Two different people (Christoper Mann and Jeff Lax) pointed me to this graph in the Wall Street Journal that features a goofy regression line. My expertise on taxes and economic growth is zero, and the statistical problems with the regression line are apparent, so I don’t really have anything to say here. Hey, if all roads go through Rome, it’s only fair that all lines go through Norway.
But, to get serious for a minute . . . Setting aside the concerns with the regression line or with measurement issues in defining the variables being graphed, it’s an interesting reminder of the duality between descriptive vs. causal inference and aggregate vs. individual-level analysis (or, as would be said in psychology, between-subject vs. within-subject analysis). I’m not criticizing the use of graphs such as these (or corresponding regression models) that use between-country comparisons to make implicit causal inferences about policies–it’s just helpful to remember the assumptions needed to draw these conclusions.
The funny thing about that graph is that if you plot a smoother line through the data it looks an awful lot like the Laffer Curve! If the Journal editorial staff had access to statistical software they could've come up with a far more convincing illustration of their point.
In the case of that graph, people are also not happy that the line appears to have been drawn specifically so it went through the Norway point; see Good Math, Bad Math and my blog. One thing I didn't point out is that essentially all the points in the WSJ graph are below the claimed regression line, which seems quite out of character for a real regression curve.
I'm missing something here; the curve in the WSJ isn't a regression curve, but rather one developed by Andrew Laffer studying taxation effects. (http://en.wikipedia.org/wiki/Laffer_curve)
Thus, some countries e.g. Norway fall where Laffer discussed, some fall 'inside' the curve, and some outside (not so good, according to the WSJ article.)
Maybe it would help if you leave it to an economist to comment on this one. See http://economistsview.typepad.com/economistsview/…