Start with the Question

Brad DeLong takes on, rightly, the Columbia Journalism Review for its attack on Paul Krugman for "partisan slipperiness" over his use of statistics in a recent column. There seems to be a "Krugman does it too" industry developing as some misguided attempt to balance out the misleading analytics that often come from his opponents. So far, though, they haven't been successful.

It's useful to remember that every statistic is an unbiased estimator of something, it just may not be what you want. Statistics aren't wrong. They are what they are, they estimate what they estimate. If you look at "wage gains for one-eyed bearded men with 2.5 years of college" you get an estimate of how this group has fared. The estimate isn't wrong, it just might not answer a useful question, or have much to do with the question being asked. The question to ask is not "Are the statistics wrong." They aren't. They measure something. The question is whether a particular statistic is a useful measure for answering the question at hand.

No measure is perfect. Theoretically we may know precisely what we mean by a term like output or prices, but as we've seen with the debate over measuring inflation, measurement can be controversial. To evaluate a statistic such mean income, median income, all goods inflation, core inflation, wage gains for prime-age males with no college, and so on, start with the question being asked, then ask if a particular measure is the best possible way, given inevitable data constraints, of answering the question (which is not to say that won't be debatable at times).

Measuring inflation provides a good example. If the question is "How has the cost of living changed for a typical consumer," core inflation is not the best measure, all goods inflation is better. But if the question is "What measure of inflation forecasts future all goods inflation best," then core inflation appears to work better. It would be wrong to criticize the use of core inflation to predict future inflation based upon the fact that it's not the best measure of the cost of living. That's not the question the statistic is being asked to answer.

This is where Bree Nordenson of the Columbia Journalism Review got herself into trouble with her attempt at "Krugman does it too." She failed to start with the question - Why isn't the American economy generating higher income gains for those in middle America who have attained a college education - then ask if there is a better statistic to answer the question (I don't think there is), or if the statistic being used gives a misleading answer. As Brad DeLong puts it:

The idea is to rebut the claim that the American economy is still offering rapidly increasing rewards to those in middle America who have bettered themselves by getting a college education. Paul chose it not because it was one of the few statistics that goes his way, but because it is one of the statistics that would be expected to show income gains if the principal factor at work were rising rewards to education.

She also seems to be concerned because "This is not a widely published statistic," and is critical because "he chooses somewhat specific data himself." Of course it's specific, the question was about a specific group of people. All that matters is if it's the best statistic to answer the question. Whether the data are widely published has nothing to do with it. In any case, Brad shows it isn't obscure at all.

So, it's really pretty simple. Start with the question, then ask what empirical measures shed the most light on the answer.

Update: Brad DeLong posts Bree Nordenson's response as she grasps at straws trying to defend herself. For example, she says, this time attacking DeLong for his defense of Krugman:

We wonder whether Professor DeLong's economics students would be permitted to look at the median personal income of college graduates in two separate years, chosen at random, and then present a paper suggesting that this data alone sheds light on the question of education's effect on income inequality.

The years are 2000 and 2005. Does she really think these were "chosen at random?" The data end in 2005 - could that have anything to do with why 2005 is chosen? Perhaps. She could just read what Krugman said:

Political analysts tried all sorts of explanations for popular discontent with the “Bush boom” — it’s the price of gasoline; no, people are in a bad mood because of Iraq — before finally acknowledging that most Americans think it’s a bad economy because for them, it is. The lion’s share of the benefits from recent economic growth has gone to a small, wealthy minority, while most Americans were worse off in 2005 than they were in 2000.

The question is about discontent and the distribution of gains during the so-called "Bush boom" and how the distribution is related to education. Could that have anything to do with the choice of 2000 (and her suggestion of using the change from 2004 to 2005 instead is ludicrous given the question is about the gains during the recent cycle).

This part was funny too:

Leaving aside the question of whether "typical" households can be characterized as "median" (rather than, say, "average" or "neighbors of Paul Krugman")...

Huh? Good decision to leave that aside as it would be hard to win an argument that Krugman's neighbors are more typical than the median person. The rest of the argument is similarly . . . . let's just say unpersuasive. [Update: Yet another post from Brad DeLong shows that David Brooks, to whom Krugman is responding in part, also appears to use the years 2000 and 2005 as base years for comparison further explaining why Krugman would want to use the same years in rebuttal. Bree?].

Comments

[camille roy]

"There seems to be a "Krugman does it too" industry developing..."

The press uses this phony he said/ she said, without focusing on real issues and problems, while at the same time copping an attitude of cynical bemusement about the political process. It has outraged me since the days of the Clinton lynching (a.k.a. impeachment) and the Whitewater non-scandal. The righties play them like a symphony, because this pseudo "unbiased" approach is perfectly suited to becoming an echo chamber for rightwing spin.

I really do blame the press for much of what is foul in our political landscape: vicious partisian attacks, baseless assertions and/or lies, ideological froth, attacks on our basic liberties, undermining faith in the integrity of our govt employees, replacing a faith in laws & democracy (a.k.a. government) with a faith in the 'free market'. Not to mention the press campaign that supported the WMD nonsense that has lead to the debacle in Iraq.

[Pancho Villa]

Mark,

"There are three kinds of lies: lies, damned lies, and statistics."

