CAUSATION FOR USE SOME PRACTICAL PROBLEMS JULIAN REISS, ERASMUS UNIVERSITY ROTTERDAM

Transcription

1 CAUSATION FOR USE SOME PRACTICAL PROBLEMS JULIAN REISS, ERASMUS UNIVERSITY ROTTERDAM

2 OVERVIEW THE THEME OF THIS CONFERENCE IS PHILOSOPHY OF SCIENCE IN USE A GOOD TEST CASE FOR A PHILOSOPHY OF SCIENCE WITH A PRACTICAL BITE ARE SCIENTIFIC CONTROVERSIES HERE I LOOK AT A CONTROVERSY IN ECONOMICS: THE MINIMUM- WAGE DEBATE THE CASE SHOWS THAT PHILOSOPHY OF SCIENCE, AS CURRENTLY PRACTISED, IS OF LITTLE HELP THE CASE ALSO HIGHLIGHTS SOME PARTICULARITIES OF ECONOMIC RESEARCH I CONCLUDE WITH SOME LESSONS FOR PHILOSOPHY OF SCIENCE FOR USE

3 A MOTIVATION: F 53 FRIEDMAN, THE METHODOLOGY OF POSITIVE ECONOMICS (1953): I VENTURE THE JUDGMENT, HOWEVER, THAT CURRENTLY IN THE WESTERN WORLD, AND ESPECIALLY IN THE UNITED STATES, DIFFERENCES ABOUT ECONOMIC POLICY AMONG DISINTERESTED CITIZENS DERIVE PREDOMINANTLY FROM DIFFERENT PREDICTIONS ABOUT THE ECONOMIC CONSEQUENCES OF TAKING ACTION DIFFERENCES THAT IN PRINCIPLE CAN BE ELIMINATED BY THE PROGRESS OF POSITIVE ECONOMICS RATHER THAN FROM FUNDAMENTAL DIFFERENCES IN BASIC VALUES, DIFFERENCES ABOUT WHICH MEN CAN ULTIMATELY ONLY FIGHT. AN OBVIOUS AND NOT UNIMPORTANT EXAMPLE IS MINIMUM-WAGE LEGISLATION. UNDERNEATH THE WELTER OF ARGUMENTS OFFERED FOR AN AGAINST SUCH LEGISLATION THERE IS AN UNDERLYING CONSENSUS ON THE OBJECTIVE OF ACHIEVING A LIVING WAGE FOR ALL...

4 THE MINIMUM WAGE: A SHORT HISTORY S: EARLY WAVE OF STATE-WIDE LEGISLATIONS (MA/OR/UT MODELS), FOLLOWING NZ/AUS/UK, IN 1923 DECLARED UNCONSTITUTIONAL 1938: FAIR LABOR STANDARDS ACT UNDER ROOSEVELT, $0.25/HR NATIONWIDE (EXEMPTIONS/ADJUSTMENTS BY INDUSTRY) SINCE: GRADUAL INCREASES IN THE FEDERAL RATE UP TO $7.25 TODAY; UNTIL 1981: PERIODS OF DECREASING REAL MINIMUM WAGES WOULD FOLLOW A SHARP INCREASE; STEADY DECLINE SINCE (BUT STATE LEGISLATION) AMONG ECONOMISTS, THE EFFECTS OF THE MINIMUM WAGE HAVE ALWAYS BEEN A SOURCE OF DISPUTE: CLARK (CON) VS WEBB (PRO) MARGINALISM: STIGLER/MACHLUP (CON) VS LESTER (PRO) IN 1960S EMERGENCE OF A CONSENSUS, EARLY 1980S MWSC REPORT

