What Can Be Learnt From Econometrics?

The title of this blog is, of course, somewhat arrogant.  It suggests the econometric method is superior to whatever economic theory can throw up.  It also suggests that my attempts at doing econometrics are superior to everyone else's.  Of course, I don't subscribe to either viewpoint.

However, I do have a high regard for econometrics.  I'm not a sceptic because, like commenters such as Falkenblog and his commenters, I have a low regard for econometrics and in fact regard economic theory more highly than econometrics.  It's probably also worth emphasising I'm not at all sympathetic to what is somewhat vaguely described as the Austrian School of Economics, the proponents of whom disregard all empirical analysis as valueless.

I see economic theory and econometrics as being complementary in learning more about the world around us.  Just as I create theories in my head about my everyday existence (my car can drive 500 miles without me refuelling), when I'm confronted with hard data, I'm forced to rethink.  I made 490 miles in the end before coming to a sticky end on the M42.

I think this is the least arrogant position.  It says: I don't know everything, it's very complicated out there.  I'll construct theories about the world, and I'll test them.  If the theories are rejected, I will probe how well the theories have been tested and if the testing passes muster, I'll reformulate the theory.