Wednesday, July 1, 2009

Mike Patton is the greatest vocalist of a generation

Social "scientists" spend much of their time explaining phenomena. Part, if not most of the challenge in this lies in addressing influences. Statisticians understand this quite well. Indeed, since many of the social "sciences" rely so heavily on statistics, you probably won't be able to find one social "scientist" (okay, I'm getting fed up with the quote marks; I think you get the point) in a million who won't blurt out, "correlation does not necessarily imply causation" with little to no prompting. Despite this, we are routinely treated to a near non-stop torrent of vacuous, feeble reasoning centered on either a false or a proximate cause. Why does this happen?

Let me first explain what I mean by a proximate cause, then move on to some possible motivations for their use. A proximate cause stands apart from the root cause in that it is merely one link in a chain of events that leads to some outcome. For example, suppose a dog bites your toddler. Better yet, suppose an infected dog bites your toddler and he turns into a zombie. Proximate causes for the zombification of your child would include: a) failure of the owners to obey leash laws b) the natural disposition of zombies to consume raw flesh c) your decision to take the kids for a walk in the dog park following a zombie outbreak or d) your child had half a dozen severed toes in the back pocket of his Garanimals (or whatever the hell it is brats are wearing these days). However, each of these proximate causes has a root cause, as follows: a) the owners themselves were zombies, and less likely than the fully-living to conform to city ordinance b) the virus that causes zombification attacks the prefrontal cortex, resulting in unususal appetites c) you didn't know about the outbreak, and you wanted to take a nice stroll; after all, it's a nice day, and the dog park is close by and d) your kid has yet to break the habit of picking up stray debris he finds on the sidewalk. By digging a little deeper in each of these instances, we can fund a more fundamental cause of the situation. Note also that there may be more than one underlying cause. In the above example, we face a situation of multiple causality. This is actually quite common when we have multiple agents interacting. It is the job of the social scientist to untangle the web of events to find and expose the fundamental causes of stuff, to better provide reliable advice on how to avoid future zombie outbreaks.

One proximate/fundamental cause issue that intro macro students often see (I know I did) was on the causes of inflation. I, like probably far too many students, was taught about cost-push and demand-pull inflation. If you haven't heard of this, don't worry. The former simply says that prices rise because the price of input goods rise and that these costs are passed along to consumers. The latter just says that if more people want a fixed amount of goods, they will bid up the price. We actually see this in action when plywood and bottled water prices shoot up during natural disasters. Still, these are both just simple mechanisms by which inflation manifests itself. The underlying cause of all inflation is more banknotes chasing the same number of products (or some variation on this theme).

The issue so many economists seem to be squabbling over now is the 2008/2009 (and beyond?) financial crisis. Some folks are blaming private firms run amok, others blame a naughty Federal Reserve, yet others point to poorly designed legislation, or the development of arcane financial instruments, or badly executed deregulation... the list goes on and on. It's rather fascinating stuff, and it will certainly keep economists busy for some time to come. I just hope that the discussion doesn't get stuck on some inconsequential proximate cause, because that often spells disaster for corrective action.

I, and folks who think like me, tend to believe that bad outcomes arise from the intersection between business and politics. To those on my team, we see favortism, rent-seeking, protectionism, and piles of moral hazard flowing out from under the crack of the door to the back room where deals between corporate officers and politicians are brokered. This is often what we see as the fundamental cause of no shortage of modern woes, from persistent poverty, to crime, to corporate plunder and beyond. Still, we do live in a representative democracy, and we tend to get something at least vaguely resembling what we vote for, so perhaps we've no one to blame but ourselves and each other. Perhaps there is a statistically significant chunk of us that thinks that banning Chinese imports is good, or that our children will be worse off than we are. If this is the case, then we free-market types (and I use the label very loosely) haven't yet identified the fundamental cause ourselves and we're just barking up the bad side of the wrong cedar.

I'll save my thoughts on this line of reasoning for another post.

The danger in resting on proximate causes, especially close ones (like saying the housing market collapsed because of greed) is that conclusions like these usually lead to solutions that end up being worse than the problems they were meant to solve. One of the primary doctrines in economics is the doctrine of unintended consequences, which basically states that no matter how well-intentioned a piece of legislation is, there are often unforseen results which may or may not please the people who wrote or the people who hope to benefit from the legislation. For example, CAFE standards encouraged people to buy Japanese automobiles, sugar quotas make Americans fat, and the minimum wage encourages chronic poverty. As long as we continue to incorrectly identify proximate causes as the target for legislation and regulation, we will exacerbate the problems of unintended consequences. Thoughtful, careful diagnosis is needed to figure out true fundamental causes. Only once this is done should be even begin discussing possible remedies. This, I believe, is a truism regardless of political bent or school of economic thought. Our first duty is to the truth. Our second duty is to stop the zombie infestation. Remember kids, aim for the head.

1 comment:

  1. It's so easy to blame "greed" and use it as the justification to "correct" the market by punishing bad behavior.

    You are right, that we instead ought to look at the prevailing condition that made such behavior profitable to begin with.