5 THE MINIMUM WAGE: A SHORT HISTORY S: EARLY WAVE OF STATE-WIDE LEGISLATIONS (MA/OR/UT MODELS), FOLLOWING NZ/AUS/UK, IN 1923 DECLARED UNCONSTITUTIONAL 1938: FAIR LABOR STANDARDS ACT UNDER ROOSEVELT, $0.25/HR NATIONWIDE 6 (EXEMPTIONS/ADJUSTMENTS BY INDUSTRY) SINCE: GRADUAL INCREASES IN THE FEDERAL RATE UP TO $7.25 TODAY; UNTIL 1981: PERIODS OF DECREASING REAL MINIMUM WAGES WOULD FOLLOW 4 A SHARP INCREASE; STEADY DECLINE SINCE (BUT STATE LEGISLATION) $/hr AMONG ECONOMISTS, THE EFFECTS OF THE MINIMUM WAGE HAVE ALWAYS BEEN A SOURCE OF DISPUTE: 2 CLARK (CON) VS WEBB (PRO) MARGINALISM: STIGLER/MACHLUP (CON) VS LESTER (PRO) 0 Minimum Wages U.S. IN S EMERGENCE OF A CONSENSUS, EARLY S MWSC REPORT Nominal Real Year

6 THE MINIMUM WAGE: A SHORT HISTORY S: EARLY WAVE OF STATE-WIDE LEGISLATIONS (MA/OR/UT MODELS), FOLLOWING NZ/AUS/UK, IN 1923 DECLARED UNCONSTITUTIONAL 1938: FAIR LABOR STANDARDS ACT UNDER ROOSEVELT, $0.25/HR NATIONWIDE (EXEMPTIONS/ADJUSTMENTS BY INDUSTRY) SINCE: GRADUAL INCREASES IN THE FEDERAL RATE UP TO $7.25 TODAY; UNTIL 1981: PERIODS OF DECREASING REAL MINIMUM WAGES WOULD FOLLOW A SHARP INCREASE; STEADY DECLINE SINCE (BUT STATE LEGISLATION) AMONG ECONOMISTS, THE EFFECTS OF THE MINIMUM WAGE HAVE ALWAYS BEEN A SOURCE OF DISPUTE: CLARK (CON) VS WEBB (PRO) MARGINALISM: STIGLER/MACHLUP (CON) VS LESTER (PRO) IN 1960S EMERGENCE OF A CONSENSUS, EARLY 1980S MWSC REPORT

7 THE MINIMUM WAGES: THEORY A) THE COMPETITIVE EQUILIBRIUM

8 THE MINIMUM WAGES: THEORY B)MONOPSONY

9 THE CURRENT CONTROVERSY... STARTED WITH A 1992 ILRR SYMPOSIUM IN WHICH FINDINGS RANGED FROM 0.2 TO 2.65 MOST PREVIOUS STUDIES HAD BEEN OF THE FORM: Y IT = αmw IT + R IT β + ε IT ; THE NEW WAVE INCLUDES NATURAL EXPERIMENTS IN PARTICULAR INDUSTRIES AND REGIONS IN A 2008 REVIEW, NEUMARK AND WASCHER FIND THAT ABOUT TWO-THIRDS OF THE 100 OR SO STUDIES OF THE NEW WAVE FIND SOMETIMES SIGNIFICANT NEGATIVE EFFECTS, MANY FIND NO EFFECTS AND 8 FIND POSITIVE EFFECTS IMPORTANTLY, MANY THOUGH BY NO MEANS ALL OR A GREAT MAJORITY OF ECONOMISTS REGARD THE NATURAL-EXPERIMENT EVIDENCE AS COMPELLING

10 THE HEART OF THE PROBLEM THE VARIETY OF RESULTS CANNOT BE EXPLAINED BY LOCAL DIFFERENCES ALONE CARD AND KRUEGER 1994: 0.63 TO 0.73, NEW JERSEY 1992 NEUMARK AND WASCHER 2000: 0.1 TO 0.25, NEW JERSEY 1992 THE KEY QUESTION THUS IS: HOW CAN WE CONDUCT EVIDENCE-BASED POLICY IN THE ABSENCE OF GOOD EVIDENCE?

