The unfortunate fact is that economists have gotten too good at making theories. In fact, the set of plausible and admissible economic theories is now dense in the space of possible conclusions: For every desired conclusion X, for every ε, and for a norm of "closeness" ||, there is a chain of theories T of increasing complexity indexed by n and a degree of theoretical complexity nδ such that:
(∀X)(∃nδ)(∃T(.))(∀n)(n > nδ -> | T(n) - X | < ε)
Or: with enough time and ingenuity and sweat, a theorist can prove that anything can be an equilibrium.
We have also gotten not too good at but, rather, too proficient at econometrics:
- Randomized controlled trials,
- Regression discontinuity,
- Instrumental variables,
- Aggressively and preemptively seizing the high ground of the null hypothesis,
- Unconscious and conscious, deliberate and accidental specification searches, plus file-drawer problems.
All of these have a similar effect in econometrics that theorist ingenuity and sweat have in theory. My first econometrics teacher Zvi Griliches said that the Central Limit Theorem was the second most important thing he had to teach. The most important?:
If someone tortures the data enough, they will confess...
Is a theoretical result an interesting constraint on reality or a demonstration of the ingenuity of the researcher? Is an econometric-empirical result a robust finding about the world out there, or is it a demonstration that research assistants desperate to please jet-setting tenured bosses can do amazing things?
This is not to say that things were not worse in the old days: things were worse in the old days.
The pasts of many sub-literatures in economics are better understood as careerists on the make taking the line of theoretical least resistance rather than trying to understand the world. The lack of computer power that made it next to impossible to robustly summarize the data meant that arresting anecdotes could not be checked for representativeness and typicality.
But good theory is, in the end nothing but distilled and crystallized economic history. It could, after all, be nothing else. And piling more and more computer power on to the analysis of nonhistorical data could only be an intellectual optimum if the world was created ex nihilo the instant of the first date of your panel.
This is one reason we study economic history: to understand why other classes choose to study the particular theories—set up the filing systems for keeping track of your intellectual armory—that they do. Only through the study of history can we figure out why we and our peers currently think what we do. In the words of John Maynard Keynes (1926): The End of Laissez-Faire https://www.panarchy.org/keynes/laissezfaire.1926.html: "A study of the history of opinion is a necessary preliminary to the emancipation of the mind..."
So this is why we are here. Welcome to economic history.
#teachingeconomics #economichistory #highlighted