Scott Sumner notes that the data is becoming more complicated, and therefore more difficult to dissect and understanding. He links to a post by Evan Soltas, who in turn quotes a piece by Justin Wolfers. Wolfers writes,

Economics is in the midst of a massive and radical change. It used to be that we had little data, and no computing power, so the role of economic theory was to “fill in” for where facts were missing.

That was never the role of economic theory. Data is delivered to us en masse, and needs to be interpreted. As such, the role of economic theory — including models and ideal types — is to provide the tools of interpretation. More data, more complete data, or even the “perfect data set” (as Sumner describes it) can’t replace theory, because without theory the data is absolutely useless.

Prior to The General Theory, it seems as if there was greater heterogeneity in opinion on macroeconomics (read: on the business cycle). What Keynes’ magum opus did was shut out structural theories, like the Mises–Hayek one or Dennis Robertson’s, in favor of his strict “effective demand” story. Keynes’ theory, perhaps diluted over the years (depending on who you ask), is the dominant explanation of cyclical fluctuations, but in the 1970s it seemingly suffers from an incongruity with the new data. This gives birth to the rational expectations school, but more importantly — I think — it solidifies the notion that what really matters is the data, the theory pushed a step back.

This isn’t entirely true, and it’s not as if I lived during this period, but my reading gives the impression that much of the theoretical development that did occur during these years, outside of rational expectations, takes place at the hands of loosely heterodox economists. It’s not that these economists didn’t care about the data, rather they were intent on forming a different interpretation of it, since the existing ones didn’t quite satisfy their intellectual thirst. Who are the people that modern macroeconomists are turning to today? Minsky, monetary disequilibrium theorists, et cetera (or, alternatively, pre-rational expectations models developed by, to a large extent, interwar theorists). These were all economic scientists who worked in the realm of “pure theory.”

Sumner writes about data collection during the interwar period, but I notice something else. I might have a bias towards the heterodox — and the prewar period can be the heterodox economist’s dream —, but the interwar period also enjoyed a very diverse theoretical culture; it was a period of “critical pluralism,” and I’m not sure that what came out of it (embodied by the Neoclassical–Keynesian synthesis) really did this period justice.