Friday, August 26, 2016

Economic Methodology Going in a Very Bad Direction

There is a trend in economics toward "experiments."

Noah Smith reports:
So in recent years, many economists have been turning to an alternative approach and chucking theory out the window entirely. Instead of a complicated model about optimization and utility functions and blah blah blah, just look for a case where some kind of random change in the economy -- a so-called natural experiment -- offers a window into some important question. For example, you could study a random influx of refugees to answer the question of how immigration affects local labor markets. You don’t need a complicated theory of how workers and companies behave -- all you need is a simple linear model of how X affects Y.

The chief evangelists of this approach are economists Joshua Angrist and Jörn-Steffen Pischke. They have called the advent of natural experiments -- also called quasi-experimental methods -- the “credibility revolution.” And their book about the subject is titled “Mostly Harmless Econometrics.” The implication is that quasi-experimental studies, because they are more humble than structural models, are also less likely to give us the wrong answers to our most important questions.

And so far, the revolution is winning. As economists Matthew Panhans and John Singleton document in a recent paper, quasi-experimental techniques are an increasingly large piece of academic publishing.
The move toward empirical "theory" was bad enough. Experimental methods are
a deeper move into the inferiority complex chamber. Science does not have to be about empirical testing or experiments. Inappropriate applications of such methodologies suggest confusion and physics envy. It is, indeed, the display of an inferiority complex.

Somebody ought to measure the size of these guys fingers, if something needs to be measured.

For a complete discussion of why using the methods of the physical sciences in economics is inappropriate see F.A. Hayek's great and important work, The Counter Revolution of Science.



  1. The ubiquitous phenomena of human action with individual economic calculation along with the associated phenomena of theft of purchasing power, price distortions and economic mis-calculation caused by the creation/lending out/handing out of new funny money must always be suppressed as concepts and can never be mentioned much less articulated. It’s foolish to debate Keynesians (and monetarists) as if they are interested in finding the truth. Basic Austrian concepts are like a kryptonite house at the end of the block. The Keynesians know it’s there and will never go near it. This demonstrates malice aforethought.

    Keynesians always lie.

    BTW, data can be very helpful once one takes into account basic Austrian concepts which are not "testable".

  2. I just made four trillion dollars in my spare time!
    Ask me how!

    --Janet Yellen

  3. New breakthrough in experimental econ!! You hurl a consumer at near light-speed at a target and pick through the remains. Half physics, half tea-leaves.

  4. I think Menger called his economics "empirical." Go figure.