The talk linked below explains why the positivist/nominalist methodology used in Econometrics leads to mostly nonesense regressions. It also explains how a realist alternative can be developed.
“The Philosophy and Techniques for Quantitative Research” – Keynote Address by Dr. Asad Zaman, VC PIDE at Workshop on 19-20 April, 2018 Dept of Economics, Fatima Jinnah Women’s University, Rawalpindi, Pakistan.
My message will come as a surprise to students gathered here to learn advanced econometric techniques. Let me begin by stating it baldly: “Econometrics is nothing more than Fraud by Numbers”.
As Joan Robinson famously said, “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” A similar statement holds for econometrics. We should learn it not in order to acquire techniques which will teach us how to use data sets to make inferences about reality. Rather, we should learn it to avoid being deceived by econometricians. The techniques described by Perkins in “Confessions of an Economic Hit-Man” are in common use around the world. Fancy econometrics is used to persuade people to adopt policies which harm the public, while fattening corporate coffers.
As a simple illustration of econometric fraud, consider the following regression:
CONS = -268.7 + 6.78 SUR – 1.82 CO2 + error (R2=0.84)
Std Err: (25.9) (0.73) (0.65) (20.0)
Where CONS = Private Consumption Expenditure in Pakistan, SUR =Survival to age 65, female (% of cohort) = SP.DYN.TO65.FE.ZS, C02 =CO2 emissions from gaseous fuel consumption (% of total)= EN.ATM.CO2E.GF.ZS – these are variables taken from the WDI data set.