Category Archives: Economic education and methods

Two dimensions of rigor

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Perhaps we may think of rigor as having two dimensions.

One dimension is high standards for verifiability. For example, in mathematics, a theorem is verified using a logical proof. In physics or chemistry, a hypothesis is verified through the process of controlled experiments.

A second dimension is open inquiry. That means that one is allowed to entertain a heterodox hypothesis, free from social pressure. If I face pressure to discard a hypothesis, that pressure comes from its failure along the verifiability dimension.

Some remarks:

1. In social science*, it is much harder than in physics or chemistry to maintain high standards of verifiability. The problem is causal density. The physicist does not have to worry about individual free will or cultural evolution, both of which add considerable causal factors to the problems studied by social scientists.

Consider the question of how to prevent another Challenger disaster. The technical engineering answer seems to be satisfactorily verified. But the organizational-behavior dimension of the problem is more contestable. Would a better formal process have led to a better decision? Or was a different cultural mindset necessary?

*As you know, I despise the term “social science,” and if it were up to me that term would be replaced by “cultural analysis.”

2. Consider examples of four quadrants;

high standards of verifiability along with open inquiry: Call this quadrant “rigorous.” Think of STEM subjects, except where open inquiry is somewhat impeded by “establishment” scientists restricting access to money and status.

low standards of verifiability along with open inquiry: Call this quadrant “faux rigorous.” Think of experimental psychology, where careless methods resulted in the “replication crisis.” Or think of multiple regression in economics, which was discredited by Edward Leamer’s critique. In fact, economists since 1945 have been engaged in collective self-deception, believing that their standards of verifiability were high when in fact this was not the case. Their mathematical models lacked a tight relationship to reality, hence what Paul Roomer dubbed “mathiness.” And their empirical work, while more careful in recent years, still is unable to definitively answer many important questions.

high standards of verifiability but without open inquiry: Call this quadrant “willful blindness.” Think of research related to IQ. Not all of this research meets high standards of verifiability, but some of it does, and even the solid research gets dismissed and denounced.

low standards of verifiability along with barriers to open inquiry: Call this quadrant “dogma.” I think that a lot of sociological theories of power and oppression fall in this quadrant. Climate science is far from my area of expertise, but my intuitive guess is that there is at least a 25 percent chance that it falls in this quadrant.

3. I believe that the trend is for social science to be less rigorous and more dogmatic. I see this as the central tragedy of our intellectual life.

Correlation without causation

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April L. Bleske-Rechek writes,
Mayviewed a random sample of poster abstracts that had been accepted for presentation at an annual convention of the premier professional organization in psychology, the Association for Psychological Science. We were disappointed to find that over half of the abstracts that included cause and effect language did so without warrant (i.e., the research was correlational). Of course, poster presentations are held to a less rigorous standard than are formal talks or published journal articles, so in a follow-up study, we reviewed 660 articles from 11 different well-known journals in the discipline. Our findings replicated: over half of the articles with cause and effect language described studies that were actually correlational; in other words, the causal language was not warranted.

In biological families, children resemble their parents in vocabulary and verbal ability; in adoptive families, they do not. The key implication is that Hart and Risley’s finding of a link between parents’ verbal behavior and their children’s verbal ability does not warrant an inference that parents’ verbal behavior influences their children’s verbal ability.

Somebody should put together a YouTube course on “How to be skeptical of statistical studies.” I nominate Russ Roberts.

Probability and mass shootings

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E. Fuller Torrey writes,

there are now some one million people with serious mental illness living among the general population who, 60 years ago, would have been treated in state mental hospitals. Multiple studies have reported that, at any given time, between 40% and 50% of them are receiving no treatment for their mental illness.

He blames de-institutionalization for the problem of mass murders.

Ordinarily, I try to avoid commenting on the stories that dominate the news for short periods of time. I have a lot of doubts about going ahead with this post, but here goes.

I have a problem with every policy proposal that I have seen for dealing with mass shootings. The problem comes from Bayes’ theorem, which says that the probability of A given B is not the same as the probability of B given A.

When I taught AP statistics, I often used the 9/11 attacks as an example. Nearly all of the terrorists were Saudi nationals. But only a tiny percentage of Saudi nationals are terrorists. So a policy based on the assumption that Saudi nationals are the problem is going to involve a lot of costs relative to potential terrorist acts prevented.

The same thinking applies to guns. Guns account for 100 percent of mass shootings. But only a small percentage of guns are involved in such shootings. If guns provide a benefit to the people who do not use them for mass shootings, then trying to get at mass shootings by going after guns is going to involve a high ratio of costs to benefits.

