The cool thing about behavioral economics is it allows you to basically apply economic thinking to any type of research and write it off as legitimate science. That isn’t an insult. After all, I’m a huge fan of Freakonomics (no relation) which is at the forefront of the science.
Every summer the topic comes up about the relationship between crime and temperature. A lot of research points to a positive correlation between crime rates and the temperature. The relationship is simple: crime rates increase in the summer. No one can explain exactly why this is but it’s been observed as far back as the 1800s. A conclusion can be drawn with a little common sense though. When it’s cold or rainy outside you’re probably like me and more interested in watching a Harry Potter marathon or reading a good book instead of going shopping, hanging out with friends, or even going for a run. The weather dictates how active we are. In the summers we’re more active for a number of reasons, most of them revolve around more pleasant weather. This is also the same reason more children are born nine months after the colder months of the year. We’re inside and there’s less to do so we’re more “active” in other ways. But I digress.
Whenever it’s warm people like to go and do things. Many of us like to go and do things with other people and whenever you get people together trouble is more likely. Whether it’s a domestic disturbance or murder these crimes become more frequent as the mercury rises. The good news is at least that at some point it does get so hot that we become less active again. I believe this threshold to be somewhere between pit stains and frizzy hair as the heat and humidity makes us less attractive to the opposite sex and we thusly lose most desire to socialize. For your benefit and mine, I’ve constructed a chart.
The problem with economics in general is that it’s difficult to do anything beyond pointing out correlations. A correlation without a causation can be a dangerous science. In the case of the crime rate above, the correlation is crime rates increasing as the temperature increases. With the help of a biologist, a causation could be found from a study that maybe says neurotransmitter production of a neurotransmitter linked to aggression increases when the body sweats. This is made up, but it illustrates how a causation can illustrate a correlation better. Knowing the causation can perhaps better prepare law enforcement for dealing with the incidences or even advising citizens on what makes us more aggressive in the summer. Remember, I made this part up.
Macroeconomists have a very difficult task in identifying causation when it comes to our spending. A common economic correlation is that as unemployment rises personal spending decreases. In order to identify a causal relationship economists would need to monitor the spending of thousands of households. And I’m not talking surveys here, I mean serious collection of receipts and itemization of all expenses. The observation process would be tedious and there aren’t enough underpaid economics PhD students to cover it. Collecting data like this is enormously expensive and you’d probably have to compensate the families for their time as well. As a result, many economists are only able to study statistics and draw conclusions, without ever identifying a causal relationship.
How does this fail the people? Many policy decisions are made based on science. Greenhouse gases, smoking bans, and even speed limits are based on science. Economics is not a science. Economists aren’t employing the scientific method in many studies and it’s currently too hard to identify causal relationships in those studies. However Washington and the American people ignore this. Over the last 24 months economics has become the most important topic on everyone’s mind and the policy decisions that are being made are based on the current economics. If an economist were to look at my chart above and advise as to what should be done to fix this you’ll likely hear something like “you need to make the weather either cold or really hot to stop the crime increases”.
This is the type of policy decisions we’ve seen. Americans spend less as unemployment rises so economists suggest we decrease unemployment. Noble, but interfering with unemployment to increase spending can be as dangerous as altering climate to control crime rates. There are other things that will be impacted as a result. Economic activity increases with warm weather. And many successful companies today were started during times of high unemployment in the past. Again these are other observable correlations. When we act on correlations we end up with 0% interest rates from the Fed with no lending and $700 billion in TARP money increasing company profits but having no observable benefit by the American people.
I‘m not criticizing economics, I’m criticizing those that are relying too much on economists. Economics is young because capitalism is young; we’re currently at the stage equivalent to a young Albert Einstein dropping a stone and wondering why it falls to the ground. We have a long way to go, and we’ll get there. Just in the mean time let’s not treat economics like the science it isn’t.
Photo: atbaker
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
