Home > Uncategorized > Models and measurement in economics: Wesley Mitchell in 1946

Models and measurement in economics: Wesley Mitchell in 1946

Noah Smith is not the first one to be puzzled by the rift between theory and measurement in economics. He states:

econ seems too focused on “theory vs. evidence” instead of using the two in conjunction. And when they do get used in conjunction, it’s often in a tacked-on, pro-forma sort of way, without a real meaningful interplay between the two. Of course, this is just my own limited experience, and there are whole fields – industrial organization, environmental economics, trade – that I have relatively limited contact with. So I could be over-generalizing. Nevertheless, I see very few economists explicitly calling for the kind of “combined approach” to modeling that exists in other sciences – i.e., using evidence to continuously restrict the set of usable models”..

But in 1946, in the wake of the war and the Keynesian revolution, Wesley C. Mitchell, long time head of the NBER (National bureau of Economic Research), one of the foremost economists of his time and one of the best students as well as a friend of Thorstein Veblen, held a “read the whole thing” speech (like much of this old stuff made available by the NBER) about “Empirical research and the future of economic science”. Eloquent (though not succinct) it bears in a somewhat depressing way on the ideas stated by Smith  (though Mitchell restricts himself much less to the Ivory Tower than Smith does):

There is better prospect than before that men who think of themselves as theorists will absorb into their work the methods and findings of realistically minded investigators, while the latter will make such free use of the concepts and procedures of theorists that no one will know on which side of the old line of demarcation he stands. In fine, the years near at hand may see the beginnings of an economics worthy to be called a science. Rapid progress toward that goal is not to be expected. The great drawbacks of empirical research in comparison with speculative reasoning are that it is much more laborious, Slower, and more dependent on financial support. The speculative reasoner must think hard; his is no easy task. But if gifted with logical acumen, he can select a set of assumptions interesting to him, and think Empirical Research and the Development of Economic Science out their implications by himself. If he has a funded income, or earns a living salary by work that does not exhaust his energy, he can get on without financial grants. In a relatively short time he can cover much ground, and, barring logical errors, arrive at conclusions incontestably true in the sense that they are necessary consequences of his assumptions. The empirical investigator, on the contrary, requires mass observations and considerable intimacy with actual practices; to extract the meaning from his data he needs assistants whose salaries few scholars can pay out of their own pockets”.

See p. 16 for his institutional stance. I’m afraid the ideas of Noah Smith indicate there still is a problem. Much has been accomplished, be sure of that. But a rift still exits. Here are my takes on models and measurement in economics: the concepts, social worlds and even the language of economic statistics and economic theory are not always congruent. Plus ça change, plus c’est la même chose. Why?

  1. dmf
  2. May 16, 2017 at 11:16 am

    “All politics is local” was used by Washington AP bureau chief Byron Price in 1932. Tip O’Neill (future House Speaker) first used the term in 1935, when he entered politics. But Tip O’Neill used if often and made it his own. It’s a truism, obviously. But if that’s the case how is the Leviathan (to use Hobbes’ wording) or the macro (to use modern economics’ wording) created? Hobbes saw the macro as the result of transactions. I agree. Except for these transactions the two are the same. To understand this we first have to reject the proposition that actors can be of different or the same size. The actors are not. But they are made to appear of different or the same size. How do humans create durable, time-spanning actors called macro, structural, etc? The answer is actually rather simple. A difference in relative size is obtained when a micro-actor can, in addition to enlisting other bodies, also enlist a great number of durable materials. In other words, humans create macro actors by adding other bodies (supporters, defenders) and as many durable items (buildings, machines, labels) as possible. The marco is a thus a cumulative creation. Growing and shrinking over time, losing and gaining mass, changing its relations to micro actors. This creation work went on long before social scientists (including economists) ever “observed” humans and goes on now right under the noses of social scientists, who miss most it because the social scientists assume actors can be either of different or the same size. Social scientists never glimpse the work of making macro actors. That’s quite a failure for the social scientists. Unfortunately, not its only one. Economists have struck out on their own in creating macro actors. Economists call them models. Lots of human bodies and durable materials (e.g., universities, economics departments, economics journals) get the job done. I may be mistaken, but I don’t believe economists have any real insight into what they’re doing. For supposed scientists they seem to reflect little on this massive work campaign.

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