The same probabilistic reasoning also applies to mental illness. Suppose that people with untreated mental illness account for 100 percent of mass shootings. There are still half a million untreated mentally ill who are not mass shooters. If the cost of mandatory treatment for them is high, then that may not be a good strategy for trying to reduce mass shootings.

Perhaps there are other social benefits to forced institutionalization of those who are mentally ill. That might improve the benefit/cost analysis for such a policy. But even so, it would be difficult to defend from a humanitarian or libertarian viewpoint.

As long as mass shootings remain rare relative the causal factors that are most often cited, it will be hard to come up with a cost-effective solution. This RAND meta-analysis supports my view.

Ben Thompson writes,

it was on 8chan — which was created after complaints that the extremely lightly-moderated anonymous-based forum 4chan was too heavy-handed — that a suspected terrorist gunman posted a rant explaining his actions before killing 20 people in El Paso. This was the third such incident this year: the terrorist gunmen in Christchurch, New Zealand and Poway, California did the same; 8chan celebrated all of them.

Hence, he supports censorship of 8chan. I disagree, although I find it a close call. My thoughts:

1. Correlation does not imply causation. The fact that terrorists were active on 8chan could mean that 8chan attracts individuals who are inclined toward violence, but it does not necessarily increase their propensity toward violence.

2. As a test, you may substitute “radical Islamic preacher” or “Palestinian primary school that teaches kids to hate Jews” for 8chan, and see whether you support the step of absolutely shutting down their right to speak. Maybe you do. I do not.

3. Probably the most effective way to use censorship to reduce mass shootings would be to refuse to allow the media to cover them. As it is, the mainstream media are giving mass shooters the notoriety that seems to be their main motivation. Sometimes there are suggestions that the media voluntarily exercise restraint, for instance in not naming the shooter. But as far as I know nobody wants to impose censorship on the mainstream media, even though they appear to be at least as guilty of aiding and abetting mass shooters as are the dark-web media.

4. Ultimately, censorship gives power to the censors. As time passes, the trend will be for censors to exercise more and more power with less and less wisdom, objectivity, and discretion. I think it is best to stay off the slippery slope altogether.

UPDATE: a commenter points to a very similar post by Craig Pirrong, aka the Streetwise Professor. Note that the first comment on that post repeats my point 3.

Three Fundamental Concepts of Social Science

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The essay is here. An excerpt:

There are many causal factors that affect human behavior and human interaction. As a result, “social science” is not nearly as reliable as physical science. We can speculate on what causes political and economic events, but we cannot prove our hypotheses. Experts may propose two or more differing theories, none of which can be definitively ruled out.

Tabarrok and the Baumol effect, reconsidered

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A bunch of folks got together at Cato for lunch to gang up on Alex Tabarrok. Recall that he and Eric Helland want to claim that the high prices of health care and education are almost entirely due to the Baumol Effect.

I offered as an alternative hypothesis that much of the higher prices can be accounted for by the government subsidizing demand and restricting supply. Here are some notes, based on the discussion.

1. Health care spending has been rising at the same rate in most developed countries. Can government policy be the cause everywhere? On the other hand, in most developed countries the proportion of health care spending paid for out of pocket is low, to perhaps there really are not such significant differences in policy across countries.

2. Veterinary care prices have been rising even faster than human health care prices. Yet there are no government subsidies for pet care.

3. Incomes for other high-skill professions, such as accountants and lawyers, also have risen sharply. Point (3) sounds like it could support the Baumol-effect story, but on closer examination it is more problematic.

4. A pure Baumol Effect would raise wages in every occupation where productivity growth is slow, including for barbers and waiters. That has not taken place.

5. It is difficult to account for the vast difference in pay between adjunct professors and tenured professors. At one point, I asked “Are adjuncts idiots?” That is, are their skill levels so dramatically lower than those of tenured professors?

6. Another question to ask is, “Are college administrators idiots?” In theory, it would seem that you could create a university with all courses only taught by adjuncts and offer a low-cost degree. That this does not happen shows how difficult it is to compete in higher education.

Overall, I still suspect that the story of “It’s all a Baumol effect” is an intellectual swindle. It is tautologically true that in a two-good world, if the relative price of good X falls, then the relative price of good Y goes up. But it is not necessarily the case that the price of good Y has to rise relative to *the* wage rate. In fact, the opposite seems more likely. But the actual ata seem to show that prices in health care and education have gone up faster than wages. I have a hard time coming up with a two-good, homogeneous-worker general equilibrium model that can exhibit that behavior.

In fact, when it comes to talking about wages, Tabarrok pulls a switch and starts talking about the wages of high-skilled workers, so we are no longer talking about “the” wage rate. Instead, we are talking about a skill premium. So Tabarrok has already added an epicycle, as it were, to the Baumol Effect story. That is, he has grafted on a skill premium.

