Tag Archives: theory

A Prize For Evidence

There are all kinds of ways to divide/categorize the American public: there’s the urban/rural divide, the differences between Republicans and Democrats, people who are college educated versus those who are not…One distinction that is rarely highlighted but incredibly important doesn’t even have a descriptive term–it’s the difference between people who recognize and respect evidence and those who don’t.

Think of it as the difference between people who accept the Enlightenment emphasis on empirical reality and those who are “faith-based.” Being faith-based, at least as I am using the term, doesn’t necessarily mean “religious.” It means preferring an ideological commitment–something taken on faith– to demonstrable reality, and a number of people–many of them highly educated–fall into that category.

The judges who award the Nobel Prize just delivered a message to those faith-based folks, and that message was that real-world evidence matters more than ideological or theological preferences, no matter how sincerely or deeply held.

The Nobel Prize in Economics went to three American scholars. One of those was David Card of the University of California at Berkeley, who will receive half the prize.

NPR has the story.

Card was recognized in part for his groundbreaking work in the early 1990s with the late Princeton economist Alan Krueger, which challenged conventional wisdom about minimum wages.

Economists had long assumed that there was a tradeoff between higher wages and jobs. If the minimum wage went up, it was thought, some workers would get higher pay but others would be laid off.

But when Card and Krueger looked at the actual effect of higher wages on fast food workers, they found no significant drop in employment.

In other words, Card and Krueger explored  what actually happened when adjacent jurisdictions imposed different minimum wage laws. They compared fast food restaurants in New Jersey, which raised its minimum wage, to restaurants in neighboring Pennsylvania, which did not.

As CNN reported,

Three economists were awarded the Nobel Prize on Monday for showing that precise — and surprising — answers to some of society’s most pressing questions can be gleaned from experiments rooted in real life.

David Card was recognized by the Royal Swedish Academy of Sciences for groundbreaking work on minimum wages, immigration and education. He showed, using a natural experiment — where researchers study situations as they unfold in the real world — that increasing the minimum wage does not necessarily lead to fewer jobs.

The announcement of the award made special mention of the importance of “experiments rooted in real life.” Until very recently, much research–including economic research–has been heavily theoretical and mathematical: this equation or formula predicts that taking such-and-such action will bring about thus-and-so result.

Card said his work was mostly about “trying to get more scientific tie-in and evidence-based analysis in economics.”

“Most old fashioned economists are very theoretical, but these days, a large fraction of economics is really very nuts-and-bolts, looking at subjects like education or health, or at the effects of immigration or the effects of wage policies,” he said.

The Nobel committee noted the importance of that emphasis on real-world evidence.

“Card’s studies of core questions for society and Angrist and Imbens’ methodological contributions have shown that natural experiments are a rich source of knowledge. Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society,” Peter Fredriksson, chair of the Economic Sciences Prize Committee, said in a statement.

I’ve previously admitted that–much like those “conventional” economists– I had accepted the belief that a higher minimum wage would lead to job losses. It seemed so logical. I later realized that the “logic” required a seldom-noted caveat: all other things being equal. And in the real world, all other things are rarely equal.

What led to that realization was real-world evidence that became available after studies done by Card and others persuaded some jurisdictions to raise their minimum wages and report the results.

There’s nothing wrong with theory, but it’s a framework for empirical exploration, not a substitute. In the end, real world evidence is what matters.