Economics, history and causation

To continue our debate about the (f)utility or empirical research, here is a great new paper that eloquently discusses many of the issues. A few teasers:

"The writ of empiricism is now so broad that younger economists can scarcely imagine a time when rhetorical skill, rather than empirical falsification, decided issues and the simplest regression was a day’s work with pencil and paper" [...] "one [now] seldom sees  an  economic theory article without valid econometric evidence, or at least a compelling survey of supportive empirical evidence." [...] little data can make things worse, not better, for Cold War era editions of Samuelson’s textbook,  Economics features graphs of Soviet GNP  surpassing US GNP by the  1980s, or 1990s at the latest. [...] "We argue that strict limitations on the validity of instrumental variables greatly limit their utility, and that repeated use of the same instrumental variables in related economic contexts undermines their  validity in an econometric tragedy of the commons. However, we believe that economists might find other ways of establishing causality by recognizing history as more than a tool shed for instrumental variables. History provides contextual details, plausibility tests, external consistency checks, and a role for free will. Though not proof of causation, correlation is a smoking gun; and history can often supply sufficient circumstantial evidence to convict." 

 After all, things get terribly boring once you begin to reduce everything to x on y. Oh no, it could also be y on x, or maybe z on both. Ahem.