We're reminded by Russ Roberts' conversation with Lars Peter Hansen today, of Leonid Kantorovich's ending to his Nobel Prize--the only Russian economist ever to win one--lecture in 1975;
The difficulties of modelling and data creation can be overcome like similar difficulties were overcome in the natural and technical sciences. My hope is based on the more and more intensive steam of research for new methods and algorithms in this field, on the fact of appearance of new theoretical approaches and problem statements, on a series of concrete studies of general and special problems concerning separate economic branches, on the fact that a whole army of talented young researchers work now in this field. A significant progress is now being made in the development of computer hard- and software and their mastering.
The mathematicians, economists and practical managers have achieved a better mutual understanding.
The favourable conditions for the work in this field were given by well-known important statements on control methods and their improvements which were made in last years by our authorities.Note well that, 'by our authorities'. Kantorovich is praising Leonid Brezhnev, because...well, because he'd better if he knows what's good for him.
We were reminded of Kantorovich because, 1) Tjalling Koopmans--who shared the Nobel with Kantorovich in 1975--is mentioned in the Roberts-Hansen podcast, and 2) Hansen, who shared the 2013 Nobel Prize, gave as his acceptance a speech titled, Uncertainty Outside and Inside Economic Models.
Something that Kantorovich's masters didn't appreciate, and he was loathe to admit back in 1975. But four decades later it's clear just how Kantorovich's 'difficulties of modelling' weren't so easily 'overcome' as he predicted. Though he himself ought to have had an inkling if he'd only read his own speech;
The problem [for a centrally planned economy like the USSR's] is to construct a system of information, accounting, economic indices and stimuli which permit local decision-making organs to valuate the advantage of their decisions from the point of view of the whole economy. In other words to make profitable for them the decisions profitable for the system, give a possibility to check the validity of the work of local organs activity also from the point of view of the whole economy.Which is followed in the body of the speech by excuse after excuse after excuse, like;
Some complex problems of economic control were generated by the contemporary development of the economy, by the so-called scientific-technical revolution. I mean the problems of prediction and control in conditions of large shifts in the weights of different branches, of the rapid changes in production and technology, national economy. The problems of estimating technical innovations and the general effect of technical progress. The problems of ecology connected with the deep changes of the natural environment under the influence of human activity, the prospects of exhausting the natural resources. The prediction of social changes and their influence on the economy. The changes in presence of contemporary computational technique, means of communication, managerial devices and so on.
Most of these problems arise also in countries with capitalist economy but in socialist economy they have their own difficulties and peculiarities.
There existed neither experience nor sufficient theoretical foundation for the solving of these hard problems.Nor did solutions ever develop, despite the best intentions of Kantorovich and his colleagues in the Soviet Union. And there were secret police, labor camps, hidden microphones, even nuclear weapons available for the authorities he praises, to enforce their decisions.
So far, all the evidence is that the difficulties of economic modelling can't be overcome.