John Cochrane on Economic Methods

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Commenting on Russ’ essay, he writes,

Economics and economic history also teach us humility: No economist in 1900 could have figured out what farmers, horse-shoers, ice deliverers, street-sweepers, and so forth would do when those jobs disappeared. The people involved did. Knowledge of our own ignorance is useful. Contemplating the railroad in 1830, no economist could have anticipated the whole new industries and patterns of economic activity that it would bring — that cows would be shipped from Kansas to Chicago, and give rise to its fabled meat-packing industry. So, in a dynamic economy, all the horse-drivers, stagecoach manufacturers, canal boat drivers, canal diggers, and so forth put out of work by the railroad, and their children, were not, in the end, immiserized.

6 thoughts on “John Cochrane on Economic Methods”

  1. Someone can’t handwave the digital divide and “average is over” away saying something like “but what about meat packers in thbe 19th centure”. Past performance does not necessarily predict future results, and true humility would acknowledge this. There are strong reasons to suspect that this era is indeed different

  2. 1900 could have figured out what farmers, horse-shoers, ice deliverers, street-sweepers, and so forth would do when those jobs disappeared. The people involved did

    Sure we talk about how great job creation was for 15, 20, 25, or even 32 years after 1900. What was the unemployment rate in 1932? 25%! And how did that turn out in the long run?

  3. Cochrane didn’t quite get the humility lesson right.

    As Collin alluded to, those farmers, horse shoers etc… may have figured out what to do… or maybe they didn’t. So maybe they weren’t “all” immiserized, but I suspect many of them were.

    • Life expectancy in the late 40s mitigated those who would, or could, not adapt. Their sons picked up the new technology. Remember it had been a century of change. In 1800, a farmer from the 8th century would have easily felt at home on an American farm. Such was not true by 1900 and changed more rapidly after.

  4. How about some humility over whether the future will be similar to the past? It might, but it might not, and it might not on its own. Even back then we were moving towards an 8 hour day.

    • Right. Doomsayer economists then should have been more humble, but Panglossian optimist economists now should also be more hesitant to assuage that all will be well.

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