Thursday, April 30, 2009

Is that an echo?

How funny to come across a similar view.

The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.

In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time.

Prof. Barry Eichengreen

Perhaps Einstein put it most aptly: As far as the laws of mathematics refer to reality, they are not certain, as far as they are certain, they do not refer to reality.

Induction is all about checking to see how, why and where the rubber of an idea hits the road of reality.