Fixing ideas: how research is constrained by mandated formalism
The puzzle: why do so many economists in principle acknowledge the importance of creative destruction, and yet in practice give so little attention to creative destruction in what they teach and what they research? The answer lies, in part, in the difficulty of obtaining what is viewed as 'hard' evidence in support of some of the central claims. For example, one such claim is that new products contribute more to consumer well-being than price competition on old products. The only kind of evidence accepted by much of the profession is the testing of econometric hypotheses generated from formal models. The sort of evidence found in persuasive sources such as DeLong's 'Cornucopia' consists of historical examples and raw time series. I argue that in the short run, a more pluralistic methodology would be better, and that in the long run, we should seek to understand which methods work best under which circumstances.
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