I enjoy reading the Freakonomics blog, but as I’ve noted previously, I remain puzzled by the presence of two appealing but, to my mind, incompatible forms of reasoning that seem to be used more generally in the world of “freakonomics” (which I’m using in lower-case to indicate not just the famous book and blog, but the larger world of empirical microeconomic analyses intended for a popular audience).
One form of argument is: Here’s something that looks weird, but actually it’s completely logical once you consider economic principles (opportunity cost, incentives, and all the rest). The other form of argument is: Here’s something that seems reasonable, but actually, once you look at from the perspective of economics, it’s not so good at all.
The difficulty is that it seems like you could take virtually any economic phenomenon and either analyze it using the first approach (assume it’s perfect and that any apparent flaws are just due to a lack of understanding) or the second approach (assume it’s a product of people’s ignorance and inefficiency). How do “freakonomists” decide, in any particular example, which way to go?
I was thinking about this today because I read this blog by Freakonomics guest contributor James McWilliams, who earlier has written about how to analyze the environmental impact of food production. This time he asks the interesting question, “Do Farmers’ Markets Really Strengthen Local Communities?” All we’ve seen so far is Part One, so maybe things will get better, but so far it’s a bit disappointing. McWilliams writes:
[Some people say] local food is not only about reducing our carbon footprint. It’s about strengthening community. . . . For some reason, though, this response falls flat. Sure, on an intuitive level, the claim makes perfect sense. . . . But can we say with any assurance beyond anecdotal evidence that the thousands of farmers’ markets established over the last twenty years have brought together communities across the United States? If so, how? And for whom?
At this point I was primed for some freakonomics-style quantitative analysis. Love it or hate it, this stuff is fun, and a great start toward further discussion. But instead, ass we got was:
A farmers’ market can foster community ties in the ways conventional grocery stores cannot. But even so, something is missing. Most notably, I don’t see how community cohesion necessarily follows the fact that one can, if one wants, interact with the person who grew your food.
[Some interesting historical discussion follows, considering the changes that have occurred over the centuries, as we’ve moved from face-to-face interactions of consumers and suppliers, to today’s system in which most transactions are mediated by stores and large corporations.]
Today, as we return to local markets (farmers’ markets have grown from 400 in 1970 to over 4,000 today), who is to say that the novelty of personal exchange will not gradually fade? Who is to say that the mystique of the local farmer will not diminish and that we’ll eventually come to realize that what we’re engaging in at the farmers’ market is, no matter what the perceived social benefits, ultimately an economic experience?
“Who is to say?” That’s the best he could do?? This is far from the hard-edged reasoning I was expecting. Instead, it’s just free-floating skepticism. The standards of freakonomics seem to slipping.
P.S. Overall I have no problem with what McWilliams wrote–he’s a historian, and that’s the perspective he’s giving in his discussion. It’s just funny to see it in the Freakonomics blog. Unless maybe there’s something more quantitative coming in part 2 of the series.
Exactly! I read the McWilliams post and I was waiting and waiting for the good data… it never showed! UGH!
Yah, that's the problem. At this point, all you have to do is to say something counterintuitive that sounds like it fits into the freakonomics playbook (perhaps use some buzzwords such as "incentives," "unintended consequences," and "rent seeking"), and–hey–you get the presumption that you're saying something scientific. Who needs evidence?
Just to be clear, I'm not saying that Steve Levitt does this, just that he's associated (not his own fault) with that style of reasoning. On balance, I think the economics/freakonomics way of looking at things is a plus, but at times it can lead to a kind of knee-jerk thinking.
There does seem to be a literature about "community" and farmer's markets (and more broadly alternative food marketing) in the European academic community. A recent article by Yuna Chiffoleau in Sociologia Ruralis takes a quantitative look at social networks of producers as they enter a farmer's market. I think McWilliams is talking more about communities of consumers than producers, though, and most of the other work that Chiffoleau cites is in French, so I'm not sure if some of that gets at McWilliams' question more closely. The paper describes much of the previous work as relating to producer/consumer ties.
But yeah, the blog post really doesn't seem to fit with the freakonomics style – I wonder if people start to get bored only writing articles that fit the template you describe.
@Andrew,
The ''freakonomics'' style of economic research has been falling out of favor, for the reasons you mention among others. Quasi-natural experiments are great, but there are serious limitations to this style of inquiry. See James Heckman or Ariel Rubinstein for examples of criticism.
You ask how economists know when to argue that “it seems stupid but is smart” and when to argue that “it seems smart but is stupid.” To quote a hunch from an earlier blog-post (I'm not going to claim it's sharp enough to count as a hypothesis):
"Economists love unintended consequences. We love it if you can build up an argument that regulatory agencies will actually benefit the monopolistic industries they are set to serve (e.g., Stigler’s regulatory capture), that politicians are no more interested in the “public good” than business leaders (e.g., Buchanan’s Public Choice), that fiscal policy has no effects (e.g., Lucas and Barro), that minimum wages hurt the poor, etc.
Revealing a seemingly dumb thing to be smart. Economists also love it if you can prove that individual optimization and markets are smarter and better than non-economists believe. We love it it you can build up an argument that criminals rationally weigh costs and benefits, risks and penalties, that junkies getting hooked are implementing forward looking rational “taste-planning” (both Becker, who has a long long list of such arguments), that QWERTY-keyboards are actually better than any alternatives, that Betamax deserved to lose out to VHS, and so on.
