Leontief’s uneasy feeling about the state of economics

19 Aug, 2014 at 18:25 | Posted in Economics | 1 Comment

Much of current academic teaching and research has been criticized for its lack of relevance, that is, of immediate practical impact … I submit that the consistently indifferent performance in practical applications is in fact a symptom of a fundamental imbalance in the present state of our discipline. The weak and all too slowly growing empirical foundation clearly cannot support the proliferating superstructure of pure, or should I say, speculative economic theory …

Uncritical enthusiasm for mathematical formulation tends often to conceal the ephemeral substantive content of the argument behind the formidable front of algebraic signs … In the presentation of a new model, attention nowadays is usually centered on a step-by-step derivation of its formal properties. But if the author — or at least the referee who recommended the manuscript for publication — is technically com- petent, such mathematical manipulations, however long and intricate, can even without further checking be accepted as correct. Nevertheless, they are usually spelled out at great length. By the time it comes to interpretation of the substantive conclusions, the assumptions on which the model has been based are easily forgotten. But it is precisely the empirical validity of these assumptions on which the usefulness of the entire exercise depends.

What is really needed, in most cases, is a very difficult and seldom very neat assessment and verification of these assumptions in terms of observed facts. Here mathematics cannot help and because of this, the interest and enthusiasm of the model builder suddenly begins to flag: “If you do not like my set of assumptions, give me another and I will gladly make you another model; have your pick.” …

But shouldn’t this harsh judgment be suspended in the face of the impressive volume of econometric work? The answer is decidedly no. This work can be in general characterized as an attempt to compensate for the glaring weakness of the data base available to us by the widest possible use of more and more sophisticated statistical techniques. Alongside the mounting pile of elaborate theoretical models we see a fast-growing stock of equally intricate statistical tools. These are intended to stretch to the limit the meager supply of facts … Like the economic models they are supposed to implement, the validity of these statistical tools depends itself on the acceptance of certain convenient assumptions pertaining to stochastic properties of the phenomena which the particular models are intended to explain; assumptions that can be seldom verified.

Wassily Leontief