The “freak economy”, the “bestseller” that failed to transform the economy

The “freak economy”, the “bestseller” that failed to transform the economy

“Economics is the study of humanity in the ordinary affairs of life.” This is how it starts Principles of Economics Written by Alfred Marshall, a 19th-century textbook helped create the common language that economists still use today. Marshall's claim that economics studies the “normal” was a statement of intent. The discipline sought to take seriously some of the most pressing questions in human life. How do I pay my bills? What do I do for a living? What if I get sick? Will I ever be able to retire?

In 2003 The New York Times He published a profile of the economist Steven Levitt of the University of Chicago, in which he expressed a very different view: “In Levitt's view, as the article states, economics is a science with excellent tools for obtaining answers, but a serious lack of interesting questions.” . Levitt and the columnist Stephen Dubner wrote together Strange economics. There was little in his book about the ordinary business of life. Through vignettes about cheating sumo wrestlers, minimum wage traders, and Ku Klux Klan members, the authors explore how people respond to incentives and how the use of new data can reveal the true motivations for their behavior.

Strange economics It was successful. It has been listed on bestseller lists just below the Harry Potter books. As in the Marvel comics, it spawned an expanded universe: the Columns of Al The New York TimesPodcasts and sequels, as well as imitators and critics, are intent on demolishing their arguments. It came at the head of a group of books that promised quirky but nuanced analysis of topics ignored by conventional wisdom. On March 7, Levitt, who has become for many people the living image of the economist, announced his retirement from academic work. “It's the wrong place for me,” he said.

During his career, Levitt wrote several articles on applied microeconomics. The academic described himself as a “footnote to Credibility revolutionThis concept refers to the use of statistical tricks, such as instrumental variables analysis, natural experiments, and regression discontinuity, which are designed to extract causal relationships in data.

The American economist popularized the techniques of fellow professionals such as David Card, Guido Impens, and Joshua Angrist, With whom they jointly won the Nobel Prize in Economics for the year 2021. The idea was to exploit the idiosyncrasies of the data to simulate the randomness that scientists encounter in controlled experiments. For example, arbitrary start dates in the school calendar can be used to estimate the effect of adding a year of school on wages.

Where the approach differs from Strange economics It was by applying these techniques to “the hidden side of everything,” as the book’s tagline says. Levitt's research has focused on crime, education, and racial discrimination. The book's most controversial chapter claims that the legalization of abortion in the United States in 1973 led to a decline in crime rates in the 1990s, because more unwanted children were aborted before they became teenage criminals. However, he was wrong. Researchers later found a coding error and pointed out that Levitt used the total number of arrests, which is based on population size, not the arrest rate.

Other economists – including James Heckman, Levitt's colleague in Chicago and another Nobel laureate – were concerned that this was being underestimated. “Nice (bufó, in Catalan)', was how he described his approach in an interview. At the heart of Hickman's criticism was the idea that these studies focused on 'internal validity' (ensuring that estimates of the effect of some change are correctly estimated) over 'external validity' (if Estimations were applied more generally.) Instead, he believed that economists should create structural models of decision-making and use the data to estimate parameters that explain behavior within them. The debate turned toxic. According to Levitt, Heckman went so far as to assign master's students an assignment Tearing up the work of the book's author. Strange economics On your final exam

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Who was right?

Neither man won. the Credibility revolution She ate her own children: later articles often mirrored the findings, as in those published by Strange economicsThen he lived a second life as anecdotes from the bar. The problem has also spread to the rest of the profession. A recent study by Federal Reserve economists found that less than half of the published articles they examined could be reproduced, even with the help of the original authors. Levitt's counterintuitive results have become outdated, and economists have generally become more skeptical.

However, Hickman's methods also have their own problems. Structural models require assumptions that may be implausible, like any strange quasi-experiment. It is unfortunate that much contemporary research uses large amounts of data and “credibility revolution” methods to reach clear conclusions. Old economic questions remain as interesting as ever. Tools to investigate it are still in progress.

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