Of course – any of these may be true. Sometimes truth happens to lie where we want it. My point here is more that I have a gut-feeling (that might well be wrong) that tells me these two types of narratives are welcomed more eagerly by economists than mechanisms or hypotheses that don’t fit the mould."
I believe there are two things behind the freakonomics style among economists, both of which detract from the field. First, many of us have a bad habit of hearing galloping hooves and looking for zebras, not horses; we're enamored of clever, elegant, counter-intuitive and "Ah-ha!" explanations. (The victim here is plain-vanilla Popperian positivism and science built on parsimonious explanations.) Second, we are so wedded to the assumption of the selfish rational actor that we form explanations that bolster this assumption –"see, people really do rationally pursue their own interests, and that explains their peculiar bahavior"– no matter how we have to distort, twist and interpret culture and preferences to do so. Rather than generalizable explanations, this results in explanations that depend on exceptional insights.
Markets good, government bad, propaganda then? One could pursue 'the data' but the data one pursues is highly dependent on what one wants to show. The most interesting is probably where many alternatives are considered but the unexpected is found such as abortions and crime. More discovery than confirmation.
the issue is that economists are much more toward right-wing libertarians than anyone other occupation (or anyone else in the academy). this, in turn, affects their way of doing research: showing that greed is good (i.e., laissez-faire economics is the best of all possible worlds), government is bad (especially when it tries to help the poor, tax the rich, regulate corporations), and so on. of course there is tinkering around the edges, but this still remains the core of modern-day economics at elite universities.
the main exception of this is in development economics, where they have abandoned these types of reasoning in favor of genuine (almost radical) empiricism. e.g., bill easterly's extreme pessimism about anything working at all regarding development; e.g., the MIT poverty lab's approach to development qua piecemeal experimental results.
but in the end, what is fascinating about this discussion is that economics cannot explain itself! i.e., economists cannot explain why they have right-wing libertarian biases. this is where sociology and political science come in to the explanation.
"he issue is that economists are much more toward right-wing libertarians than anyone other occupation (or anyone else in the academy)."
This is probably true, with the exception of business school faculty, although I'm not sure this meets the definition of "in the academy." As a Ph.D. academic economist myself, I confess to having a prejudice to laissez-faire, at least as a default: in the absence of a compelling reason to suspect market failure and to believe that government can do better (the first can be true without the second), I'm biased, probably unreasonably so, against intervention… with the famous caveat that "a perfectly efficient outcome can be perfectly disgusting," i.e. efficiency doesn't have much to say about distribution and if we care about distribution then we'll have to do something about it.
However…
"this, in turn, affects their way of doing research: showing that greed is good (i.e., laissez-faire economics is the best of all possible worlds), government is bad (especially when it tries to help the poor, tax the rich, regulate corporations), and so on. of course there is tinkering around the edges, but this still remains the core of modern-day economics at elite universities."
All this is completely wrong. Look at the "recent research" page of any top department. And not just in development.
Just another graphic lesson in the value of editors and peer review. The overwhelming amount of loose and sloppy thinking in blogs provides more than ample fodder to show students how not to do analysis. I'm just amazed that such well trained folks have no sense of shame.
Huh, I have a recent PhD in economics from Harvard, and I seem to recall spending a huge amount of time studying public goods, externalities, asymmetric information, social welfare functions that imply it's good to have redistributive taxation, and behavioral economics–all topics that create a rationale for public intervention in markets. And I seem to recall doing all this in a solid empirical tradition, and trying to teach that to my undergraduates.
The core models do start, in their simplest form, assuming away the market frictions that create rationales for government. But nobody I studied under stops there.
Locavorism based simply on food miles fails to actually protect the environment. Kenya demands *all* inputs be figured not just delivery transport, for labelling in England.
See –
http://www.guardian.co.uk/environment/2008/mar/23… & http://www.bbc.co.uk/food/food_matters/foodmiles….
Farmers Market is nice, but is it a scalable solution? Is the delivery to nearby markets in small trucks efficient? If all fruit & veg for the walkable-thus-green NYC was grown within one day's drive — as it once was — how much parkland would need be sacrificed, at current population ?
Too bad the energy efficient rail network has been let slip so …
While most have looked at the economic perspective and a little at the scientific perspective, I am puzzled by this comment:
"Today, as we return to local markets (farmers' markets have grown from 400 in 1970 to over 4,000 today), who is to say that the novelty of personal exchange will not gradually fade?"
Novelty of personal exchange? Just about the only economic transactions consumers have that do not include personal exchange are on-line purchases. Both in and beyond economics, personal exchange (in the broad sense of interaction instead of the more narrow monetary transaction)is key and critical to human life and development. Lack of personal exchange can be terribly detrimental to life (raising and education of children, development of domesticated and pet animals, building organizational cohesion, etc.).
I think more is revealed about the motives and biases of McWilliams than is revealed about the effects of the locovore trend and farmers markets on economics, sustainability, and social structure. Of course, this is really a pop-sci editorial and not rigorous application of the scientific method to test an hypothesis… oops, just showed my own bias… drat!