Wednesday, March 2, 2011

Brian Cowen and the Counterfactual Problem

Barney Frank got some coverage on economics blogs last year for pointing out the difference between economists and politicians (via Brad DeLong and David Wessel).

Not for the first time, as an elected official, I envy economists. Economists have available to them, in an analytical approach, the counterfactual. Economists can explain that a given decision was the best one that could be made, because they can show what would have happened in the counterfactual situation. They can contrast what happened to what would have happened. No one has ever gotten reelected where the bumper sticker said, "It would have been worse without me." You probably can get tenure with that. But you can't win office.

Our outgoing leader in Ireland adds his own slant

Most economic analysis and, most definitely, macroeconomics, does not allow for controlled experiments, where we can properly assess what would have happened if alternative policies had been pursued. We will never know the counterfactual - what would have happened. Nevertheless, the important point is that, globally, decisions were made, risks were taken, policies have been pursued and recovery is happening.

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