The Need for a Synthesis

PROF. DR. J. TINBERGEN (1982)

Introduction

The current state of emergency makes it a duty for economists to quit confrontations between

monetarists, classical economists (or supply-side economists), anti-regulation economists and

Keynesians. The essence of scientific work is to derive a synthesis form a thesis (e.g., those of

Keynes) and one or more antitheses (e.g. those of Friedman or a different one from the modern

currents). The politicians and citizens have the right to demand that. The criterion for a

synthesis, is a better explanation for what happened in the (recent) past. Each mentioned

current1 has contributed to this explanation, but not one current has a ‘monopoly on wisdom’.

The testing of the criterion can begin with sub-models, but the complete model has the last

word.

Why is There a Need for a Synthesis Between the Theories That Currently Circulate?

The longer the stagflation, the more this state of emergency in which we find ourselves becomes

unfavourable to us. There is a clear need for a policy that is more determined. This should be

based, amongst other things, on the “as good as possible” socio-economic theory, and the latter

must be accepted by as many economists as possible. If we, economists, continue to position us

opposite to each other, then we neglect our duty of scientists. What should the politicians and

the citizen do, if we cannot come to a more or less unanimous verdict? Then they will perhaps

be guided by worn/old viewpoints, or only by narrow self-interests. Some economists tent to

continue with this polarization. The currents I have already mentioned, such as those of the

monetarists and ‘classical/supply-side economists’, have some representatives who believe that

they have all the answers. This however, is not a mature attitude. Luckily, there are a lot of other

individuals who accepts that each of the new currents has adduced a piece of truth. The

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Monetarists, classical economists, anti-regulation economists and Keynesians.
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 conception of R. Lucas (cited by Bomhoff 1)), which holds that at advance, a synthesis is

hopeless, seems premature to me.

It is a natural state of affairs in scientific research that, when a thesis is announced (for

example those of Keynes) and after that, a antithesis (for example those of Friedman), one looks

for a synthesis. Usually in the form of statements which express under which circumstances the

thesis and under which circumstance the antitheses are valid. Expressed quantitatively, one

could also say that in some regression-comparisons/equations, some of the coefficients explain,

what the weight is of the explanatory variables that are mentioned by the competing theories,

with regard to the state variable. When one is searching for a synthesis it is important, as Klein

has pointed out 2), that: “It is less important that the effort be labeled Keynesian, monetarist,

neoclassical or anything else than that we get good approximation to explanation or this

complete system…” Indeed, the criteria with which we test different competing views, must lie

in the best possible explanation of the observed developments, where of course especially the

most recent developments (which have questioned earlier statements) should be taken into

account heavily.

Some Examples

Let me illustrate the contradiction between the actual task of scientists and some recent

statements, based on some statements that seem (to me) to be too ‘polarizing’. It has been

argued that the use of large models would not be correct (Bomhoff, 3). However, according to

my understanding, the final stage of a verification or falsification has to based on the use of a

large model, because the consistency of new, improved equations (with regard to all other

equations) can only be tested this way2. Large models would, a priori, be ‘Keynesian’. I do not

see why. Keynes himself, initially did not want to have anything to do with (large) models.

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Via this large model.
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 They would express future expectations in an inconsistent way. Which can be true, however this

need not be the case; they can be made consistent.

The classical economists (or supply-side economists) justly state that in the current

situation the supply side must be included in a model as well. I think I can state that this in fact

has been done from the beginning of the construction of the models, but perhaps not in an

adequate way. The pricing equation that have been included in the oldest models are actually a

form of offer treatments. So we should be concerned with the question regarding the behaviour

of (all sorts of) providers and how we can represent this in the most adequate way. When it

comes to the supply of new production capacity, thus the conduct of investment, then the

expected profit becomes of great significance (of course). We see that, in general, many

expectations that play a role are often expresses in many models, but too often not in a manner

which can account for reality in an adequate way. The investment equation has been, form the

beginning, a ‘problem child’3. So much even, that for a long time people gave up on a

econometric approach, instead they just asked companies (in a direct way) for short-term-

purposes (year to year) regarding their investments projects. By now it is known that a large

number of attempts have taken place, instead of using historical series of sectional data (see, e.g.