I can more easily fit the data to a story that includes a skill premium as well as a Baumol effect. But then one can argue that this skill premium depends in part on regulations that protect credentialed workers. It is amplified by demand subsidies for education and health care, which put government in the role of enhancing the skill premium.

An economic idea to promote housing development

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Anup Malani writes,

New residents are willing to pay significantly more for additional housing than it costs to build it. They could compensate existing property owners for the reduction in prices caused by new construction and still gain from moving to the city. Such a compromise is possible until the point at which new construction reduces the value of existing homeowners’ property by an amount greater than the value it affords new residents. Allowing incoming residents to compensate homeowners would help cities grow to their ideal size, at which the cost of adding one more resident is equal to that resident’s benefit to the city’s economy.

This sounds like a Coasian problem. Malani’s solution is to charge new residents an above-normal property tax rate and to return the proceeds to affected residents in the form of lower property taxes, while getting rid of the regulations that inhibit new development in order to protect incumbent residents. My thoughts:

1. In theory, this is sound economics. By replacing quantity rationing of new development with price rationing, you reduce deadweight loss.

2. In our area, developers are charged by the local jurisdiction for the costs they impose on infrastructure, so the basic mechanism is in place to include additional taxes. Then these taxes on developers would be passed on to the new residents.

3. In practice, it might prove difficult or impossible to eliminate the regulatory impediments to new development, so that high taxes on new residents (or on developers) would just be an additional deterrent to new construction.

4. In practice, it is likely to be very difficult to target the tax reductions to the most-affected residents. If you spread the tax reductions across many residents, each household only receives a minimal, meaningless amount. If you target only a few residents, then a lot of effort has to go into the process for determining who is most effected by the new development and how much they should receive.

Cultural Analysis

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I propose that we drop the term “social science” and replace it with “cultural analysis.”

The basic questions in cultural analysis are:

  • what problems does a cultural trait solve?
  • what problems does a cultural trait create?

The basic paradigm is that cultural traits evolve to solve problems, including problems that are caused by other cultural traits. For example, in warfare, we develop weapons to solve the problems created by other weapons.

Cultural traits are broadly of two types. Informal traits are traits that people follow by imitation and tradition. Formal traits are traits that are codified (often in writing) or embodied in physical tools.

We think of scientific persuasion as consisting of deductive proofs and decisive experiments. Whether or not scientific persuasion actually proceeds this way, cultural analysis does not. Persuasion in cultural analysis requires assembling intuition, historical narrative, formal empirical work, and logic. There is too much causal density to provide definitive answers to the basic questions.

The Tabarrok rejoinder

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Alex Tabarrok writes,

The problem with Bryan’s critiques is that they miss what we are trying to explain which is why some prices have risen while others have fallen. Immigration would indeed lower health care prices but it would also lower the price of automobiles leaving the net difference unexplained. Bryan, the armchair economist, has a simple syllogism, regulation increases prices, education is regulated, therefore regulation explains higher education prices. The problem is that most industries are regulated.

Suppose that there are two sectors, apples and string quartets. We observe that over the past 30 years, the relative price of string quartets has risen.

Using basic supply and demand analysis, we know that this could be a combination of four things:

1. A favorable shift in the supply curve for apples.
2. A downward shift in the demand curve for apples.
3. An unfavorable shift in the supply curve for string quartets.
4. An upward shift in the demand curve for string quartets.

The “Baumol effect” story says that it’s almost entirely (1). The main claim that Tabarrok and Helland make in support of this view is that the change in relative prices has been steady, so we need a steadily-changing factor to explain it. Regulatory changes are more herky-jerky. Bryan Caplan objected to this, and Tabarrok comes back with some new arguments.

Here, for example, are two figures which did not make the book. The first shows car prices versus car repair prices. The second shows shoe and clothing prices versus shoe repair, tailors, dry cleaners and hair styling. In both cases, the goods price is way down and the service price is up. The Baumol effect offers a unifying account of trends such as this across many different industries. Other theories tend to be ad hoc, false, or unfalsifiable.

Oh, please. In 1950, imports of shoes and cars were low. In later decades, they shot up. But car repair and shoe repair don’t face import competition.

In fact, it could be that the main reason that the prices are relatively high in health care and education is that they do not face import competition. That also would explain why a lot of us don’t feel richer. If the favorable supply curve shift were all due to domestic productivity gains, our incomes would be a lot higher. But a lot of the favorable supply curve shift comes from foreign supply added to the market. That is not a Baumol effect, It is a traded goods/non-traded goods effect.