Saturday, April 15, 2017

Jan Tinbergen: pioneer of economic modeling

Jan Tinbergen (1903-1994) is an influential economist known for building economic models and helping pioneer econometrics. He was also the recipient of the first Nobel Prize in Economics in 1969. The Concise Encyclopedia of Economics says,
Along with Frisch and others Tinbergen developed the field of econometrics, the use of statistical tools to test economic hypotheses. Tinbergen was one of the first economists to create multiequation models of economies. He produced a twenty-seven-equation econometric model of the Dutch economy, and his 1939 book, Business Cycles in the United States, 1919–1932, includes a forty-eight-equation model of the American economy that explains investment activity and models American business cycles.
John Maynard Keynes questions the usefulness of Tinbergen's economic modeling,
[Tinbergen's] method is neither of discovery nor of criticism. It is a means of giving quantitative precision to what, in qualitative terms, we know already as the result of a complete theoretical analysis. (Tinbergen's work: Change and continuity by Kol and Wolffe)
 Keynes also said referring to Tinbergen,
No one could be more frank, more painstaking, more free from subjective bias or parti pris than professor Tinbergen... But Newton, Boyle and Locke all played with alchemy. So let him continue. (Tinbergen's work: Change and continuity by Kol and Wolffe)
This post is a collection of quotes from Tinbergen describing his economic modeling style. I also included quotes showing his support for a world government which is another important aspect of his legacy.

How to build an economic model

"First of all I want to remind you of the essential features of models. In my opinion they are: (i) drawing up a list of the variables to be considered; (ii) drawing up a list of the equations or relations the variables have to obey and (iii) testing the validity of the equations, which implies the estimation of their coefficients, if any. As a consequence of especially (iii) we may have to revise (i) and (ii) so as to arrive at a satisfactory degree of realism of the theory embodied in the model." (The Use of the Models." (The Use of Models: Experience, 1969)

Analysis of mathematical economics

"Models constitute a framework or a skeleton and the flesh and blood will have to be added by a lot of common sense and knowledge of details." (The Use of Models: Experience, 1969)

"As a boundary science, econometrics is younger than the adjacent regions, which fact likewise has advantages and disadvantages. As a disadvantage, the lack of an established doctrine, and also the lack of established textbooks, can be felt; as an advantage is the fresh enthusiasm, with which its students work." (Econometrics, 1951)

What is the best economic system?

"It is also our hope that the interpretation of the socio-economic optimum as a set of institutions may help to get under way a discussion of a more scientific character than was usual so far about the relative merits of various existing socio-economic orders, especially those of Eastern and Western Europe, including such interesting cases as Sweden, Switzerland and Yugoslavia. A considerable amount of better information about various types of external effects will be one of the necessary ingredients if we want to give concrete content to such merit rating of various systems." (The Use of Models: Experience, 1969)

"It is my hope that in such a way we may again, as Marx claimed, find scientific arguments in the competition between various systems, but up-to-date scientific arguments rather than obsolete ones. This more fundamental research in economics deserves relatively more attention and resources than the more superficial versions of economic research directed at forecasting or analyzing very short-term fluctuations in market prices, on which quite some money is being spent to-day."

Support for a world government

"Mankind’s problems can no longer be solved by national governments. What is needed is a World Government. This can best be achieved by strengthening the United Nations system." (Human Development Report 1994 by the United Nations)

"Some of the most important new institutions would be financial- a World Treasury and a World Central Bank. Just as each nation has a system of income redistribution, so there should be a corresponding ‘World Financial Policy’ to be implemented by the World Bank and the World Central Bank." (Human Development Report 1994 by the United Nations)

"Some of these proposals are, no doubt, far-fetched and beyond the horizon of today’s political possibilities. But the idealist of today often turns out to be the realists of tomorrow." (Human Development Report 1994 by the United Nations)

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