Jan Tinbergen – Remembering the Last Alchemist of Economics

While economies are contracting in the biggest crisis of all time, it is worth remembering the man behind the first comprehensive national macroeconomic model to study the Great Depression – The Dutch Jan Tinbergen. He was the first to put together the flux of formal databases, the mathematics, and the logic of theoretical economics, and was a pioneer in taking up the implicit challenge of modelling an economy. The Netherlands was the first benefiting of such contribution in 1936.

Tinbergen developed a vast legacy to the field of econometrics, an extensive input against restrictive trade policies and was awarded the first Nobel Memorial Prize in Economic Sciences in 1969 (jointly with Ragnar Frisch. But what is worth to remember today (24 years after his death) is his character to deal with the ferocity of criticisms.

Tinbergen met the hardest criticisms on his 24 equations model from the shrewdest economist of all time, the (moustache) man who started the macroeconomic revolution in economics – Lord John Maynard Keynes. The latter was opposed to the method of multiple correlations, which Tibergen used in trying to quantify the relative importance of the different elements that caused a business cycle.

Keynes argued that Tinbergen’s method was mere “hocus pocus” since it did not contain all the variables, especially those that cannot be measured, for instance social, psychological, and political factors. Indeed, Keynes’ last comment on Jan’s method, just before World War II, brooked no further argument and was be a fierce blow to Jan. Keynes was still not persuaded that Tinbergen “statistical alchemy” was ripe enough to become a branch of science. “But,” Keynes continued, “Newton, Boyle, and Locke all played with alchemy. So, let him continue.”

As is known, Keynes died after the war, and Tinbergen’s career still through several decades until the 1990s.

In his Prize Lecture, in 1969, Tinbergen humbly admitted as much that Keynes might have been right in that he never succeeded in predicting the fluctuations in business investments. But his interest changed to developmental economics and became more interested in the structure of the world economy itself and not in its variations.

In the 1980s, Tinbergen explored the human relations where he argued that “misunderstandings” are a consequence of the “inaccurate formulation of thoughts” and it results in inaccurate policies. He admits that market theory is the best option to use when information is lacking, and uncertainty prevails.

These days when an economic crisis without precedents breaks out on the horizon that’s precisely the best approach to adopt. If there is no best option, let’s market rule.

The capacity to avoid misunderstandings through a correct preparation needs time, training and cooperation with peers. It seems an excellent lesson for nowadays governments that are euphorically preparing legislation to fight like Don Quixote disregarding the disputes that Tinbergen so clearly pointed: “an accurate formulation of thoughts always needs critics and criticism to improve the intensity of policy boilerplate”.