Tim Harford, whom I respect greatly for his ability to write lucidly and clearly on economics, has written about Angrist and Pishke's latest paper on econometrics, building on the supposedly ground-breaking ideas and suggestions of Ed Leamer back in the 1980s. David Roodman takes up the story here.
As a Christian and econometrician I can't stand his last comment about Christians in America (why is believing in a God that creates un-scientific? Many Christians are able to bridge this gap David struggles greatly with, myself included. We're discovering the wonder of God's creation using Science, and the two answer totally different questions - the how and why), but let's get past that.
More importantly, the con has long been taken out of econometrics, and it was done before Angrist and Pishke - in fact I'd say they perpetuate the con. I went to a launch for the Angrist-Pishke book, Mostly Harmless Econometrics, at the 2009 RES conference in Surrey. Pishke said, basically: Back in the day (1970s) nobody trusted anybody else's econometrics, but now it's different (oh really?). Now if we have heteroskedasticity (or autocorrelation) in our residuals, we just correct for it using standardised residuals.
Excuse me, but how is that not conning the audience? We introduce some botched correction which makes a whole stack of assumptions, and is only valid in large samples, and somehow it's all ok? If I have a gaping wound in my knee, and someone says: Here's a plaster (band aid for the Americans), would you be happy? That's the equivalent.
Autocorrelation causes bias in estimates, heteroskedasticity causes imprecision. They are both symptoms of a greater malaise - model misspecification.
So how is it thus ok to paper over the cracks and not address the more serious underlying problems?
That, for me, is the con in econometrics, and it is being continually perpetuated, especially in the econometric sentiment of Angrist and Pishke.
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