Damon Runyon’s Law

31 Aug, 2017 at 12:59 | Posted in Economics | 2 Comments

The eminently quotable Robert Solow says it all:

To get right down to it, I suspect that the attempt to construct economics as an axiomatically based hard science is doomed to fail. There are many partially overlapping reasons for believing this …

soloA modern economy is a very complicated system. Since we cannot conduct controlled on its smaller parts, or even observe them in isolation, the classical hard- science devices for discriminating between competing hypotheses are closed to us. The main alternative device is the statistical analysis of historical time-series. But then another difficulty arises. The competing hypotheses are themselves complex and subtle. We know before we start that all of them, or at least many of them, are capable of fitting the data in a gross sort of way. Then, in order to make more refined distinctions, we need long time-series observed under stationary conditions.

Unfortunately, however, economics is a social science. It is subject to Damon Runyon’s Law that nothing between human beings is more than three to one. To express the point more formally, much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high. Under these circumstances, a little cleverness and persistence can get you almost any result you want. I think that is why so few econometricians have ever been forced by the facts to abandon a firmly held belief …

Robert Solow

2 Comments

  1. The main alternative device is the statistical analysis of historical time-series.

    I laughed out loud. Then, I read further and realized he was not joking.

    There’s so little information in a time-series of main-tendency statistics for a national economy, that one really has to wonder about the sanity of anyone who doesn’t immediately turn toward thinking hard about more appropriate methods of investigation and interpretation.

    Interpreting history is hardly an impossible task. Geology manages it, without the opportunity of conjuring other earths and processing them in geologic time. It does require some disciplined thinking, but there are still ready means of testing for empirical confirmation. Just thinking in terms of extending an interpretation to identify other facts that must also be explained can be a productive general approach. We interpret the world around us all the time, without slipping into the bizarre fantasies of economists — accumulating capital, aggregate production functions come to my mind alongside statistical analysis of historical time-series as ideas that would never survive critical thought. But, maybe that’s just me.

    • Well, Bruce, start with an equation, then find out an axiom,that fits, and stick to it,until death.There are many such out there, and most important, be pompoues,it´s very important.Then you carrier is on the go. You get a top job on federal reserve! 🙂


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