11 FORMAL THEORIES OF EVIDENCE INSTANCE THEORIES AN INSTANCE IS EVIDENCE FOR ITS GENERALISATION HYPOTHETICO-DEDUCTIVE THEORIES AN OBSERVED IMPLICATION OF A HYPOTHESIS IS EVIDENCE FOR IT PROBABILISTIC THEORIES WHATEVER INCREASES AN AGENT S BELIEF IN A HYPOTHESIS (OR RENDERS IT HIGH) IS EVIDENCE FOR IT... ALL HAVE PROBLEMS OF THEIR OWN BUT MORE IMPORTANTLY: THEY DON T SEEM TO GIVE US WHAT WE WANT

12 MATERIAL THEORIES OF EVIDENCE NORTON 2003: THE INDUCTIVE INFERENCES OF SCIENCE ARE GROUNDED IN MATTERS OF FACT THAT HOLD ONLY IN PARTICULAR DOMAINS, SO THAT ALL INDUCTIVE INFERENCE IS LOCAL CARTWRIGHT 2006: EPISTEMOLOGICAL WARRANTS (EVIDENCE) ARE IN LARGE PARTS ALSO USE- AND CONTEXT-SPECIFIC CF. SOBER 1991, REISS 2007

13 MID-RANGE THEORIES OF EVIDENCE RECENT PHILOSOPHY/METHODOLOGY OF SCIENCE HAS MADE MUCH HEADWAY IN SHOWING THAT CERTAIN METHODS YIELD CORRECT RESULTS, GIVEN A SET OF ASSUMPTIONS MOST PROMINENTLY, BAYES NETS (PEARL, SGS) CARTWRIGHT S 2008 PROOF OF RCTS REISS 2005 PROOF OF INSTRUMENTAL VARIABLES THESE PROOFS PROVIDE A NORMATIVE JUSTIFICATION FOR THE USE OF SUCH METHODS WHERE THEY WORK ADVANTAGE: CHECKLIST FOR APPLICABILITY BUT: CONDITIONS OF APPLICABILITY HIGHLY STRINGENT (NB: CARTWRIGHT S CLINCHERS VS VOUCHERS )

14 AN EXAMPLE: CAUSAL INSTRUMENTAL VARIABLES REISS 2005/2007: IF CORRELATION IS EQUIVALENT TO CAUSAL CONNECTEDNESS CAUSATION IS TRANSITIVE THE INSTRUMENT CAUSES THE PUTATIVE CAUSE-VARIABLE THE INSTRUMENT CAUSES THE PUTATIVE EFFECT-VARIABLE, IF AT ALL, ONLY THROUGH THE PUTATIVE CAUSE VARIABLE THE INSTRUMENT AND THE PUTATIVE EFFECT VARIABLE DO NOT SHARE ANY CAUSES THEN IF THE INSTRUMENT IS CORRELATED WITH THE PUTATIVE EFFECT, THE PUTATIVE CAUSE IS A GENUINE CAUSE OF THE EFFECT

15 WHERE CLINCHERS FAIL THE PROBLEM WITH THE CLINCHING METHODOLOGY IS THAT THE REQUIRED ASSUMPTIONS ARE HARD TO MEET, E.G.: CONFOUNDERS INCLUDING YEAR EFFECTS SOLVES THE PROBLEM IN ONE GO BUT EXCLUDES A LOT OF INFORMATION; INCLUDING KNOWN CONFOUNDERS IS IMPRACTICAL LAGS SHORTER PERIODS ARE LESS LIKELY TO BE CONFOUNDED BUT EMPLOYMENT EFFECTS ARE LIKELY TO SHOW UP ONLY IN THE LONGER RUN (BECAUSE OF CAPITAL SUBSTITUTION, WHICH TAKES TIME)

16 WHERE CLINCHERS FAIL MIXING ANY TWO GROUPS ARE LIKELY TO DIFFER IN SOME IMPORTANT RESPECT; BUT AN AVERAGE ACROSS ALL STATES IS LIKELY TO BE OVER MIXED POPULATIONS (CF. RCTS VS CASE-CONTROL STUDIES) INTERACTION FOCUSING ON AN INDUSTRY ENABLES TO ESTIMATE THE EFFECT FOR THAT INDUSTRY MORE PRECISELY BUT IS LIKELY TO EITHER CHANGE THE QUESTION OR IGNORE INTERACTION EFFECTS, E.G., FROM HIGHER INCOMES IN ONE INDUSTRY TO HIGHER DEMAND OF FAST FOOD TO HIGHER EMPLOYMENT THERE (P. 76) MEASURING VARIABLES MORE STANDARD MEASURES ALLOW COMPARABILITY BUT MAY NOT MEASURE WHAT IS REQUIRED; MORE TAILOR MADE MEASURES DO THE LATTER BUT INVALIDATE COMPARISONS SIMILAR TRADE OFF BETWEEN TESTING THEORY AND POLICY RELEVANCE (P. 78)

