Empirical macroeconomics — a scientific illusion

3 Nov, 2015 at 12:53 | Posted in Economics | 4 Comments

Theoretical particle physicists wait anxiously to see whether experimentalists will be able to identify the particles their theories postulate. The image of an economic theorist nervously awaiting the result of a decisive econometric test does not ring true. The negligible impact of formal econometric work on the development of economic science is manifest in a number of ways …

burst-your-bubbleIn the natural sciences, investigators rush to check out the validity of claims made by rival laboratories and then to build on them. Such efforts are very rare in economics. I find it implausible that this is a consequence of the accuracy and robustness of the conclusions of econometric studies. Instead, the absence of replication attempts for most empirical work are a consequence of the fact that the results are rarely an important input to theory creation or the evolution of professional opinion more generally.

Lawrence Summers


  1. If you ask me Nanikore, economics has been trapped in a 240 year old time warp.

  2. I sometimes think that economics got trapped in a modernist time-warp. There is an idealist view that was prominent across many disciplines in the 1950s that human progress is linear, and problems could be solved with technology and ‘sophisticated’ mathematics. I think the idea that problems are solvable with abstraction is also very consistent with this ideology. I do not think a conservative agenda was behind this, but I do believe for a time it was ‘captured’ by it. Of course most disciplines were radically changed with the advent of Critical Theory and Post-Modernism in the 1970s particularly. For some reason this did not impact on economics.

    The result in those disciplines was ultimately good. Take international relations theory. It started questioning ‘why is the basis unit of analysis in that discipline the state’? This was excellent preparation for the new security environment especially after 9/11- which is largely about the threat from non-state actors like Islamic State, Al Quaida and related ‘human security’ issues. Economics badly needs a heavy dose of Critical Theory and post-modernism and ask ‘why is it we look at an economic system the way we do’. And what do we mean by utility and capital, for example.

    I’m not optimistic about change. Too much sunk costs have been thrown into learning the whole apparatus for too many people and its heavily connected with existing power relations, identities and monopoly rents. So instead, for example, we get nonsense like ‘frictions’ added into rational expectations and other such existing, but essentially, irrelevant models.

  3. Economic Philosophy (1962) by Joan Robinson
    “Economics has always been partly a vehicle” for the ruling ideology of each period as well as partly a method of scientific investigation. It limps along with one foot in untested hypotheses and the other in untestable slogans. Here our task is to sort out as best we may this mixture of ideology and science.”

    With these provocative words, Joan Robinson introduces this lively and iconoclastic book. “In what follows,” she says, “this theme is illustrated by reference to one or two of the leading ideas of the economists from Adam Smith onwards, not in a learned manner, tracing the development of thought, nor historically, to show how ideas arose out of the problems of each age, but rather an attempt to puzzle out the mysterious way that metaphysical propositions, without any logical content, can yet be a powerful influence on thought and action.”

    Robinson is responsible for some of the most austerely professional contributions to economic theory, but here in effect she takes the reader behind the scenes and cheerfully exposes the dogmatic content of economic orthodoxy. In its place, she offers the possibility that with obsolete metaphysics cleared out of the way economics can make a substantial advance toward science.

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