Tuesday, September 22, 2009

The OECD Goes Normative

"Normative" economics is what I like to call a "faux" sub-study of economics in that it asks "how things ought to be." The reason I don't credit it with as much as I would its sister, positive economics, is because it is not an economists' job to ask "how things ought to be." That reaks of bureaucrats and government nazi-nannies outlawing smoking or outlawing happy hour instead of letting adult people decide for themselves. Economics should only be concerned with REALITY and what "is." Let democracy or the people decide what "should be."

However, I have sensed a very disturbing trend in the field of economics which frankly will strike at the heart of the study and that is where normative economics is replacing positive economics. Specifically I am concerned about the corruption of data where previously uninfected economic research outfits are now being taken over by normative ideologues.

For example it was not too long ago The Economist (which previously advocated things based in empirical economic research such as ohhhhh....the elimination of corporate taxes) got on the American Idol bangwagon and endorsed Barack Obama. I thusly canceled my subscription and now am concerned about whether or not I can even trust the data The Economist provides.

A more serious threat to the integrity of economic data is the new appointee of the New York Federal Reserve. Denis Huges a former AFL CIO head in New York is the now the new chairman of the NY Fed. I data mine the FRED database all the time. Now I do have to worry about whether the unemployment rate really is only 10% or is it now more like 12%
However, the biggest threat I see is the recent leftist overtures at the world's largest economic database; the OECD. The OECD I thought was at least unbiased in that it was not under the yoke of the United States. That since it did not answer to the US I could trust that its data was untainted and unbiased. But two things now concern me.

1. It's aggression in pursuing tax harmony/anti-tax haven policies. Understand tax havens DO provide a VERY vital role in maintaining your standards of living; if governments tax their people too much, capital and money can just flow out of the oppressive tax regimes and to friendlier ones. This forces governments to make sure they don't just tax and spend, but rather spend efficiently, because otherwise people CAN vote with their dollars and feet.

2. The new "motto" of the OECD.

C-R-I-P-E-S

Which prompted me to write them this letter;

Hello,

I was curious as to who and how the OECD came up with it's new slogan.

I am curious because as an economist I am just looking for data, not opinions. And it seems to me the OECD has now entered the world of normative economics which now concerns me as to whether or not your data will be tainted.


Aside from replacing your current motto with some like;

"We provide data"

is there anyway you can assuage my concerns?

We'll see if they respond.

Regardless, there is a very important point to make about all this and that is what is going to be the increasing importance of outfits like the Heritage Foundation, Reason and the Cato Institute. As quasi-government, non-profit and for profit outfits that previously stood for positive, unbiased economic research get corrupted by and whore themselves out to politics, it will call into question the lifeblood of economics they provide; the data. Ergo you will need other, not necessarily unbiased sources (for the Heritage Foundation, Reason and Cato all have their biases), but other non-conforming sources that provide different data as a check or balance against previously "authoritative" ones.
Ah, intellectual honesty. We took you for granted in the economics profession.

4 comments:

Anonymous said...

So the hippies are winning, eh.

Anonymous said...

You forget Characteristic #2 of the leftist: the fondness for the Salutary Lie (Characteristic #1 is a fondness for death, preferably mass death). Lying to further socialist aims is not just acceptable to the leftist, but laudable. Truth is his enemy, hence the campaign to convince people that truth is "relative", which is complete nonsense, but useful to the cause.

Hot Sam said...

Yes, in Econ 101 we teach that positive economics discusses "what is" and normative economics "what should be". Positive statements have some truth value while normative statements do not. This is the simple description. It's actually more complicated than that.

As you say, society gets to decide "what should be" through whatever method is used: democracy, representative republic, dictatorship, etc. Normative economics applies value judgments (which are natural) to positive outcomes. For example, we know that minimum wage in perfect competition destroys some social welfare. But if we hold up perfect competition as the ideal, maximizing social welfare, we implictly assign equal weight to the utility of all economic actors. This itself is a value judgment.

A particular policy might maximize social welfare but our government is forbidden to enact it. Economic efficiency is politicallly infeasible.

So normative economics really is the science of how different weighting systems of economic outcomes affect the economy.

There is no doubt, though, that people who hate capitalism, income inequality, poverty, unemployment, high executive compensation, low wages, low milk prices are going to use pathos arguments to sway people's minds on "what should be". Their arguments usually consist of lies about the welfare losses and the identity of the winners and losers.

Anonymous said...

I am in total agreement with your preference for reality in economics. The only economists I have found to be worth reading (other than the Captain, of course) are Milton Friedman and Thomas Sowell. Can you recommend any others worth reading?