17 WHAT TO DO WHEN CLINCHERS FAIL 6 SILLY ANSWERS USE CONSILIENCE TYPE ARGUMENTS RELY ON ECONOMISTS EXPERTISE AGGREGATE RESULTS WAIT AND GET MORE EVIDENCE IN RELY MORE HEAVILY ON THEORY USE NON-EPISTEMIC VALUES TO THE RESCUE

18 CONSILIENCE? ARGUMENT IN FAVOUR IS PROBABILISTIC: REGARDED AS INDEPENDENT DRAWS, THE PROBABILITY THAT THE SAME RESULT APPEARS DECREASES WITH THE NUMBER OF DRAWS IN THE PRESENT CASE THERE IS TOO MUCH VARIATION MORE IMPORTANTLY, THE DIFFERENT STUDIES ARE HARDLY INDEPENDENT FROM NEUMARK AND WASCHER 2008 : THE JOURNAL S PROJECT WOULD HAVE BEEN MORE VALUABLE HAD MORE RESEARCHERS INVOLVED IN THE MINIMUM WAGE DEBATE WHO WERE INVITED TO PARTICIPATE AGREED TO DO SO, BUT ONLY ONE PRESPECIFIED RESEARCH DESIGN... WAS SUBMITTED AND PUBLISHED

19 CONSILIENCE? ARGUMENT IN FAVOUR IS PROBABILISTIC: REGARDED AS INDEPENDENT DRAWS, THE PROBABILITY THAT THE SAME RESULT APPEARS DECREASES WITH THE NUMBER OF DRAWS IN THE PRESENT CASE THERE IS TOO MUCH VARIATION MORE IMPORTANTLY, THE DIFFERENT STUDIES ARE HARDLY INDEPENDENT FROM NEUMARK AND WASCHER 2008 : THE JOURNAL S PROJECT WOULD HAVE BEEN MORE VALUABLE HAD MORE RESEARCHERS INVOLVED IN THE MINIMUM WAGE DEBATE WHO WERE INVITED TO PARTICIPATE AGREED TO DO SO, BUT ONLY ONE PRESPECIFIED RESEARCH DESIGN... WAS SUBMITTED AND PUBLISHED

20 CONSILIENCE? ARGUMENT IN FAVOUR IS PROBABILISTIC: REGARDED AS INDEPENDENT DRAWS, THE PROBABILITY THAT THE SAME RESULT APPEARS DECREASES WITH THE NUMBER OF DRAWS IN THE PRESENT CASE THERE IS TOO MUCH VARIATION MORE IMPORTANTLY, THE DIFFERENT STUDIES ARE HARDLY INDEPENDENT FROM NEUMARK AND WASCHER 2008 : THE JOURNAL S PROJECT WOULD HAVE BEEN MORE VALUABLE HAD MORE RESEARCHERS INVOLVED IN THE MINIMUM WAGE DEBATE WHO WERE INVITED TO PARTICIPATE AGREED TO DO SO, BUT ONLY ONE PRESPECIFIED RESEARCH DESIGN... WAS SUBMITTED AND PUBLISHED

21 TURNING TO YOUR TRUSTED ECONOMIST? NOBEL 1986 JAMES BUCHANAN (AND WITH HIM, MANKIW AND BECKER):...NO SELF-RESPECTING ECONOMIST WOULD CLAIM THAT INCREASES IN THE MINIMUM WAGE INCREASE EMPLOYMENT. SUCH A CLAIM, IF SERIOUSLY ADVANCED, BECOMES EQUIVALENT TO A DENIAL THAT THERE IS EVEN MINIMUM SCIENTIFIC CONTENT IN ECONOMICS, AND THAT, IN CONSEQUENCE, ECONOMISTS CAN DO NOTHING BUT WRITE AS ADVOCATES FOR IDEOLOGICAL INTERESTS. FORTUNATELY, ONLY A HANDFUL OF ECONOMISTS ARE WILLING TO THROW OVER THE TEACHING OF TWO CENTURIES; WE HAVE NOT YET BECOME A BEVY OF CAMP-FOLLOWING WHORES.

