The specter of irreparable ignorance: counterfactuals and causality in economics

Those economists who have emphasized true uncertainty have tended to draw an epistemic distinction between an ascertainable past and an unknowable future. But in one critical respect—in extracting causal relationships—that epistemic distinction is not warranted. Whether they are situated in the past or future, causal arguments in economics depend equally on counterfactual reasoning. Counterfactualizing entails the construction of fictitious narratives—narratives about worlds that do not exist. Unfortunately, there is no dependable method for ascertaining the uniquely correct counterfactual. This implies that causal claims in economics, too, are irreducibly fictitious. The chief value of counterfactuals, then, is not to prove causation but to help scholars and practitioners confront an inscrutable world—to imagine and prepare for unknowable possible futures. In this endeavor, economic pluralism, which expands the range of plausible counterfactuals, is to be taken as a virtue rather than a curse.