E. Kuh) 5). This is but one example of an extensive literature.

A major controversy is whether models must be set up with the aid of flow- or stock

variables. The fundamental theorem of the monetarists is very explicit about this, it is the money

supply which would be the main determinant of national income. Again, I would like to remind

you that one has been working with both in even the earliest models concerning the US

economy. And do the managers of companies not take into account how their decisions will

influence the profit and loss account (flows) and the balance (stock) at the same time? In

equations that represent the consumer behaviour, flow- along with stock values do play a role.
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This is an exact translation of a Dutch expression ‘zorgenkind’, I cannot seem to find a really good translation
for this, it basically means (more or less) that something has been a huge pain in the butt, or we have been
concerned with it often. Hopefully it makes sense, if not just say so.
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 Economists have been paying attention to expectations already very early. In the current

debates they play a major role. Bomhoff i.a. has provided for significant new contributions to

this field. Whether the idea of ‘rational expectations’ is a good scientific strategy, I venture to

doubt. This idea assumes, if I have understood the authors well, that the contemplative subject

can solve the whole ‘equations-system’ intuitively. An impressive gimmick. I am included to

oppose this idea with the view of Simon that, as chess players, most “decision makes within the

economic process take only a limited number of the consequences of a decision into account”.

Finally, a few things regarding our fellow colleagues who advocate ‘deregulation’ (for

example Crandall, 7)). They may be considered to be part of a current that can be called ‘anti-

bureaucratic’. With a decent dose of realism, they denounce the negative effects of the operation

of economic subjects in large hierarchies. They then apply, their understanding of this

phenomenon, to the evaluation of different social systems or their components, e.g. ‘the

centrally planned economies’, where three different types of hierarchies exist. The

disadvantages of this has been recognized by writers from those countries 8). But also by major

Western companies who are seeking for forms of decentralization; think of the Volvo

experiments. The idea that private companies sometimes work more efficiently than public

ones, has been established recently (once again) with regard to the clearance of garbage in

several German cities. Crandall gives several cases of government regulation in the United

States, among these examples, there are a couple examples where the criteria are not correct –

they are for example too ‘uniform’ when it comes to the reduction of sulphur emissions, there

are areas where the market of cheap non-sulphur-containing coal would accomplish the goal

automatically. Another example prohibits the addition of carcinogenic plastics, but one forgets

the carcinogenic natural substances (peanuts for instance, according to him). In such cases, the

change of criteria can be met by any objections4. In addition, there are cases where the

interventions of the government cannot be missed. You may think of the salt content of ‘de
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I think he means articulate this: In the sense that they adjust the criteria based on the objections being made.
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 Rijn’5, or of the ‘acid rain’ in Sweden, or of the illegal dumping of toxic substances that make

the breakdown of newly built homes necessary. Finally, it is interesting to think about the

several existing forms of government intervention in America, the country that always defends

the free social forces, these interventions are always based on ‘wasted competition’, such as

overfishing, where the market does not solve the problem.

Contribute to the Synthesis

Contribution to the synthesis are without any doubt made by some of my colleagues that I have

criticized in the previous sections, and by other representatives of new trends/currents. Bomhoff

has, within the field of price expectations, made contributions, and this is one of the various

contributions. Some of the others are not yet satisfactory in terms of their explanatory power

(Bomhoff and Vleugelers 9)). Knoester and Van Sinderen have enriched one of the models of

the CPB6 with a monetary revision 10), after Knegt had already, in a different way, made
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alternatives on the VINTAF-II-model 11). Judd and Scadding have made an attempt, in a

review article in the Journal of Economic Literature, to better portray the demand for money

based on a series of contributions from others 12). Here, the study of Barber and McCallum

regarding the comparison of politics of different countries is considerably better; it concerns

eighteen countries and periods of one or more decades, 14).

