share – Page 99 – Garrett M. Petersen

The Meta-Economics of Mathiness

The perennial debate about “mathiness” in economics has returned, this time sparked by a Paul Romer article in the AER P&P.

The arguments largely focus around the usefulness of mathematics for various applications. These are the technical arguments of practitioners. I’d like to abstract from these arguments and look at the issue as an economist.

The economics labour market is very competitive. Researchers need to demonstrate their quality to compete for the top academic jobs. Now, why should we expect this competition to produce anything besides the optimal research methods? Let’s apply some economics to this problem.

One reason you might have more math than the social optimum is that it’s used as a signalling device. As a graduate student, I’ve definitely felt this. Comprehensive exams are essentially colossal math tests that determine whether you’re allowed to go on in grad school and eventually enter the profession. Your professors want to know that you can complete years of tireless research. Doing so will take intellect and diligence. Passing a big math test also takes intellect and diligence, and it takes less time than demonstrating research skill. Professors don’t know which students are smart and diligent, so they screen them with comprehensive exams.

That could explain the use of math in graduate school, but what about the discipline more generally? The gatekeepers of the profession are journal editors and department committees in charge of hiring and tenure. All of them need to judge whether academics’ research is of high quality and importance. The real measure of a paper’s importance is how much derivative research it generates. There’s a reason they give the Nobel about thirty years after a researcher’s major contribution: we just don’t know which exciting research today is going to spawn a greater debate and propagation of novel ideas. If we could predict future research, it wouldn’t be novel.

So editors and hiring and tenure committees have a problem. They need to evaluate research but they can’t know the most important factor: Will this stand the test of time? One factor affecting whether it will is the level of care and effort the author put into crafting his argument. It isn’t necessarily easy to see how much care and effort has gone into a verbal argument, but when the argument uses elaborate mathematics, you know it must have been worked over carefully. Thus, mathematics serves as a signal that a given piece of research has been carefully constructed.

To summarize, we can apply the economic theory of signalling to the use of mathematics in economics. Academics and the other academics who evaluate them face an asymmetric information problem. By using mathematics, these academics can signal their own quality and that of their research. Thus, mathiness has become ubiquitous.

The post The Meta-Economics of Mathiness appeared first on The Economics Detective.

It All Comes Back to the Minimum Wage Debate

I shared Jeffrey Tucker’s article about Hillary Clinton, and pulled out this quote:

Meanwhile, Hillary’s actual policies on women are a disaster waiting to happen. Consider her support for “equal pay for equal work.” What effect will this have on women in the workforce? It not only puts government in charge of micromanaging every aspect of payroll and personnel of every business in America. It also incentivizes managers to keep women in lower positions in a firm in order to comply with the wage mandates, and disincentivizes advancing women up the ladder by making the costs of ascending too high. The result will be the very “glass ceiling” that mainstream feminism abhors.

An intelligent friend, who shall remain nameless, replied:

I feel like this runs on the same logic that if you raise minimum wage to a livable wage, jobs will be destroyed and small business will crumble, when in fact the opposite has been shown to be true.

Now, this friend is not an economist. What I suspect is that the news sources he typically reads report heavily on the few studies that show positive employment effects of minimum wage increases, and ignore the rest of the literature. This isn’t exclusively the territory of the left, I’m sure people who read only right-wing or libertarian news sources overestimate the disemployment effects in the other direction. But look at the conclusion he drew! Since he got the false impression that raising the minimum wage has positive employment effects, he concluded that there is essentially no tradeoff in government artificially boosting any wage; in this case the wages of half (!) the population. But given the initial error, this extreme conclusion naturally follows. This is why the minimum wage debate matters so much. It’s a matter of educating people about the basic principles of economics. It’s a highly visible price control; everyone knows about it. If we can convince people that this one law has a different effect from its intended one, we can make people realize more generally that price controls, regulations, and restrictions have unintended consequences. I don’t think the minimum wage is the most important policy in terms of its consequences. For the chronically unemployed and unskilled, it might very well stop them from ever building the skills to rise beyond the minimum wage. That’s heartbreaking, but it only affects a small fraction of the population, and most of us manage to find a first job and advance beyond minimum wage fast enough despite the law. Migration restrictions are a far more consequential, in that they trap billions of people in poor countries where they can’t live up to their potential. Actually, the minimum wage would be far more consequential if migration were liberalized, because it would block many unskilled migrants from first-world labour markets. But despite its not being the most consequential bad policy, it is vitally important that we win the minimum wage debate. It’s the strategic pass that, once captured, affords the victor total control over a vast region of ideas. First, we let people believe that cranking up the minimum wage will improve, or at least not harm, employment. Next, they’re citing that as proof that a Soviet-style takeover of half the wage decisions in the entire economy can only be beneficial. The post It All Comes Back to the Minimum Wage Debate appeared first on The Economics Detective.