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.
That is Barry Eichengreen writing in The National Interest, reflecting on the path that brought us to today’s economic turmoil. He could easily be speaking about development economics. Good theory requires a solid set of stylized facts to explain–facts we still lack (but are slowly accumulating).
I hope the journals listen–inductive science is still hopelessly and tragically out of fashion. More than one editor has asked me to rewrite an inductive paper to sound like a deductive one–a terrible crime of science as far as I’m concerned.
Hat tip to Andy Mack.