December 5, 2012 at 2:16 pm #17419
I agree with Mises’s criticisms of econometrics. He makes two main points. First, it isn’t possible to formulate economic propositions as mathematical functions because there are no constants in human action. Everything is a variable. So it is a mistake to postulate C = a + bY for example. Second, human action is subject to case probability, which has no numeric expression, and not class probability.
It seems to me that the burden of proof is on those who claim that econometrics renders either theoretical or historical truth.
Here is a recent example of insightful historical analysis without econometrics: