Can Econometrics Rescue "The Economics"

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What on earth are economic theorists like me trying to accomplish? This paper discusses four dilemmas encountered by an economic theorist:

2014

ust ust over a quarter century ago, Edward Leamer (1983) reflected on the state of empirical work in economics. He urged empirical researchers to “take the con out of econometrics ” and memorably observed (p. 37): “Hardly anyone takes data analysis seriously. Or perhaps more accurately, hardly anyone takes anyone else’s data analysis seriously. ” Leamer was not alone; Hendry (1980), Sims (1980), and others writing at about the same time were similarly disparaging of empirical practice. Reading these commentaries as late-1980s Ph.D. students, we wondered about the prospects for a satisfying career doing applied work. Perhaps credible empirical work in economics is a pipe dream. Here we address the questions of whether the quality and the credibility of empirical work have increased since Leamer’s pessimistic assessment. Our views are necessarily colored by the areas of applied microeconomics in which we are active, but we look over the fence at other areas as well. Leamer (1983) diag...

Economic and Social Review, 1989

and CEPR T he constitution of the Econometric Society states as the main objective of the society "the unification of the theoretical-qualitative and the empirical-quantitative approach to economic problems" (Ragnar Frisch, 1933, p. 1). Explaining this objective, Frisch warned that "so long as we content our selves to statements in general terms about one economic factor having an 'effect' on some other factor, almost any sort of relationship may be selected, postulated as a law, and 'explained' by a plausible argument". Precise, realistic, but at the same time complex theory was required to "help us out in this situation" {ibid, p. 2). Over fifty years after the foundation of the Econometric Society Hashem Pesaran stated, in an editorial which appeared in the initial issue of the Journal of Applied Econometrics, that "Frisch's call for unification of the research in economics has been left largely unanswered" (Pesaran, 1986, p. 1). This is despite the fact that propositions that theory should relate to applied models, and that models should be based upon theory, are not enormously contro versial. The simple reason is that economic theory and econometric models

Panoeconomicus, 2010

As a social science, economics cannot be reduced to simply an a priori science or an ideology. In addition economics cannot be solely an empirical or a historical science. Economics is a research field which studies only one dimension of human behavior, with the four fields of mathematics, econometrics, ethics and history intersecting one another. The purpose of this paper is to discuss the two parts of the proposition above, in connection with the controversies surrounding the method and the scope of economics: economics as an applied mathematics and economics as a predictive/empirical science. Key words: Invisible hand, Scope and method in economics, Economics as an applied mathematics, Economics as an empirical science, Economics as ideology. JEL: B41, B23.

The Economic Journal, 1995

Atlantic Economic Journal, 2022

1998

The creation of econometrics was the most important transformation in twentieth-century economics and the establishment of the Econometric Society, the Cowles Commission and the journal Econometrica were just three of the events that would shape its development. Taking Ragnar Frisch as the narrator, Francisco Louçã presents a comprehensive history of this fascinating innovation.

