Progress in Economics since Tinbergen

Abstract

I belong to the dwindling generation of economists who learned directly and personally from Jan Tinbergen’s example and from his writings. So it is a matter of special regret that I could not be present at the celebration of his hundredth birthday. Given this opportunity to comment, I want to be clear about what I think we learned; it goes well beyond the reading of such didactic classics as his League of Nations study of the business cycle in the U.S. or his example of a self-contained oscillatory process in the shipbuilding cycle. It seems to me that Tinbergen – not alone, of course, but along with Ragnar Frisch, perhaps Michal Kalecki, and then later Paul Samuelson – was a major force in the transformation of economics from a discursive discipline into a model-building discipline. After Tinbergen, studying a problem meant, for many of us, trying to decide what its important features – its main causal connections – might be, and then building a model – a simplified but precise representation – to highlight those features and their economic implications. One realizes easily that there is a natural connection between the model-building approach to economics and the development of econometrics. This may explain why estimating the parameters of a model came to be the main activity of econometricians, as against the simple testing of hypotheses in the manner of R.A. Fisher’s Statistical Methods for Research Workers. It is one of history’s ironies that J.M. Keynes, who was so obtuse in his hostile review of the League of Nations book, should himself have inspired an enormous outpouring of theoretical and econometric models. Of course there has been progress in economics since Tinbergen, and most of it has taken the form of improved and extended model-building. The range of situations that can be and have been modelled has become wider: think of strategic behavior, contracts, incentive compatibility, poverty traps, financial markets, etc. New theoretical ideas have been embodied in functioning models: think of game theory, imperfect competition, bargaining, intertemporal optimization and sub-optimization , etc. I think Tinbergen would have welcomed the intrusion of ‘behavioral’ and experimental economics to broaden the repertoire. New sources and kinds of data have become available, along with the computational capacity to use them: think of the Penn World Tables, large microdata-sets, panels and longitudinal studies, etc. And sophisticated econometric methods have been developed to permit models and data to be brought together. I know that it is sometimes fashionable to deplore these developments, and to yearn for the days when a lady or a gentleman could simply discourse on economics in the manner of Adam Smith. This sort of nostalgia is probably natural; DE ECONOMIST 152, NO. 2, 2004