economics as faith (1)

Some time ago – beginning in July 2007 – I circulated a number of thoughts on production functions to the Thought du Jour list. I have decided to recycle these thoughts, for two reasons. First, to bring them together and make them more accessible, with a single subject line. Second, to reach a larger audience via the blog. The posts might seem a bit wonkish, but none are difficult, I promise. The aggregate production function is the work horse of the economics profession. It is too important a concept to be accepted on faith.

We begin with a quote from Paul Samuelson, one of the most important economists of the twentieth century.

Until the laws of thermodynamics are repealed, I shall continue to relate outputs to inputs — i.e. To believe in production functions.

Paul A. Samuelson, Collected Scientific Papers, 1972, p.174.

I, alas, have lost my faith. Samuelson, we shall see, also lost his in later years.

Tags: , ,

2 Responses to “economics as faith (1)”

  1. […] PWT version 6.3 is now up and running, no doubt with even more changes to PPP-adjusted GDP. Sadly, these data are used widely, and uncritically, to ‘explain’ why some countries grow faster than others. As a robustness check, it might be wise to run growth models on subsequent versions of the PWT. The makers of PWT from the very beginning attached warning labels to the data, but these warnings have largely been ignored. It is so much easier to run regressions than to do the hard work of examining with a critical eye the underlying data and, for that matter, to question the underlying theory – or absence thereof. On the latter, see my 7-part series on “economics as faith” beginning here. […]

  2. […] per se is not testable” so must be assumed. EMH is a clear example of what I have dubbed “economics as faith”. Here are some brief excerpts from Fama’s autobiographical essay. Finance is the most […]