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The Craft of Economics

The Craft of Economics: Lessons from the Heckscher-Ohlin Framework

Edward E. Leamer
Series: Ohlin Lectures
Copyright Date: 2012
Published by: MIT Press
Pages: 208
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  • Book Info
    The Craft of Economics
    Book Description:

    In this spirited and provocative book, Edward Leamer turns an examination of the Heckscher--Ohlin framework for global competition into an opportunity to consider the craft of economics: what economists do, what they should do, and what they shouldn't do. Claiming "a lifetime relationship with Heckscher--Ohlin," Leamer argues that Bertil Ohlin's original idea offered something useful though vague and not necessarily valid; the economists who later translated his ideas into mathematical theorems offered something precise and valid but not necessarily useful. He argues further that the best economists keep formal and informal thinking in balance. An Ohlinesque mostly prose style can let in faulty thinking and fuzzy communication; a mostly math style allows misplaced emphasis and opaque communication. Leamer writes that today's model- and math-driven economics needs more prose and less math. Leamer shows that the Heckscher--Ohlin framework is still useful, and that there is still much work to be done with it. But he issues a caveat about economists: "What we do is not science, it's fiction and journalism." Economic theory, he writes, is fiction (stories, loosely connected to the facts); data analysis is journalism (facts, loosely connected to the stories). Rather than titling the two sections of his book Theory and Evidence, he calls them Economic Fiction and Econometric Journalism, explaining, "If you find that startling, that's good. I am trying to keep you awake."

    eISBN: 978-0-262-30158-9
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Prologue
    (pp. vii-x)
    Ed Leamer

    In November 2008 I received an email from Mats Lundahl asking if I might give the Ohlin Lectures in 2009. I responded immediately, positively and enthusiastically to the opportunity of being added to a very distinguished list of previous Ohlin lecturers. But soon enough I had second thoughts as I confronted the very difficult question of what to do to earn my place on that list. My expertise in international economics covered both the theory and the empirical analysis of the Heckscher–Ohlin framework. I knew that a great deal of ground regarding the Heckscher–Ohlin framework had already been...

  4. 1 Introduction
    (pp. 1-14)

    The Ohlin lectures are a time for admiration of the Heckscher–Ohlin framework of global competition. I claim a lifetime relationship with Heckscher–Ohlin, and I am prepared to praise it lavishly. Others who came before me in this lecture series, including Robert Baldwin, Alan Deardorff, Ronald Findlay, and Ronald Jones, have also spent intellectual lifetimes exploring the possibilities of the HO model, and know that model as well as I do. But I think I have something special to say about the HO model. My infatuation with its beauty has long since passed, but I have grown to appreciate...

  5. 2 The Heckscher–Ohlin Framework as Economic Fiction
    (pp. 15-96)

    This chapter deals with the Heckscher–Ohlin theory, which has maintained its position near the top of the economics fiction best-seller list for over half a century, even as competitors have come and gone.

    I will use the word “framework” to refer broadly to the Heckscher–Ohlin idea that trade across space is a consequence of the uneven geographic distribution of the world’s productive resources, and I will use the word “model” to refer to specific examples of the framework.

    The first item of business is to pick a language in which to discuss the HO framework. Which should it...

  6. 3 The Econometric Journalism of the HO Framework
    (pp. 97-164)

    In this second chapter, I turn to what I will call “econometric journalism,” more commonly and less provocatively known as “empirical work.” The empirical literature on international trade has been extensively reviewed by Leamer (1994b), Leamer and Levinsohn (1995), Helpman (1999), and most recently and very effectively by both Davis and Weinstein (2002) and by Baldwin (2008). I will not be offering a complete review here, but only some methodological comments in keeping with the theme of this essay: What are we doing right, and what can we do better?

    My first recommendation is to increase the use of visual...

  7. 4 Summary
    (pp. 165-166)

    Validity is not the same as usefulness. Accuracy is not the same as usefulness. Single-minded pursuit of validity and accuracy doesn’t ensure usefulness. On the contrary, it guarantees a useless product.

    Any theory has a domain of usefulness and a domain in which it is misleading. A great economist knows when a model works and when it doesn’t. Before falling completely in love with your latest model, it is best if you spend some time thinking about its domain of usefulness. What public policies does your model help formulate?

    Analytical thinking has a trinity of tasks: formulate the questions, choose...

  8. Notes
    (pp. 167-174)
  9. References
    (pp. 175-186)
  10. Index
    (pp. 187-196)