In a twitterstream about this blogpost Tony Yates (@t0nyyates) however hits the nail on the head (quote, not out of context):
“so much in economic theory unobservable. Utility, TFP, discount factor, elasticities, even capital“.Which is right (well, not entirely, we do actually measure TFP (Total Factor Productivity) and capital, see below a little about capital). But Yates seems happy with this situation. Which he shouldn’t be....
Students are, however, still taught about outdated unobservables like ‘utility’. So, who is teaching and writing about ‘phlogiston’? People like Kay and Yates, who base their ideas on ‘unobservables’, or somebody like the late Wayne Godley, who wrote about observed fact. Or the very alive Steve Keen? Or Ha-Joon Chang? Or economists like the ‘heterodox’ Georgists, who promote the idea that ‘produced capital’ and ‘land and other non-produced resources’ are analytically and empirically distinct concepts (just like Ricardo already stated, by the way)
And no, this is not naïve empiricism - economic measurements very much dependent on the theoretical ideas embedded in the concepts and operationalisations. Here you can find a not so flaky recent blogpost by J.W. Mason about this. Which means that we should our students exactly this – economic measurement is a difficult science and an art and you can’t be an economic scientists if you do not have a deep knowledge about the process of measurement of this moving target. And we have to confront them with this wisdom again and again and to teach them that we have to muddle through with whatever imperfect data we have – but we should not, never construct models which are unobservable to their core. Kay and Yates, however, do not seem to be aware of these problems, and seem more than happy with unobservables and the fuzzy models based upon phlogs. Talk about flaky…Real-World Economics Review Blog
Tony Yates hits the nail on the head. But he should have hit a stake…
Merijn Knibbe
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