22 TURNING TO YOUR TRUSTED ECONOMIST? NOBEL 2008 PAUL KRUGMAN (AND WITH HIM, STIGLITZ):... FOUND NO EVIDENCE THAT MINIMUM WAGE INCREASES IN THE RANGE THAT THE UNITED STATES HAS EXPERIENCES LED TO JOB LOSSES. THEIR WORK HAS BEEN ATTACKED BECAUSE IT SEEMS TO CONTRADICT ECON 101 AND BECAUSE IT WAS IDEOLOGICALLY DISTURBING TO MANY. YET IT HAS STOOD UP VERY WELL TO REPEATED CHALLENGES, AND NEW CASES CONFIRMING ITS RESULTS KEEP COMING IN.

23 AGGREGATE EVIDENCE? HOW? CHOOSE FAVOURITE STUDY? COMPUTE AN AVERAGE OF THE CENTRAL PARAMETER? VOTE? META-ANALYSIS?

24 RELY ON THEORY? THIS IS PERHAPS WHAT DROVE THE PRE-1994 CONSENSUS PROBLEM: PERHAPS DO DATA UNDERDETERMINE THEORY BUT CERTAINLY DOES THEORY UNDERDETERMINE A LOW-LEVEL CAUSAL CLAIM WHETHER MINIMUM WAGES DECREASE EMPLOYMENT DEPENDS ON... INDUSTRY STRUCTURE/MARKET POWER LEVEL OF WAGE RELATIVE TO COMPETITIVE LEVEL NUMBER OF EMPLOYERS COVERED BY MINIMUM WAGE WHETHER OR NOT HIGHER WAGES HAVE PRODUCTIVITY EFFECTS WHETHER CAPITAL IS REGARDED AS FIXED OR VARIABLE WHETHER OR NOT TIPS ARE INCLUDED

25 VALUES TO THE RESCUE? SOME ARGUE THAT VALUES CANNOT BE SEPARATED FROM FACTS BECAUSE OF QUINE-DUHEM UNDERDETERMINATION THUS, WE DON T SELECT THE THEORY THAT S BEST SUPPORTED BY EVIDENCE (AS THERE IS NO SUCH THING) BUT RATHER THE SIMPLEST, MOST FECUND OR LOVELIEST THEORY ARGUABLY, THE ORIGINAL COMPETITIVE MODEL IS SIMPLER THAN ITS COMPETITORS THIS SEEMS HOPELESSLY ARBITRARY

26 FOUR LESS SILLY (ALBEIT RATHER TRIVIAL) SUGGESTIONS A) RESTRICT INFERENCES TO CLAIMS THE EVIDENCE CAN SUPPORT THE STUDIES SHOW FOR INSTANCE THAT WHATEVER THE EFFECT OF MINIMUM WAGES ON EMPLOYMENT IS, IT CAN T BE LARGE B) DESIGN MORE SURGICAL POLICIES INTRODUCE MINIMUM WAGES ONLY WHERE THERE IS ADDITIONAL EVIDENCE THAT EMPLOYERS HAVE MARKET POWER C) HEDGE YOUR BETS CO-INTRODUCE MEASURES THAT ARE LIKELY TO HAVE EFFECTS THAT COUNTERACT THE POSSIBLE NEGATIVE EFFECTS D) SEEK ALTERNATIVES LIKELY TO PROMOTE THE MORE ULTIMATE GOAL HERBERT SIMON, FRIEDRICH VON HAYEK, JAMES TOBIN, JAMES MEADE, ROBERT SOLOW AND JAN TINBERGEN ALL SUPPORT A BASIC INCOME

27 CONCLUSIONS FOR PHILOSOPHY OF SCIENCE IN USE MOST IMPORTANT CONCLUSION IS THAT A THEORY OF VOUCHERS IS BADLY NEEDED WHAT ARE THE PRINCIPLES OF LEARNING FROM STUDIES WHEN IT IS KNOWN THAT RESULTS ARE CONFOUNDED VARIABLES ARE BADLY MEASURED CAUSAL STRUCTURES ARE MIXED ETC.? FURTHER, WE NEED A THEORY OF DECISION MAKING UNDER RADICAL UNCERTAINTY (WHEN NO PROBABILITIES ARE KNOWN) THAT INCLUDES DECISION COSTS