These are just a few examples of some ‘sub studies’ that should be considered when we

would like to pursue a synthesis in a serious way. The claim, with which I want to end this

essay, holds that a synthesis is completed only when such ‘sub studies’ – which seem

completely useful to me – get incorporates in the complete model. I have already mentioned the

argument for this: consistency with the other ‘blocks’ of the complete model.

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One of the largest rivers in Europe, goes through (amongst other countries) the Netherlands.
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The ‘Centraal Planbureau’, this is part of the Dutch ministry of economics and it focusses on economic
forecasts and analyses. It tries to be scientifically sound and up-to-date.
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So, different versions of that model.
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 Our largest model factory, the CPB, cannot be left out when talking about the meant

synthesis. This has been understood by Knoester and Van Sinderen and especially the CPB

itself. It has, after all, in the course of its history implemented a number of innovations in its

models, of which FREIA (to my knowledge) was the last one. A single press release on

monetary financing which mentions Lempers 15) gives me hope with regard to further progress

with the synthesis. Everyone has its own priorities, mine is, as is know, that of a European

initiative. This would entail that other model factories in other EU-countries would have to

participate in the synthesis. I’ll just mention a few: the French Commissariat au Plan, the

Brussels DULBEAU of the ‘vrije universiteit’ there, the Kieler Institute fur Weltwirtschaft, the

Wissenschaftszentrum Berlin, the Department of Applies Economics in Cambridge in England.

J. Tinbergen

1) E. J. Bomhoff, De prijs van de staatsschuld en het aanbod van kapitaal, Preadvies voor de
Vereniging voor de Staatshuishoudkunde. Leiden/Antwerpen, H. E. Stenfert Kroese BV, 1982,
biz. 102.

2) L. R. Klein, Research contributions of the SSRC-Brookings econometric model project - A

decade in review, in: G. Fromm en L. R. Klein (red.), The Brookings model: perspective and
recent developments. Amsterdam/Oxford/New York, North Holland/American Elsevier. 1975,
biz. 28.

3) E. J. Bomhoff, op. cit.

4) J. M. Keynes, Book review of ..Statistical testing of business cycle theories. A method and its
applications to investment activity". Economic Journal. 1939, 49, biz. 558.

5) E. Kuh. Capital stock growth: a micro-econometric approach. Amsterdam, North-Holland,

1963.

6) H. Theil, De invloed van de voorraden op het consumentengedrag, Amsterdam,

Studentendrukkerij Poortpers NV, 1951.

7) R. W. Crandall. Twilight of deregulation. The Brookings Bulletin. jg. 18, 1982, nrs. 3/4, biz.
1 5.

8) R. Bahro, Die Alternative, Koln/Frankfurt Main, Europaische Verlagsanstalt. 1977.

9) E. J. Bomhoff en P. T. W. M. Veugelers, De noodzaak van het bezuinigen, ESB, 7 juli 1982.

biz. 679-683.

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 10) A. Knoester en J. van Sinderen, Money, the balance of payments and economic policy,
discussion paper 8200, Ministerie van Economische Zaken, 1982, Den Haag.

11) L. Knegt (e.a.), Macro-economisch beleid en Vintaf-II: een gevoeligheidsanalyse. hfst. 11

in: W. Driehuis en A. v. d. Zwan (red.). De voorbereiding van het economiach beleid krttisch
bezien, Leiden/ Antwerpen, 1978.

12) J. P. Judd en J. L. Scadding, The search for a stable money demand function, Journal of
Economic Literature, 1982, biz. 993-1023.

13) J. Sachs, Stabilization policies in the world economy: scope and scepticism, American
Economic Review, 1982, jg. 72, papers and proceedings, biz. 56-61.

14) C. L. Barber en J. C. P. McCallum, Controlling inflation, learning from experience in

Canada, Europe and Japan, Canadian Institute for Economic Policy, Ottawa, 1982.

15) F. Lempers, in een gesprek met Kees Calje, NRC Handehblad, 2 oktober 1982, biz. 11.

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