Arnold Kling  

Economics non-junk Science

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Bryan snarls,

Arnold, please tell us: What's not junk?

As I believe Yogi Berra said (if not, it sounds like something he would say), "You can observe a lot just by watching." I think economists should put more effort into observation and data-gathering and rely less on regression techniques.

William Lewis' book, Power of Productivity is based on painstaking legwork designed to look at specific industries in different countries. Although he speaks proudly on p. xxx that "these conclusions were based on extremely complex, data-intensive 'regression' analyses standard in economics," he persuaded me with simple charts and did not put a single equation in the book. He had me at hello, as it were.

I think that Cox and Alm's classic Myths of Rich and Poor does a lot with just basic data, no fancy econometrics.

It is amazing what you can do with minimal technique but really good data. Think of the Panel Study of Income Dynamics (one of the sources used to good effect by Cox and Alm) or the Medical Expenditure Panel Survey (one of the sources used to good effect in another book that I highly recommend). In fact, speaking of my health care treatise, it cites the work of John Wennberg comparing spending levels in different Medicare regions. Wennberg gets powerful results without using sophisticated regression techniques.

A common thread in what I like is that it tends to look at an issue from a lot of angles. You tend to see that more in books than in journal articles.

If you want to avoid doing junk science, find data that allow you to tell a convincing story without having to estimate deep parameters. In grad school, I remember somebody coming up with a joke about "maximum likelihood estimators using minimum likelihood data," meaning somebody trying to use fancy technique to extract information about data that is not really up to the task.

Also, a commenter asked me to explain my issues with Steve Levitt.

My father used to say that there are some questions that are impossible to answer, such as "What caused World War I?" The problem is that there are too many plausible causes, and you cannot run a controlled experiment to sort them out. The same would go for "What caused the Great Depression?" or "What is causing Global Warming?" or "What caused the drop in crime?" (referring to Levitt's famous abortion/crime piece). Not that you cannot try to answer these questions--it is important to try. But they are the sort of issues that require wisdom, not clever little empirical tricks. Your views should be stated in sentences that end in question marks, not in exclamation points.

The other issue I have with Levitt goes to my point about looking at issues from lots of angles. Instead of taking that approach, his book looks at a whole lot of topics, and it leaves each topic behind long before I feel that I have a satisfactory understanding of the issues.


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CATEGORIES: Economic Methods



COMMENTS (8 to date)
liberty writes:

All of that is quite reasonable. I would suggest the first step is to make reasonable assumptions and use real world data. Some macro-economists don't seem to do either, instead they create models based in non-real-world simplifications such as zero-sum, single point in time (no growth), all spending is equal government or private (!) etc.

So long as the economist is using real world data and his assumptions are valid, he is two steps ahead of quite a few well known economists.

Mark Horn writes:

As a non-economist who would like to think like one, I found the use of lots of different topics and the odd conclusions to be an intriguing introduction to economics. I don't think that Freakonomics was a book meant for economists. I think it was a book meant for the economic "layman" (if you'll permit the phrase). It's meant to spark curiosity. I don't think it's meant to be the end all authority on any of the conclusions that it draws. Rather just to draw people into the curious thinking pattterns that economists have.

In doing so, maybe more people will study a bit more economics and sensible public policy will get a better foothold against the biases that Bryan cites.

What do you think?

Stephen Gordon writes:

If you want to avoid doing junk science, find data that allow you to tell a convincing story without having to estimate deep parameters.

As far as I know, there has never been such a data set that could be used to support the claim that free trade is welfare-enhancing. The reason we don't really dispute this claim is that we've been able develop econometric techniques that can be used to identify the effect of trade.

If we didn't have those analytical tools, we'd still be stuck playing the dreary game of 'dueling anecdotes' along with the other social sciences.

Matt McIntosh writes:

Mark Horn -- Not that you asked me, but I think that if that's the goal then there are far better books than Levitt's out there. Harford's Undercover Economist, Landsburg's Armchair Economist, and David Friedman's Hidden Order are all better because they focus on applying economic theory to everyday life rather than doing nifty statistical analysis and simply reporting the results. Most of the work popularized in Freakonomics isn't really even economics except in the broadest possible terms; it's quantitative sociology.

Arnold Kling writes:

Stephen,
I disagree with you on the empirics of free trade.

First off, I think that trade restrictions per se are relatively low-harm policies. So I am suspicious of anyone who thinks that they can demonstrate clear effects of trade policy on welfare.

I also believe that trade restrictions are part of a syndrome that usually includes other policies that protect the unproductive and the inefficient. I don't think you could come up with a convincing way of empirically disentangling the effects of free trade from the effects of other policies.

I think that one can demonstrate that broadly speaking, economic liberalism (using liberalism in the classical sense) and a high standard of living go together. One can say that minimal trade restrictions are part of economic liberalism. I do not think that one can say anything more precise than that, with or without fancy econometrics.

The real harm of trade protectionism, in my opinion, is that it creates or caters to a mindset of "We don't have to compete. We just have to get government to stop the other guy." This mentality, once it starts to spread, infects much more than trade policy. Once government says that group A's jobs deserve to be protected, there is nothing they can say when group B comes in and demands the same thing.

aaron writes:

I agree with both Mark and Matt (regarding Undercover Economist). UE is more interesting and more informative.

I was disappointed in Freakonics because it was pretty much exactly what I expected. They contribute many valuable and interesting insights, but I was hoping to be suprized.

pontus writes:

So when you used all your wisdom, all intuition and all your clever arguments: Isn't it time to look at the data?

Isn't it about time to TEST your arguments? And to test, we need clever little tricks a la Levitt.

Your intuition etc. tells you all about causality. The data, however, only tells you about correlation. So what? Use the data to falsify your intuition!

I don't get your point.

Robin Hanson writes:

Wennberg gets even more impressive results when he does use regressions.

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