How Do We Know a Theory is Correct?

Further to our reader friend's comment on Reinhart-Rogoff:

The debate over budget austerity as the path to recovery from depression reminds me of a story told of Albert Einstein.

In the fall of 1919, Albert Einstein received an urgent telegram informing him that astronomers had observed evidence of the bending of light by the sun’s gravity, validating a key prediction of his general theory of relativity. He handed the cable to a student, who began congratulating him. “But I knew that the theory is correct,” he interrupted. And what, she asked, if the observations had disagreed with his calculations? “Then I would have been sorry for the dear Lord,” Einstein answered. “The theory is correct.”

Of course, the only reason we retell the story is precisely the data did corroborate Einstein's theory. If not, he might have continued believing himself a genius - but nobody else would have.