During my break between what will turn out to be two interesting seminars today (more on Thaler's presentation later tonight), I wanted to point out Ronald Coase's lead article in the current issue of the Journal of Economic Management and Strategy (sub. req'd). The article is basically an explanation of how the famous Fisher Body and GM merger example that potential hold-ups are a justification for vertical integration is based upon misinterpreted and missing information. For those who are interested in the case, the article is rather illuminating (but not much moreso than has already been done by other authors).

What Coase does suggest is that the Fisher-GM story provides a prime example of what is wrong with much economic research. I quote a few choice statements from the last few pages:

The fact of the matter is that economists commonly obtain their theories in the study of industrial organization (and probably elsewhere) as a result, not of examining what actually happened but about thinking about it...This is not to say that spectacular results cannot be obtained by pure thought. We all know of Isaac Newton and Albert Einstein. But few of us can come close to matching their achievements. If progress is to be made in any science, it must be possible to use the talents of more ordinary people and by more ordinary means. [emphasis added]

I especially like this paragraph:

As I see it, progress in understanding the working of the economic system will come from an interplay between theory and empirical work. The theory suggests what empirical work might be fruitful, the subsequent empirical work suggests what modification in the theory or rethinking is needed, which in turn leads to new empirical work. If rightly done, scientific research is a never-ending process, but one that leads to greater understanding at each stage. In scientific research, we may win battles but not the war.

The final few sentences of the article:

What is needed is a change in the way economics is conducted. If our discussions are to have any value, our theories must have an empirical basis. As it is, the investigations by the economics profession of the relations of Fisher Body and GM stand as a glaring example of how economic research should not be conducted.