Friday, January 15, 2016

Does Economics Change Minds?

A conversation is going on this week among economics bloggers over whether, as Adam Ozimek put it,
economists and those who read economics are locked into ideologically motivated beliefs—liberals versus conservatives, for example—and just pick whatever empirical evidence supports those pre-conceived positions.
Ozimek offers this example of work that has changed his mind:
Work from David Autor, David Dorn, and Gordon Hanson has convinced me that in some local areas the job losses from free trade can be substantial, and that these communities have been slower to adjust than I expected. . . . the study is not simple and utilizes instrumental variables, representing the kind of econometrics that skeptics think can't convince anyone.
Ozimek also offers this:
Another example comes from Amy Finkelstein, one of the top health economists in the country. When she set out to study what caused big differences in healthcare costs, she expected that her results would show that it was hard to change behaviors. Instead, her analysis showed that people changed behavior and used less healthcare when they moved from geographies where people on average spend a lot on healthcare to places with low spending.
Paul Krugman says that the evidence changed his mind about the minimum wage:
My mind was strongly changed by the empirical work on minimum wages that started with Card and Krueger; a summary and further evidence is here. I used to be a very conventional, Econ 101 person on this subject, figuring that the labor market would work like any market with a price floor. But the accumulation of evidence when some states raised minimum wages while neighbors didn’t — a classic natural experiment — made it clear that at least for the US, at current minimums, there is little or no negative effect on employment.
Tyler Cowen offers several examples of changing his mind on technical points, and this:
In the 1990s, I thought information technology would be a definitely liberating, democratizing, and pro-liberty force. It seemed that more competition for resources, across borders, would improve economic policy around the entire world. Now this is far from clear.
I am not sure what to make of this. It does seem to be true that many economists have changed their minds about numerous technical questions. On the other hand there are still conservative economists and liberal economists, and there always seems to be somebody with a Ph.D. who will support any harebrained ideological scheme. As Krugman points out, none of the economists who have been predicting rampant inflation for the past six or seven years have yet admitted that they were wrong. I think the evidence is ironclad that in the contemporary U.S. the relationship between marginal tax rates and economic growth is minimal to nonexistent, but I still read articles or posts every day saying that the way to jumpstart economic growth is to cut taxes. I think the relationship between economics and the data world is hazy at best.

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