The Day the Economics Profession Lost Its Last Shred of Dignity

January 14, 2011. That’s when Stanford economist John B. Taylor made the following arguments:

  1. Higher government purchases, as a percent of GDP, are associated with higher rates of unemployment. Therefore: “There is no indication that lower government purchases increase unemployment; in fact we see the opposite…”
  2. Higher levels of investment, as a percent of GDP, are associated with lower rates of unemployment. Therefore: “Encouraging the creation and expansion of businesses should be the focus on government efforts to reduce unemployment. The recent compromise agreement to prevent the increase in tax rates on small businesses and the move to lighten up on the anti-business sentiment coming out of Washington are two steps in the right direction.”

And with that, I lost all respect for Taylor.   Continue reading “The Day the Economics Profession Lost Its Last Shred of Dignity”

How to Lie with Statistics

What would you conclude if I showed you the following graph?

If you know how to read a scatterplot, you’d probably say that changes in the tax rate have no effect on the number of hours worked. If you follow economic policy debates, you might be surprised by this graph because it contradicts a very common belief: Europe is less productive than the U.S. because their taxes are higher.

But I didn’t show you the whole graph. Here’s how it really looks:   Continue reading “How to Lie with Statistics”