Tuesday, January 27, 2015

This is why sociologists think economists are arrogant


Tyler Cowen cites a study that makes claims about inflation and tolerance of the LGBT community
On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.
That conclusion kinda depends on low inflation being the result of the actions of institutions, doesn't it? That implies a monetarist view, but even if you allow the word 'institutions' to be more inclusive of e.g. a 'fiscal theory of the price level', that still implies some sort of control by national elites at the point of low inflation.

Countries mired in liquidity traps are on average more tolerant? That makes the question seem even weirder. And for market monetarists, a liquidity trap is a sign of incompetent institutions (namely the central bank).

In the information transfer model, low inflation is generally a result of a monetary policy regime being around for a long time. All economies tend toward lower inflation in the long run (see the graph at the top of this post).

That leads us to the conclusion that basically long periods of time with economic stability lead to tolerance.

Which is something well known in sociology.

Simon Wren-Lewis has a good piece on economists and sociologists. There was also this from Stephen Williamson. But it's the armchair sociology that derives from economic analyses that is problematic.

3 comments:

  1. Strong property rights + low inflation = strong states. And strong states are needed to enforce anti-discrimination laws.

    That's a big part of the story. But attitudes need to start shifting. That begins with social movements. Then the state changes policies (e.g. making discrimination illegal), and the "acceptance" of LGBT speeds up.

    So it seems Cowen (and others) are mistaking causation for correlation. You can have long periods of stability with intolerance--think of racial policies in the American South.

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    Replies
    1. Hello,

      I think you missed my key point -- the equation:

      strong property rights + low inflation = strong states

      is not a foregone conclusion, specifically the inflation part. Economists cannot point to some universally accepted theory about what inflation even is or its importance (see e.g. here), let alone that low inflation is universally accepted to flow from strong institutions (or help create them).

      For example, inflation is low in the Eurozone, but monetary policy is controlled by the ECB while the EU's capability to enforce any kind of laws across the Eurozone is quite limited. As a whole, it is a low inflation state, but also a weak state.

      I pointed to my theory I'm working on here not because it is universally accepted, but as an existence proof of a possible theory where inflation has little to do with institutions at all.

      The main point of my rant above was that economic theory is not so robust that it can go about making claims outside of its domain.

      Delete
  2. Actually, I wrote strong property rights + low inflation" for rhetorical purposes--to show that the equation misses more important dynamics. Strong states do need some economic foundation to keep them strong--resource availability--but one can do this with higher inflation, so long as it is constant (thus low uncertainty). So yes, I was being flippant. Peter Evans has written a wonderful book about states, Embedded Autonomy (1995), and he touches on important points.

    But yes, I agree with your point. As do many, many political scientists and political sociologists. (Also with your point about too many economists having incredible hubris to go outside their domain of "expertise," such as it is).

    ReplyDelete

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