In the classic Marx Brothers comedy DUCK SOUP, Groucho finds Chico with Groucho’s girlfriend in a bedroom. Chico tries to deny any hanky-panky by asking “What are you going to believe, me or your own eyes?”
Obviously, Groucho should believe his own eyes and not Chico’s baldfaced lies. And yet, in many circumstances of life, we tend to believe not our eyes but what we wish to be true based on our own predilections and pet ideologies.
Economics, for instance, is a field rife with ideology. As an academic discipline, economics can afford to consider different approaches and make different presuppositions about how best to run an economy.
But when it comes to economic policy that will impact people across the society, it’s best to knock ideology down a few notches and try to assess, in as accurate numerical terms as possible, what the practical outworkings of a policy are really going to be.
Or course, this can be easier said than done. With a policy, it’s possible to measure its consequences as they unfurl over time. But it’s much more difficult to forecast accurately what’s going to happen down the pike. And it’s even more difficult to assess counterfactuals such as what would have happened had a different policy been put into effect. [Read more...]