Archive for October 2009
I’ve just published an article on Mises.org entitled:
The Death of the Celtic Tiger
Ever taken a statistics course? Most stats lecturers devote a special moment to highlight how statistics can be misused. For instance my tutor once showed us a graph like this:
We can clearly see that there’s a correlation between ice-cream consumption and deaths by drowning. But what can we infer from this? It’s possible that eating ice-cream causes drowning (due to stomach cramps while swimming). It’s also vaguely possible that drowning deaths cause increased ice-cream consumption (mourning relatives might go for an ice-cream to cheer themselves up). However the most sensible explanation is that both ice-cream consumption and drowning deaths increase is due to another factor: the weather. People eat more ice-cream and go swimming more often in summer.
However, such a straightforward explanation is hardly ever seen in economics. The empirical approach often remains unquestioned. Consider this syllogism: in the past, taxes were low. Today, taxes are high. We were poor in the past but now we are rich. Therefore, increasing taxes causes prosperity. Such a view is completely ridiculous, yet almost completely unquestioned.
Or take the suggestion in the graph below. Income inequality sharply increased before two major recessions. Therefore it’s fair to assume that one causes the other.
Anyone who wants a free copy of Robert Nozick’s philosophical work can get a pdf copy here.
Don’t forget the comma before the “and” in the title!
Milton Friedman’s Free to Choose was one of the first books on libertarian political philosophy and market economics that I ever read. It’s an excellent chronicling of the economic and social decline of the United States (which has unsurprisingly run parallel to its embracing of ever more socialist policies). Here are two videos doing the rounds at the moment that go into some basic Friedmanite concepts.