Econometrics and reality

Is econometrics possible? The question reminds me of an argument between two divines at an ecumenical conference. Baptist minister: “I don't believe in infant baptism.” Roman Catholic archbishop: “Not only do I believe in infant baptism, I have seen it done.” Every applied economist has seen it done; yet Tony Lawson in his book, Economics and Reality (1997), assures us that, splash the econometric holy water as you may, economic heaven will not be a whit closer. The metaphor is perfectly apt; for Lawson's reason for dismissing econometrics is metaphysical: transcendental realism provides an accurate ontology of the economic world; econometrics is necessarily incompatible with transcendental realism. Nancy Cartwright, who is also a realist, appears more favorably disposed to econometrics. After all, in her Nature's Capacities and Their Measurement (1989), she stokes the self-esteem of economists by suggesting that quantum physicists might learn a thing or two about handling probabilities from econometricians (see also chapter 6 in this volume). Beneath a cheery exterior, her views are in fact stunningly pessimistic: the conditions in which econometric methods can succeed are strict; they may be met in the land of quantum physics, but never in their country of origin. Against both Lawson and Cartwright, I maintain that econometrics and realism are compatible and, indeed, that realism helps us better to understand the role and successes of econometrics.