The Embarrassing Error of the Empirical Economists

Economic Policy Journal’s takeaway on the Reinhart-Rogoff fiasco:

Austrian economics reject empirical data as a method to prove economic theory, for Austrians it is all about logical deductions. Thus, there is not much for Austrians to do, relative to the current Reinhart-Rogoff destruction at the hands of a U Mass graduate student, other than to grab some popcorn and watch with bemusement from the sidelines.

Comments

  1. While I agree that empirical evidence can’t disprove theory, I think this take on the (empirical) austerity debate is misguided. Theory needs to be applied to the real world, and if studies find that certain theories (for instance, those behind the argument for austerity) aren’t applicable, this is something that Austrians ought to grapple with — and it’s within the bounds of our methodological beliefs. The better case against these studies, in my opinion, is that the data they rely on is “aggregated,” in the sense that there’s an omitted variable problem. Do they consider labor market regulations, banking policy that may affect financial intermediation, et cetera? These are all things that will slow a recovery, even if there is a decrease in the public share of resource allocation.

    Wenzel’s approach seems to me akin to repeating the same ol’ line, which is being grossly misused, and sticking our heads in the sand. We can’t, and shouldn’t, avoid reality. We should be arguing why the interpretations of others are wrong, not why interpretations of reality are irrelevant.

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