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Teflon economics

from Lars Syll

At least since the time of Keynes’s famous critique of Tinbergen’s econometric methods, those of us in the social science community who have been impolite enough to dare to question the preferred methods and models applied in quantitative research in general and economics more specifically, are as a rule met with disapproval. Although people seem to get very agitated and upset by the critique — just read the commentaries on this blog if you don’t believe me — defenders of received theory always say that the critique is ‘nothing new’, that they have always been ‘well aware’ of the problems, and so on, and so on.

So, for the benefit of all mindless practitioners of economics — who don’t want to be disturbed in their doings — eminent mathematical statistician David Freedman has put together a very practical list of vacuous responses to criticism that can be freely used to save your peace of mind:

We know all that. Nothing is perfect … The assumptions are reasonable. The assumptions don’t matter. The assumptions are conservative. You can’t prove the assumptions are wrong. The biases will cancel. We can model the biases. We’re only doing what everybody else does. Now we use more sophisticated techniques. If we don’t do it, someone else will. What would you do? The decision-maker has to be better off with us than without us … The models aren’t totally useless. You have to do the best you can with the data. You have to make assumptions in order to make progress. You have to give the models the benefit of the doubt. Where’s the harm?

 

  1. John deChadenedes
    October 10, 2019 at 5:20 pm

    You actually can prove the assumptions are wrong, however. One of my first observations when I studied economics in graduate school was that most of the fundamental assumptions of economics are demonstrably false. This includes the assumptions, explicit and unspoken, about people, nature, time, and everything else. Having studied philosophy and formal logic, I already knew that you can prove anything from a contradiction, which means that if even one of your premises is false you can construct a solid argument to support any proposition at all, and also its opposite. Great! I have come to think this is the most basic flaw of economics as a system of thought.

  2. Helen Sakho
    October 10, 2019 at 11:54 pm

    Yes, this is a “science” so contradictory in every aspect of its analyses, predictions, and formulations, that leaves one wondering if future economists will ever have the opportunity to unravel them in time to get a job in this field anywhere on the planet!

  3. Ken Zimmerman
    October 15, 2019 at 2:29 pm

    Is there an authoritative list of the assumptions the “mindless practitioners of economics” make and refuse to consider? Must be a list somewhere!

  4. Rob
    October 16, 2019 at 10:41 am

    Full quote:

    We know that. Nothing is perfect. Linearity has to be a good first approximation. Log linearity has to be a good first approximation. The assumptions are reasonable. The assumptions don’t matter. The assumptions are conservative. You can’t prove the assumptions are wrong. The biases will cancel. We can model the biases. We’re only doing what everybody else does. Now we use more sophisticated techniques. If we don’t do it, someone else will. What would you do? The decision-maker has to be better off with us than without us. We all have mental models. Not using a model is still a model. The models aren’t totally useless. You have to do the best you can with the data. You have to make assumptions in order to make progress. You have to give the models the benefit of the doubt. Where’s the harm?
    .
    The difficulties in modeling are not unknown. For example, Hendry (1980, p. 390) writes that “Econometricians have found their Philosophers’ Stone; it is called regression analysis and its used for transforming data into ‘significant results!’ This seriously under-estimates the number of philosophers’ stones. Hendry’s position is more complicated than the quote might suggest. Other sources from the modeling perspective are quite predictable. (Freedman, David A. Statistical models [theory and practice]. New York: Cambridge University Press; 2009; p. 212.)

    .
    He then goes on to provide nuanced critique. The book is a long read …

    • Ken Zimmerman
      October 17, 2019 at 12:58 pm

      The unknown part is good. It’s the failure to mention not knowing what is unknown, when, where that’s troublesome. That’s why each regression analysis is a unique event, despite what economic statisticians (econometricians) claim.

      • Rob
        October 18, 2019 at 12:25 am

        It’s the failure to mention not knowing what is unknown, when, where that’s troublesome. ~ Ken Zimmerman

        .
        Are we not all guilty of that to one degree or another? It isn’t just the statisticians (econometricians) who exhibit overconfidence as this seems a human trait that spans all fields from economics to evolutionary theory to anthropology to . Humility is a rare bird indeed and is refreshing when it is encountered, at least in my experience.

      • Ken Zimmerman
        October 19, 2019 at 9:35 am

        Yes, Rob there’s plenty of blame to go around. However, it’s my view that econometricians are more offensive in such actions than even the ordinary economist.

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