Saturday, January 28, 2017

Testing economic statements


I believe the goal of economics is to make accurate statements about economic phenomena. I think this is the purpose of any science. Scientists attempt to make accurate statements about their object of study.

Economic statements can be about specific real world situations or they can be about universal phenomena. It's also important for statements to be somewhat explicit, otherwise it will harder to pinpoint what is actually being declared. Economic statements can be written with mathematical notation or with accessible language.

I also want to differentiate between economic statements and economic concepts. Economic statements declare something, while economic concepts explain an idea without attaching it to reality. There is a fundamental difference between a statement and concept. For example, the color blue is a concept but the existence of this concept doesn't mean everything is blue. This is why I support co-existence of ideas and pluralism in economics. It's good to have a large toolkit of ideas.

I like to think of testing economic statements as a two step process:

1. Make an economic statement
2. Accumulate evidence to determine the validity of the economic statement

In my opinion, the second step is the most important part of economics. Building a DSGE model is cool, but it's only a statement. I believe it's more important to find evidence that supports or disputes an economic statement in order to determine its accuracy. That's why I support econometrics and the empirical revolution in economics. I'm inspired by innovative methods that determine the validity of economic statements.

I believe one of the most common mistakes in modern economics is too much time spent building complex formal economic statements and not enough emphasis testing the validity of those statements. Sometimes it's better to just use common language.

7 comments:

  1. It will be nice if you share the spreadsheet

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    1. Thanks for the suggestion Moin. I posted a link in the text.

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    2. Moin, sorry I got rid of the link to the my economic theory excel spreadsheet and that whole paragraph. I deleted the paragraph to refine the message of the post. At least I was able to give you access while I had the link temporarily posted. If anybody else is interested in a spreadsheet of economic theories, please let me know and I can send you a link.

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    3. Hi Alex, could you mail me the link at khoradiyas@gmail.com
      Regards: PJK.

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    4. Copy and paste this url to see the spreadsheet: https://docs.google.com/spreadsheets/d/1dDtylSzBvUWmn8EE_Dxmcwgb34dVlsjCudE2PE2XFfQ/edit?usp=sharing

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