Milton Friedman on econometric ‘groping in the dark’

16 Jan, 2015 at 19:12 | Posted in Statistics & Econometrics | Comments Off on Milton Friedman on econometric ‘groping in the dark’

Being sorta-kinda Keynesian, yours truly doesn’t often find the occasion to approvingly quote Milton Friedman. But on this issue I have no problem:

Granted that the final result will be capable of being expressed in the form of a system of simultaneous equations applying to the economy as a whole, it does not follow that the best way to get to that final result is by seeking to set such a system down now. As I am sure those who have tried to do so will agree, we now know so little about the dynamic mechanisms at work that there is enormous arbitrariness in any system set down. Limitations of resources – mental, computational, and statistical – enforce a model that, although complicated enough for our capacities, is yet enormously simple relative to the present state of understanding of the world we seek to explain. GropingUntil we can develop a simpler picture of the world, by an understanding of interrelations within sections of the economy, the construction of a model for the economy as a whole is bound to be almost a complete groping in the dark. The probability that such a process will yield a meaningful result seems to me almost negligible.

Milton Friedman (1951)

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