26 January 2017

Rewriting the rules of economics

An interesting article by Tim Worstall attacks MP Liam Byrne’s call to “rewrite the rules of economics”, as a cure for the supposed problem of inequality. As Tim points out, you cannot rewrite rules if they represent the way economies work.

Getting academics to generate models that will produce the answers you want seems the wrong way round to do research.

A couple of things jarred when I read Mr Byrne’s article (co-written with Professor Colin Hay, co-director of the Sheffield Political Economy Research Institute).

The article cites the relation between a person’s level of education and their earnings, committing the common fallacy, when discussing this topic, of assuming correlation means causation. At least, that is the obvious way to interpret the writers’ assertion that

a degree remains the key determinant of a middle-class income
It seems to be taken for granted that the average non-graduate – if we could go back in time and arrange for them to attend university – would see their income higher by the so-called “graduate premium”: the difference in average salary between graduates and non-graduates. This presumes there is no innate ability factor to generate two different effects, with a correlation between them: (1) level of education and (2) level of earnings.

The blank-slate presumption is not supported by data but is frequently made nonetheless, perhaps because it chimes better with egalitarian ideology.