Introduction

Occasionally, the aspirations of econometrics are frustrated by technical difficulties which lead to increasing technical sophistication. More often, however, deeper problems hamper econometrics. These are the problems of scientific inference – the logical, cognitive and empirical limitations to induction. There is an escapist tendency in econometrics, which is to seek salvation in higher technical sophistication and to avoid deeper philosophical problems. This is reflected by the erosion of an early foothold of empirical econometrics, Econometrica. The share of empirical papers has declined from a third in the first (1933) volume to a fifth in recent volumes. This is not because most empirical values for economic variables or parameters have been settled. Despite the ‘econometric revolution’, there is no well established numerical value for the price elasticity of bananas. If Econometrica were to publish an issue with well established econometric facts, it might be very thin indeed. The factual knowledge of the economy remains far from perfect, as are the ability to predict its performance, and the understanding of its underlying processes. Basic economic phenomena, such as the consumption and saving patterns of agents, remain enigmatic.