I was wondering what people thought of the following argument against modern economical epistomelogy.
I own a railroad company. And, upon hearing the wonders of modern economics, I decide to hire an econometrician as a consultant for my company. I then proceed to give him all the books, every receipt and transaction and metric of my company. And furthermore tell him that I am fully ready to implement any advice he gives to me.
The economist goes to work and soon discovers that after every spike of construction costs, the following month I have a humongous spike in profits. This happens hundreds of times without fail throughout my company’s history except for three or four exceptions.
After pouring through this, the economist decides that I should spend exactly $5.4 million in construction costs. Build a huge monument, whatever, it doesn’t matter. The data is completely conclusive that that is the way to economic growth in my company.
Taking his advice, and not seeing any rail-line opportunities for that month, I spend $5.4 million on a gigantic monument to myself. Not surprisingly, profits haven’t nudged at all (well, maybe a little for tourism).
After talking to the economist again, he is convinced that this must have been one of those 3 or 4 flukes he saw in the data. Do it again, I’m assured, and I will surely be wringing profits out my ears.
So, I spend another $5.4 million this time on rail-lines going to absolutely nowhere, or places that are obviously not profitable. I do get a little nudge in revenue, but soon my company goes bankrupt.