2013

Writing history: a matter of imagining, reasoning and interacting.…………………101 What about the history of econometrics?……………………………………………102 What comes next? ……………………………………………….…….…….….…..105 Bibliographical References………………………………………………………………..109 But I was still thinking about Popper's and Lakatos's influence over the writing of the Received View. Further reading of De Marchi's (1988a) edition of the conference held in 1985 at the occasion of Joop Klant's retirement was revealing too. My optimism about the influence that such a positivistic approach could have exerted over the Received View was quickly lessened by just going over the preliminary conclusion of the conference presented at the very introduction of the book: "Although a minority of the symposiasts might disagree, it seems fair to conclude that for most, and for a variety of good reasons, there is no very substantial Popperian legacy in economics" (De Marchi, 1988a, p. 12). This work, of course, did not include an analysis of the Received View of econometrics, which at that point was just in its gestation form. Still, the idea that followed was that if there were no substantial Popperian legacy in economics, the history of econometrics would be also detached from that view. This assertion, certainly, exerted a discouraging effect on the first ideas that I had been spinning in my mind. Another illuminating reading was De Marchi's (1988b) own paper presented at that conference, concerning Popper and the LSE Economists. In this paper De Marchi studies Popper's influence over the economists working at the LSE. De Marchi asserts that Popper did in fact exert an influence over a very selected group of economists at the LSE, but that this influence was of a rather short duration. This event actually dates back to a brief period from 1957 to 1964, which precedes the writing of the Received View by over twenty-five years. De Marchi's analysis focuses on the attack over Robbins' a priorism, directed by a "group of unusually talented young members of the economics staff at the (…) LSE, led by Richard Lipsey and Chris Archibald" (De Marchi, 1988b, p. 141). Their main purpose, so De Marchi says, was to make of economics a quantitative science, which could be expressed in falsifiable terms. It was to render economics more rigorous and to take out of it the abstract a priori method inherited from Robbins and the Austrian School. They wanted to recast the old idea "in which they had been schooled, that quantification is not only difficult but unnecessary" (ibid.). So they created a seminar parallel to that of Robbins (who was the leading figure at the LSE's economics department), which name suggested their critical posture: "LSE Staff Seminar in Methodology, Measurement and Testing" or " ! ".

South African Journal of Economics, 1988

The Rhetoric of Economics (Review Article)* J. F. N. LABIA*(2) THE TITLE OF PROFESSOR McCLOSKEY'S RECENT BOOK will make many economists feel uneasy (McCloskey, 1986). Surely no self-respecting economist ought to indulge in rhetoric? Is rhetoric not the province of politicians and professional persuaders who induce belief by mere eloquence and other verbal trickery? There are few economists who would be flattered if told that they were indulging in rhetoric. Do science and truth not begin where rhetoric ends? What are we economists if we are not scientists? We deal in facts and theories which may be tested in accordance with the canons of scientific method, not mere rhetoric. The only time we might indulge (with heavy heart) in the occasional rhetorical flourish is in our role as policy advisers to the lay public. Many of them are unwilling, and possibly unable, to comprehend the rigorous 'scientific' reasoning at the foundations of our policy recommendations which, by the laws of economics will inevitably lead to the state of affairs that they (the lay public or their representatives) desire. A little rhetoric may be used to persuade them that we economic scientists do indeed possess the means to bring about their desired ends; but we are not allowed, at least in our role as economic scientists, to prescribe those ends. The underlying economic principles are subjected to strict scientific testing in which rhetoric plays no part. According to the above view the relationship between the economist and his client is rather like the relationship between the consulting engineer and his client. The client tells the engineer what he wants, and the engineer constructs it using the principles of engineering. The rhetoric of the engineer is no more than his sales talk; it has nothing to do with the underlying principles of engineering. The approach to economics baldly outlined above is usually referred to as positive economics (Friedman, 1953).*(3) McCloskey in his recent book reverses most of the above propositions. According to him not only do economists use rhetoric as a means of persuading each other of the correctness of their theories, but this is precisely what they ought to be doing. 1988 SAJE v56(1) p48 Theories cannot be tested by bringing them into some kind of high-noon confrontation with the facts. Facts are in any case 'theory laden', and the fact-value independence (the so-called Hume's Law) does not hold. The task of economists is made more difficult by their not facing up to the rhetorical and literary nature of their discipline. A manifestation of this is the existence of what McCloskey calls an official and unofficial methodology of economics. The official methodology he calls 'modernism': Their official rules of speaking well, to which economists pay homage in methodological ruminations and in teachings to the young, declare them to be Scientists in the modern mode. The credo of scientific methodology, known to critics as the Received View, is roughly speaking, 'positivism'. It argues that knowledge ought to be modeled on the early twentieth century's understanding of certain pieces of nineteenth-century and especially seventeenth-century physics. To emphasize its pervasiveness in modern thinking well beyond science, however, it is best called 'modernism' ... . It is the attitude that the only real knowledge is, in common parlance 'scientific', that is, knowledge tested by certain kinds of rigorous scepticism. Philosophically speaking, modernism is the program of Descartes, regnant in philosophy since the seventeenth century, to build knowledge on a foundation of radical doubt (McCloskey,1986, p. 5). McCloskey argues, on the basis of concrete examples from the literature, that economists do not practice the official methodology. According to him economic praxis could be improved by accepting this and explicitly recognizing the rhetorical and literary nature of economic argument. Indeed the techniques of literary criticism can and should be used. The writings of economists are texts like other texts, and so the well developed methods of textual analysis may be applied. The modernist methodology ought to be replaced by an analysis of the rhetoric of economics, of how economists persuade; although he makes it clear that he is opposed to any 'systematic' methodology. Systematic methodologies are bound to be oppressive and misleading: Being reasonable is weighing and considering all reasons, not the reasons that some methodology or epistemology or logic claims to be stations of the cross along the one path to justified True Belief. A methodology that claims the historical dialectic or the hypothetico-deductive model or historical verstehen or any one style of giving reasons to be The One is probably unreasonable. The reasonable rhetorician cannot write down his rules. They are numberless, because they cover all reasons, and bromidic, because they cover all circumstances. Above all they change (p. 52). McCloskey advances three major propositions. The first is that modernism is an irrelevant and possibly harmful doctrine. The second is that economists do not, in the practice of their discipline, obey modernist prescriptions, they merely pay lip service to them; consequently modernism has had little effect on the substance of economics. The third is that economics 1988 SAJE v56(1) p49 is fundamentally a literary subject and that economists use rhetorical methods rather than scientific testing in their attempts to convince themselves and one another of the correctness of their theories. Furthermore, this is according to him what they ought to be doing. Unfortunately they have to practice this approach surreptitiously, because it is proscribed by the official methodology, 8 The publication of Kuhn's (1970) path breaking book has changed all this. 9 Cf. Chapter 10 of McCloskey for the benefits that he believes would follow from his rhetorical cure for modernism in economics. 10 Chapter 8, The Unexamined Rhetoric of Economic Quantification, and chapter 9, The Rhetoric of Significant Tests both criticize the way that quantitative methods are used in economic analysis. McCloskey is particularly critical of the emphasis in econometrics on sampling error rather than specification error (p. 162).

