Solow’s Economic History and Economics
This paper contrasts the nature of economies with what it would need to be for the mainstream – scientistic – approach to be truly scientific. Solow notes the difference between those who think about economies and those who think about economics as an academic discipline.
… economic theory learns nothing from economic history, and economic history is as much corrupted as enriched by economic theory.
I suspect that the attempt to construct economics as an axiomatically based hard science is doomed to fail.
Here Solow seems to overlook the possibility of an imprecise axiomatically based hard science. He goes on to note the limitations of a hypothesis testing approach.
The competing hypotheses are themselves complex and subtle. We know before we start that all of them, or at least many of them, are capable of fitting the data in a gross sort of way. Then, in order to make more refined distinctions, we need long time-series observed under stationary conditions.
… much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high.
Thus we might think of economies as a kind of game, in which players compete to spot and exploit regularities, destroying those regularities in the process. He goes on:
… the interests of scientific economics would be better served by a more modest approach. There is enough for us to do without pretending to a degree of completeness and precision which we cannot deliver. To my way of thinking, the true functions of analytical economics are best described informally: to organize our necessarily incomplete perceptions about the economy, to see connections that the untutored eye would miss, to tell plausible- sometimes even convincing -causal stories with the help of a few central principles, and to make rough quantitative judgments about the consequences of economic policy and other exogenous events. In this scheme of things, the end product of economic analysis is likely to be a collection of models contingent on society’s circumstances-on the historical context, you might say-and not a single monolithic model for all seasons.
Logical rigor is just as important in this scheme of things as it is in the more self-consciously scientific one. The same goes for econometric depth and sophistication, maybe even more so. I mentioned “rough” quantitative judgment a moment ago, but that was only to suggest that the best attainable, in macroeconomics anyway, is not likely to be precise, if we are honest with ourselves and others.
… We are socialized to the belief that there is one true model and that it can be discovered or imposed if only you will make the proper assumptions and impute validity to econometric results that are transparently lacking in power.
… Hard sciences dealing with complex systems – but possibly less complex than the U.S. economy – like the hydrogen atom or the optic nerve seem to succeed because they can isolate, they can experiment, and they can make repeated observations under controlled conditions. Other sciences, like astronomy, succeed because they can make long series of observations under natural but essentially stationary conditions, and because the forces being studied are not swamped by noise. Neither of these roads to success is open to economists.
Solow’s view of ‘hard science’ resembles the school-book notion of science. What Solow is calling for is more like the approach of Whitehead, Keynes and Russell. In a sense, it is more properly mathematical and scientific than the usual computational and scientistic approach.
This quote, from Wikipedia:
Over the long term, places with strong, distinctive identities are more likely to prosper than places without them. Every place must identify its strongest most distinctive features and develop them or run the risk of being all things to all persons and nothing special to any…Livability is not a middle-class luxury. It is an economic imperative.
Solow’s observations on the apparent non-productivity of computers.