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Monday, May 07, 2007

Interpreting Economic Statistics through Normative Lenses

Do economic statistics represent a value-free picture of the economy's performance, or are such judgments necessarily value laden? This is Stanley Fish:

The All-Spin Zone, by Stanley Fish, NY Times Blogs: ...And now in 2007 comes “unSpun,” by Brooks Jackson and Kathleen Hall Jamieson. The book’s subtitle tells it all: “Finding Facts in a World of Disinformation.” Once again (for the umpteen-thousandth time) we are given a report on the sorry state of things linguistic – “We live in a world of spin” – and a promise that help is on the way... The idea is that while “we humans aren’t wired to think very rationally” and are prone to “letting language do our thinking for us,” we can nevertheless become “more aware of how and when language is steering us toward a conclusion.” In this way, Brooks and Jamieson promise, we can learn “how to avoid the psychological pitfalls that lead us to ignore facts or believe bad information.”

It all sounds so – well – rational: There’s a world of fact out there waiting to be accurately perceived, but the distorting power of words, abetted by the psychological disorders of passion and bias, tends to obscure it and lead us astray. And the remedy? Watch your words and watch your mental processes, paying particular attention to your “existing beliefs” lest they “reject evidence that challenges them.” In short, Jackson and Jamieson recommend, “practice active open-mindedness.”

But some of their examples suggest that active open-mindedness (even if it could be practiced, and I don’t think it could) may not be enough. The first example in the book of the spin you should be able to see through if you are sufficiently alert is a 2006 statement by Karl Rove to the effect that “Real disposable income has risen almost 14 percent since President Bush took office.” Jackson and Jamieson regard this claim as “so divorced from reality as to seem unhinged.” Why? Because the real disposable income Rove cited “was a statistic that measures the total increase in income, not how that income is distributed.” That is to say, the 14-percent increase did not benefit everyone, but went largely “to those in the upper half of society”; the disposable income of the lower half had “fallen by 3.6 percent.”

Does this prove spin? I don’t think so. What it proves is that in Rove’s view, the health of the economy is to be gauged by looking at how big investors and property owners are doing, while in Jackson’s and Jamieson’s view, an economy is not healthy unless the fruits of its growth are widely shared. This is a real difference, but it is a difference in beliefs about what conditions must obtain if an economy is to be pronounced healthy. It is not a difference between a clear-eyed view of the matter and a view colored by a partisan agenda. ...

Suppose there is a change in tax policy that cuts taxes on the wealthy. An economist can tell you what is likely to happen as a result, i.e. expected changes in variables such as output, prices, employment, who is likely to be helped and hurt, how the change might impact the distribution of income and wealth. etc.

The point narrow point here, which is part of a larger essay about the use of language and perceptions of reality, is that the interpretation of those statistics is a normative (value-laden) exercise. We see this, for example, when the economy is growing and average income is rising, but one group's income is rising much faster than others. All groups are better off as measured by their income since all incomes are growing on average, but some people will object to the widening inequality. Others will argue the economy is doing well.

On spin, let me put it this way. If you ask me as an economist to tell you how the economy is doing, I would want to present a variety of measures to characterize performance in as many dimensions as possible, and part of that consideration would be to allow people with different value frameworks to judge the economy for themselves.

I wouldn't view my job as one of judging good or bad or persuading you one way or the other, but rather to fully characterize the performance statistically so that you can make the judgments you need to make. If the distribution of income is important to you, I need to be able to tell you what has happened to it over time. If the price of gasoline is your concern due to your job as a trucker, I need to have that information too, or get it for you if you ask.

Stanley Fish is right, there is no way to judge the health of the economy without a set of principles for what that means, and those principles will vary according to what each individual thinks is important. The authors of the book, though, are right in this sense. Given each group's value framework, i.e. their ideas about what constitutes a healthy economy, cutting through the "spin" means sorting signal from noise and finding the information needed to judge the economy's performance. If Karl Rove has only talked about average income, then ask the questions and find the information needed to judge the distribution of income more broadly if that is your concern. And one more thing. Quit listening to Karl Rove.

Update: There is a follow-up at The Most Mendacious Man Alive?.

    Posted by on Monday, May 7, 2007 at 12:06 AM in Economics | Permalink  TrackBack (0)  Comments (18)

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