2007

This paper reconstructs Keynes's reflections on the issue of the role of econometrics in the economic discourse. It analyses the Keynes-Tinbergen debate in the period 1938-1940 and the exchange between Keynes and other econometricians in the period 1939-1941. We argue that there is no evidence for regarding Keynes as a critic and an opponent of econometric work per se. What he opposed were the attempts at statistical inference without any prior effort of ascertaining the suitability of the economic material for making such inferences. We offer also an interpretation of Keynes's harshness in his criticism of Tinbergen.

2010

This paper examines the history of econometrics through a particular case study modelling the tradeoff between inflation and unemployment. It focuses on the questions of what econometric tools modellers would choose to model the tradeoff, how their choices helped shape the ways that they obtained, interpreted and theorised the empirical evidence and how their different concerns and the different problems that they encountered has fed back into the development of econometrics. The study reveals that much of the interaction between econometrics and economics involved modellers taking certain tradeoffs between theory and data, and their different positions generated disputes, factions as well as confusions. It also reveals that the history of modelling the tradeoff mirrors the evolving process of how the Cowles structural modelling paradigm in econometrics became consolidated, challenged, reformed or abandoned.

The philosophical foundation of the mainstream neoclassical economics is empirical philosophy. The controversies of economic methodology over inductive and deductive methods, over verificationistic and falsificationistic approaches, and over positive and normative analyses in the evolution of economics are associated with those in the philosophy of science. The evolution of philosophy of science suggests that the above-mentioned pairs of economic methodologies should be appropriately combined when used in economics. It is not sensible to overemphasize either one inside each pair of economic methodologies.