrialized economies and financial markets during the recovery has been even more so.” Back in 2009, almost no one would have predicted that we would still be in a period of slow economic growth, that inflation would be around one percent and interest rates would hover around zero. But, “nearly seven years into the U.S. recovery, markets are not expecting normal conditions to return anytime soon.”