Messy Economics

EPJ reader Jason Pierce sends a link to an NYT column written by NYT economics columnist and professor of economics and public policy at the University of Michigan, Justin Wolfer.

Pierce writes:

This dovetails into your Nobel analysis.

Some messy economics here

Wolfers writes in his NYT essay:

The central contribution of Angus Deaton, the latest winner of the Nobel Memorial Prize in economics, has been to shift the gaze of his fellow economists beyond measures of income, to broader measures of well-being.

Much of his research has focused on consumption — measures of the food people eat, the condition of their housing, and the services they consume. And he has been a trailblazer in shifting the attention of economists away from the behavior of economywide aggregates such as gross domestic product, and toward the analysis of individual households....

But perhaps Mr. Deaton’s most important effect has been within the field of development economics, which focuses on the economies of poor countries. This is a research program born of deep personal conviction. As he recently wrote, “Those of us who were lucky enough to be born in the right countries have a moral obligation to reduce poverty and ill health in the world.”...

More than that, he’s motivated by the questions that really matter, he is intellectually relentless, he has enormous integrity and he has devoted his life to understanding and improving the lot of the poor. He’s the perfect role model for any young economist.

The problem with this Deaton work is two-fold. First it results in an emphasis on looking at inequality numbers as if inequality is a problem (SEE: This Is What Those Who Are Concerned About Inequality Fail to Grasp) and secondly, Deaton's work tends to imply that economics is an empirical science rather than a deductive one, That is, although empirical data collection is useful in the sense it is economic history, it is opposite the direction one wants to go in when considering economic theory, which can only be correctly arrived at using deductive logic based on fundamental principles,

Thus, while the data collection (historical) work done by Deaton is of some minor interest to economists. It is also potentially dangerous work in that it is the type of work that can be abused by interventionist planners to justify their interventions, as though, the data is supporting their interventions. Indeed, Deaton appears to have used the data in this malicious manner on occasion.

And, I am not even getting into Deaton's new scary work of attempting to measure happiness.

Wolfer tells us where this nutty approach is going:

More recently, Mr. Deaton has turned his attention to measures of subjective well-being, including happiness. In his 2010 Presidential address to the American Economic Association, Mr. Deaton highlighted the problems in constructing coherent measures of global poverty. Measures of income don’t offer much insight unless they can be thought of in terms of differences in purchasing power. But it is impossible to assess who has more or less purchasing power when people in different countries face different prices and choose to buy different goods. Given this problem, Mr. Deaton makes the radical suggestion that economists just ask people about their well-being instead.

Needless to say, I am not happy with this turn in direction. Just ask me.

Oh, and by the way, Deaton is on the payroll of a polling company that now wants to measure happiness. Wolfer again:

Many of the most important findings on subjective well-being reflect new sources of data that Mr. Deaton — together with the psychologists Ed Diener, Arthur Stone and Daniel Kahneman, a fellow Nobel laureate — have helped create through their role as a senior scientists at Gallup.

-RW