Via Mark Thoma, I spotted this piece in the Washington Post about the US Fed’s mandate.
I disagree with this piece. But, it is well laid out and argued – which makes it a good piece! So let us go through the reason why I take issue:
Last week Matt Nolan discussed the idea that being too target focused can be dangerous (Infometrics link here):
Instead of targeting an arbitrary set of outputs that treat New Zealand like a machine, policy should be based on the inherent trade-offs that exist for the policy question we are asking. Focused research on the costs and benefits of educational achievement, health outcomes, benefit policy etc – these are the ways we can incrementally improve policy, and build a better society together.
These outputs may suggest to us there is an issue that deserves investigations– but they should not be seen as an end to themselves.
Policy justified on the basis of the target of an arbitrary GDP or happiness index doesn’t do this, and instead threatens to tie our outcomes closer and closer to someone else’s view of what is right, what is just, what is happiness, and what wellbeing. Instead the aim of government policy should be to ensure people in society have the ability to reach, and access to, choices that allow them to gain wellbeing.
A factor that often gets missed when discussing policy options in public is that the real “target” is not observable. If we are not careful about the way “observable” things translate into the underlying issues we really care about, we will make a lot of false policy conclusions.
One of the reasons economists use a counterfactual that involves no government involvement is because of the idea of “revealed preferences” – that individuals will make choices that reveal the value they place on things. Individuals know (at least to a greater degree) what they value, while the rest of us cannot hop into the minds of others and figure out what they value.
A clear view of trade-offs, and the use of markets to help ensure people reveal preferences, gets us a long way. Given that we can then go about considering the views of co-ordination that Matt also touched on last week.
The OECD have recently released a new survey of skills and it has prompted plenty of wailing about the failings of the English education system. The crucial slide from Andreas Schleicher’s summary is this one:
It shows that English adults have excellent literacy skills relative to their peers internationally but young people have fallen well behind. Given the efforts that have been put into the UK’s schooling system over the last few decades it charts a depressing decline. Hearteningly, it is not the full story of the survey. Read more
It’s been a few months since I wrote about how much I love Quandl so you might be wondering how things are working out for me. The good stuff is still really good but there are a few things that still need work. Read more
The moot in a debate organised and run by VILP (Victoria International Leadership Programme) students on 15 October 2013 was: “Is inequality natural?”
I was on the affirmative team with Harry Berger and Even Bain, two smart and articulate Victoria students.
We won the debate 49-43. Once you adjust for the home ground advantage to the negative side (organised following the inequality symposium in Victoria earlier in the year, and debate opened by Max Rashbrooke, author of Inequality: A NZ Crisis – link to book here!), I reckon that pretty much counts as a land-slide victory 😉
Our argument was very simple. Inequality is natural – as in it is in nature. We appealed to biology, evolution and human behaviour. But that it does not make it fair or equitable. We have to appeal to our humanity and empathy to deal with negatives of inequality – but those are defined in many cases by normative judgements that society has to agree on. Read more
Every time the statistical authority releases new data there is a surge in economic commentary. Not analysis, but commentary. A thoughtful analysis would usually say that a single new data point doesn’t provide enough information to change anything we thought previously. There’s just too much randomness and error in point estimates to be able to tell much from them. Commentary is different because it creates a narrative and fits the data into that narrative.
A good example is the narrative about double and triple-dips in the UK. Commentators made much of the ONS’ revisions to the GDP series that ‘revised away’ the triple-dip, ‘vindicating Osborne’. The revisions may have eliminated a slight dip in GDP but they didn’t change anyone’s understanding of what had happened in the macroeconomy. That data was important for commentary but not for analysis. In fairness to commentators, distinguishing genuine trends from randomness is not easy. Our eyes are drawn to ‘streaks’, whether in football games or economic time series, even when the series is essentially random. Economists are always looking for techniques to separate the streaks from the randomness. The problem we face is that many of the tools are fairly impenetrable to casual observers and hard to explain.
Edward Tufte has suggested using randomised sparklines to visually distinguish genuine trends from deceptive streaks, so I thought I’d give it a go with the last four years of UK unemployment data. Here is the monthly change in the UK unemployment rate since June 2009: 
. We think that a recovery has begun so the recent years’ falling unemployment looks good. Now let’s try randomising the values and see if the ‘streak’ disappears. Read more