Saturday, December 17, 2011

Biased Esoterics Or Economics


If you ever wondered why the Great Recession could have happened and why our elected representatives are so inept to deal with it look no further than the (pseudo)science of economics. Adam Smith/Hayek/Mises are spinning in their graves.

I just received the latest e-mail from the American Economic Association (where the brilliant minds of many Nobel laureates meet) containing the table of content and abstracts of American Economic Review (AER) Vol. 101, Issue 7 -- December 2011 (the flagship publication of AEA).

Now looking at individual articles featured in this latest AER:

1.       Title “The Slave Trade and the Origins of Mistrust in Africa
The authors state “… we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today.”
Comment: Wow! How did they even establish that the ancestors before slave trade were more trusting? Economists, a new breed of archeologists?

2.       Title “Buffalo Hunt: International Trade and the Virtual Extinction of the North American Bison
In the very short abstract, the author mentions the emotional loaded word “slaughter” three times as in “… slaughter lasting little more than ten years …”, “… the slaughter was initiated …” and “European demand and American policy failure are jointly responsible for the "Slaughter on the Plains." …” (emphasis added).
Comment: Does this author, perhaps driven by excessive love for animals, propose a monocausal explanation? Since when do economists assign responsibilities in economic papers?

3.       Title “The Effects of Rural Electrification on Employment: New Evidence from South Africa
We read in the abstract “… I find that electrification significantly raises female employment within five years. This new infrastructure appears to increase hours of work for men and women, while reducing female wages and increasing male earnings. …”.
Comment: Is this an example of gender studies and the notion of manifest gender inequality intruding into economics?

4.       Title “School Desegregation, School Choice, and Changes in Residential Location Patterns by Race
The authors state “We decompose the well documented decline in white public enrollment following desegregation into migration to suburban districts and increased private school enrollment and find that migration was the more prevalent response. Desegregation caused black public enrollment to increase significantly outside of the South, mostly by slowing decentralization of black households to the suburbs …” (emphasis added).
Comment: I thought their finding in 2011 was already well established for a long time that white population moved into to the suburbs. What is “slowing decentralization” in this context? Economists and linguistics.

5.       Title “The Effect of Newspaper Entry and Exit on Electoral Politics
The authors conclude “The effect on presidential turnout diminishes after the introduction of radio and television, while the estimated effect on congressional turnout remains similar up to recent years. We find no evidence that partisan newspapers affect party vote shares, with confidence intervals that rule out even moderate-sized effects. We find no clear evidence that newspapers systematically help or hurt incumbents.” (emphasis added)
Comment: What does this have to do with economics? This is a political science study. I don’t think economists in general are sufficiently equipped to make such bold statements. Or this a scientific cover for obviously leftist and influential major newspapers like Washington Post and New York Times?

6.       Title “Endogenous Information Flows and the Clustering of Announcements
The authors “show that bad market news can trigger the immediate release of information by firms. Conversely, good market news slows the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preemptively disclose their own information prior to the arrival of external information.” (emphasis added).
Comment: I am impressed that economists of our times again and again confirm common sense. What is the surprise here? When the management of a company senses that the arrival of external information is imminent then it makes sense to release your own information as soon as possible. Is this perhaps an example for economists never having worked in the real economy for a for profit private enterprise?

7.       Title “Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets
The authors say “This motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers' ability to conjecture competitor behavior. We find that manager characteristics are key determinants in managerial ability. This estimate of ability predicts out-of-sample success.” (emphasis added)
Comment: This result smacks of banality and triviality.

8.       Title “Media and Political Persuasion: Evidence from Russia
The authors state following purpose of their study “This paper compares electoral outcomes of 1999 parliamentary elections in Russia among geographical areas with differential access to the only national TV channel independent from the government.” (emphasis added)
Comment: This is another political science or media influence study in a premier economics journal. See also no. 5 above.

9.       Title “The Consequences of Radical Reform: The French Revolution”
In the opinion of the authors “The French Revolution had a momentous impact on neighboring countries. It removed the legal and economic barriers protecting oligarchies, established the principle of equality before the law, and prepared economies for the new industrial opportunities of the second half of the 19th century.” (emphasis added).
Comment: Again economists endeavor to be historians and political scientists as well (See also no. 1 above). That is a huge calling for any economist. From the title and abstract one gets the impression that the authors glorify the French Revolution by ignoring all its dark sides. Were there not, e.g., expanding price controls and executions of offenders in France during this time?

I think I will stop here after the first 16 articles out of a total of 25 articles listed and abstracted in the above e-mail sent by AEA. One gets the idea where I am coming from.

To be fair, there was at least one positive article worth mentioning among the first 16 of 25. Title “Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence”. A subject, which is very relevant in our times to millions of employees and our elected representatives. The authors conclude correctly “Health is a form of general human capital; labor turnover and labor-market frictions prevent an employer-employee pair from capturing the entire surplus from investment in an employee's health. Thus, the pair underinvests in health during working years, thereby increasing medical expenditures during retirement.”. It is indeed high time the US abandons this socialist employment-based health care system. Private individual health care insurance in a free market economy is only way consistent with the US Constitution and with the magnificent ideals/convictions of the founding fathers and mothers. If the US wants to continue to be a beacon of hope and a shining city on a hill it is way overdue to reform health care insurance along these lines.

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