[slink]

i find brad delong's
righteous defense just his typical
self indulgent
high hat bullying
of a weak target
(too often female by the way )
if its part of his lame crusade to improve economic journalism
go after the editors publishers and corporate owners

not the hapless climbing frog of a writer

and further more
why bother with her
sir brad ???
are you sucking up to fellow knight paul of krug ???
its offensive to see an elitest also ranlike yourself
playing avenger when the krugsterseveral levels above u
can well cover his own flank

[anne]

Interesting as usual:

http://commentisfree.guardian.co.uk/james_k_galbraith/2006/09/errin_burr_a_speech_ill_never.html

September 15, 2006

A Speech I'll Never Give: Some thoughts on the Hamilton Project, inequality and the future of globalisation.
By James K Galbraith - Guardian

Last spring, I received an invitation to debate Robert Rubin, the distinguished former treasury secretary and now vice-chairman of Citigroup, at a forum sponsored by The New Republic. Rubin is the leading light of an initiative called The Hamilton Project, founded on the principles "that broad-based economic growth is stronger and more sustainable, that economic security and economic growth can be mutually reinforcing, and that effective government can enhance economic growth". I was quite excited by this, and went so far as to draft my remarks during a spare moment a month in advance, fearing in part that I might otherwise forget the pun in the introduction. But then the panel was cancelled. I present here the speech I would have given, but never will....

My take is different, so much so that I fear it will leave some of you shaking your heads and saying, "he's doesn't live around here". Here's my view in three brief points:

1) On the new points of convergence, the Hamilton Project has converged to positions that the left should not have held in the first place, because they are wrong, or at least highly misleading, on the merits.

2) On at least two major issues where the Hamiltonians make no concessions, their positions are wrong on the merits, so as to obstruct any good the project might otherwise do. These are the budget deficit and the so-called "entitlements problem", code for Social Security.

3) All the sound and fury about trade agreements signifies very little. For the future of the world system, the issue of how to regulate capital flow is far more important.

The first point of misbegotten convergence concerns inequality. I am a professional student of inequality and you might think I share the political fervour about it often found on the left. But life is not so simple. One must first distinguish between incomes and pay. In the late 1990s, income inequality in the United States rose. Why? Mainly, it was the technology boom, creating huge income flows to a handful of firms and their bankers. If you isolate the between-county component of inequality, you find that the rise is almost entirely due to income registered in four places: King County, Washington, and three counties in Silicon Valley, California. That's it.

Was this a bad thing? Does Secretary Rubin now repudiate the internet boom that President Clinton did so much to foster? I hope not. Once at a conference I was asked directly whether I'd give up the stock boom in order to avoid the rising inequality it caused. When I said no, exactly one person clapped. It was Robert Summers, father of Larry.

The other issue is pay inequality-the reward for work. And that form of inequality declined in the U.S. as we approached full employment from 1994 to 2000. I published a book in 1998 called Created Unequal: The Crisis in American Pay on this topic; it might have been a best-seller except that the crisis was receding as I revised, and I said so. Full employment is a powerful force for greater equality in pay. If I were Robert Rubin, I'd be taking credit for it. I'd be drawing the appropriate lesson, which is that full employment ought to be our policy objective. But the Hamilton Project doesn't mention full employment.

On wages, Mr. Rubin and the Project accept a favourite left-factoid, that average productivity growth more rapid than median wage growth is a terrible problem. Well it does sound pretty bad-as though profits have been soaring at the expense of wages. But this isn't so. The share of wages in total income is barely lower than thirty years back. And while the profit share did rise sharply between 1998 and 2005, the wage share did not decline. What happened? Profits rose at the expense of personal interest income, which fell as interest rates fell. I cannot see why this is a bad thing.

Median wages lag average productivity in part by arithmetic, given an expanding labour force relative to population. As women and minorities and the young found work, as they have done over the past thirty years, an increase in the share of jobs earning less than the average was inevitable. And so the median must lag behind. But since the new workers weren't previously working at all, they may be better off than before-at least, they aren't necessarily worse off. There could be much more to this, but until this effect is adjusted for, we cannot know.

Therefore, pending further evidence, this factoid-quoted and deplored prominently in the Hamilton strategy document-could be a victimless crime. I'm an equal opportunity scold on the point: I've scolded my friends about it; now I scold you for agreeing with them. If we are not careful about our facts, those of us who are truly concerned about inequality end up handing ammunition to those who are not, like David Brooks....

[spencer]

I recently did an excercise in line with the comments by Anne. I looked at real incomes of the 35-44 year old age cohort since 1947. What you find is that from 1947 to 1974 the real wage of males rose sharply. But since 1974 it has stagnated. On the other hand real incomes for females rose steadily over the entire period and females employment rose faster then male employment. Consequently the weighted average income rose throughout the time period but the growth rate did
drop in about half after the mid-1970s.

So what we have is stagnating male incomes offset by rising female participation and rising female wages.
But the rise in the weighted average real incomes still slowed sharply after the mid-1970s..

This finding is confirmed if you look at household or family real income growth. You find that families with only a single male working have experienced stagnant real income growth while families with two adults working have experienced moderate real income growth.

So for the most part what we see is families offsetting
stagnant real incomes by sending their wives to work.

Of course even rising female incomes does not negate the thesis that the entire womans liberation movement was a capitalist plot to exploit the last source of cheap high quality labor -- women.

[anne]

Spencer:

"I looked at real incomes of the 35-44 year old age cohort since 1947. What you find is that from 1947 to 1974 the real wage of males rose sharply. But since 1974 it has stagnated. On the other hand real incomes for females rose steadily over the entire period and females employment rose faster then male employment. Consequently the weighted average income rose throughout the time period but the growth rate did
drop in about half after the mid-1970s."

What a gem you are in looking to statistical relationships....