Thursday, March 13, 2008

Practice to Theory

I know, usually it's the other way around. But Slate has been reviewing the new Sachs book "Common Wealth". Here's an excerpt from Sachs, followed by an excerpt from Slate:
Too many economists spend far too much time debating grand principles rather than facts and evidence.
I agree with you that economists' tendency to ask whether what works in practice also works in theory is incredibly irritating.

I have to think that this isn't necessarily a bad idea. Theory gives simple explanations for things. Life isn't simple. If we were to remove all theory from the discipline, economics would be much less grand, and much more often incorrect. We can observe this in other sciences. Simply because we can measure the result doesn't mean understanding the why of the result is irrelevant. Far from it.

This is especially true given that all effects of any given action are not equally observable. Let's take trade. Unpopular enough as is. However, in the absence of many economists pointing at books of theory, it would likely have proliferated to a much lesser extent than it has now. We can easily observe the costs of trade - layoffs in the rust belt or whatnot, but it's much more difficult to observe the benefits, such as increased product selection, lower prices, etc. Our theory of trade improves the situation. If David Ricardo had solely been an econometrician, we would collectively be worse off.

Besides, if there is a failure within the profession, and we're spending too much time with "grand principles" rather than "facts and evidence", why?

POSTSCRIPT: Bad industrial utilization news.

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