Exercise great care

In a post titled Statistics are Indispensable, But.... Don Boudreaux makes the important point:

Statistics seem like straightforward, unambiguous facts; they're not. Care is required not only in their gathering but also in your interpretation of them.

Data may be as advertised by the label but no longer have the same meaning or relevance. They may have been a useful crude approximation but are now wildly misleading because of the methodology or accounting construct employed. As Don points out, care is required.

We get an additional caution to exercise care via this post about Alan Reynolds new book which I am looking forward to reading.

Conventional wisdom tells us that: (1) the vast majority of US households have experienced no increase in real income for more than a quarter century; (2) real wages have been stagnant for that same period; (3) low-wage burger-flippers have replaced high-paid factory jobs; (4) only the top one percent or ten percent have benefited significantly from rising productivity or asset prices; and (5) the once-robust middle class has been shrinking.

Just about everybody treats those assertions as if they are facts. That includes politicians on both sides, talking-head partisans, economics correspondents, and columnists—many with undisguised or thinly-veiled political agendas. They are supposed to be the experts, and the masses (like me) have to trust them; after all, our busy lives permit us only a limited amount of time for paying attention to politicians and the press. When the experts are nearly unanimous, that’s a good signal that the five conventional wisdom assertions have to be true . . . isn’t it?

That brings us to the big surprise, which Alan Reynolds sums up clearly and concisely: “Not one of those statements is even remotely close to being true.”

Why, then, do so many people seem to accept the false conventional wisdom without question? I have a guess: Each of us likes to think the person we heard it from must have done their homework; otherwise they wouldn’t be talking like that. Let’s face it, assumptions like that save us a lot of work. In this case, however, I now realize that, by trusting conventional wisdom, I was being too lazy—and I strongly suspect that most of our country’s so-called “economics correspondents” are guilty of the same thing I was.

I am thankful that Alan Reynolds is one who actually did the homework on this subject, then wrote a book laying out his findings. His attitude is one we should all adopt: “I accept nothing as an article of faith. I want to hear the logic and see the evidence. And you should demand nothing less. In the absence of logic and evidence, you should not give a hoot about my opinion. Reality is not a matter of opinion.”

In a recent on-air discussion with guests Art Laffer and Jared Bernstein, Mr. Bernstein of EPI asserted that by any and all measures the average person was worse off during the recent past and that it wasn't open for discussion. Don't you love such intellectually open approaches to analysis? Why do I doubt that he read Alan Reynolds book or the work of Cox and Alm?

Cox and Alm sound a timely warning: What we don't know about the economy could hurt us. Many of the suggested remedies to problems that don't exist may leave us worse off. Myths of Rich and Poor, therefore, gives us the facts that could help ward off further government interference in the economy. It may even help us turn the clock back to a better day, when Americans were truly free.

By pretending to know what just ain't so we risk doing more harm than good. Exercise great care!