Keynes QOTD: Econometrics as Alchemy

Keynes is rightly regarded as one of the most influential economists of 20th century. But I think he also has a reputation for being a bad writer. The General Theory, his most widely cited book, is a dense tome filled with somewhat imprecise new concepts that later authors have spent 75 years debating (spawning schools including the [Neo-Classical] Keynesians, New Keynesians, Post Keynesians, Paleo Keynesian…). Keynes’ reputation, though, is unfair: most of his writings are clear and incredibly witty, befitting the man himself, who was a member of the influential literary/artistic Bloomsbury Group along with Virginia Woolf and more. So, I tend to imagine him as a character in an Oscar Wilde play. Keynes’ (1939) review of Jan Tinbergen’s early work producing econometric models is an excellent example. Here’s how Keynes concludes his critical review:

No one could be more frank, more painstaking, more free from subjective bias or parti pris than Professor Tinbergen. There is no one, therefore, so far as human qualities go, whom it would be safer to trust with black magic. That there is anyone I would trust with it at the present stage or that this brand of statistical alchemy is ripe to become a branch of science, I am not yet persuaded. But Newton, Boyle and Locke all played with alchemy. So let him continue.

I love this quote, especially for the tongue-in-cheek invocation of physics. As Mirowski and others have alleged, Physices in the late 19th and 20th century suffered from a heavy case of physics envy. Here, Keynes points to the greatest physicist of them all and says, remember how he was kind of nuts and played with alchemy a lot? It does a lot of rhetorical work very quickly – both praising and dismissing Tinbergen, while opening up the possibility that such work will be necessary to actually set economics on scientific footing (even if it is itself absolutely unscientific).

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