'Garbage to Consumption Ratio' Shows What's Wrong with Economics Today

As I’ve said in prior posts, humans have a tendency to try to find patterns in everything. But sometimes, a pattern is nothing more than a series of outcomes that could easily have been produced at random. An example of a pattern that is utter garbage, a study on baseball says that:

… players whose first or last name begins with “K” strike out more than those without “K” initials.

…

Indeed, 90 years of plate appearances helped marketing professionals Leif Nelson of the University of California-Berkeley and Joseph Simmons of Yale University show that players with K’s in their initials strike out more than those without K initials. (“K” is the scorekeepers’ mark for a strikeout). The findings were part of a larger study published in 2007 in the journal Psychological Science that people unconsciously seek out outcomes corresponding to their names despite their conscious desires.

The bold emphasis is mine. It’s there to point out that, amazingly, this study on strikeouts was incorporated into a larger study that was published in a prestigious scientific journal. So why is the strikeout study garbage? Well, dig a little deeper into the article and you get this:

As for the K-name strikeout study, Mr. Birnbaum of SABR notes on his blog that if the data are recalculated using plate appearances instead of players’ career strikeout rate (thus placing more weight on players with longer careers), the results don’t hold up.

Meanwhile the study’s co-author, Prof. Nelson, says he welcomes critical review. “It remains entirely possible,” he says, “that [we] are incorrect.”

Again, the emphasis is mine. And like I said, it’s evidence of pattern-seeking garbage based on incomplete data and insufficient analysis.

Speaking of garbage, here’s an example of a pattern that can be explained by fundamentals, and, therefore, the conclusions may not be garbage: Asset Pricing With Garbage is a research paper soon to be published. Here’s a layman’s explanation from The Wall Street Journal:

When you are making lots of garbage, you are rich. When you stop making garbage, you are poor. Unlike bonds, which continue to pay out whether you produce lots of garbage (and are rich) or not, stocks are likely to lose their value during bad times. Therefore, investors should want a large reward for putting their money in something whose value decreases at the same time as their overall wealth decreases.

Apparently, this student is the first person to realize that, quite simply, the amount of garbage produced may be a better indicator of consumption than government consumption measures. Good for him. It’s simple, and it makes sense. My question is, how on earth is this guy the first economist to link garbage output and consumption? My guess is that he’s not the first to put the two together. He’s just the first one who had the guts to actually come out and say it, because it’s so obvious, every other economist thought it below them.

The notion that economists stare down at their own kind is not some conspiratorial theory. In fact, the garbage-to-consumption ratio is a perfect example of what I have long said is wrong with economics today: unless you can speak in the mathematical tongues of today’s economists, your message won’t be heard. That’s because the only thing that will impress an economist’s academic peers sufficiently to publish his or her work is for the research to be so complex that it cannot be understood by people outside the economics profession. That point of view was confirmed by a navel-gazing blog post I read many months ago:

… academic macroeconomists have become mired in a particularly fruitless equilibrium, in which each is engaged in the search for ever-greater levels of formal elegance, at the expense of empirical relevance.

Comments

[Roger Knights:]

Or as Taleb wrote (p. 284), "I cannot accept a pretense of science. I much prefer a sophisticated craft, focused on tricks, to a failed science looking for certainties."

Jul 22 08:34 AM

[Pat Washburn:]

So would the ratio apply to the amount of academic garbage produced vs. the amount of useful information generated?

Jul 22 09:17 AM

[Gregman2:]

So, garbage = treasure?;-) Thanks for this. I think you're onto something. Although a lot of environmentalists are aiming for zero garbage at some point.

Jul 22 12:22 PM

[Tom the Mon...:]

Thanks for bringing this up. I've thought previously about waste as an indicator of consumption (not wealth). Packaging waste is an indicator of goods consumed. My view is that people who consume are not usually those with high net worth although they can be people with good cash flow. Part of the trick to wealth building is actually hanging on to some of your cash flow and growing the number of cash flow sources. Consuming is one means of destroying wealth (or handing it over to someone else). Cheers!

Jul 22 09:18 PM

[W.E. Heasley:]

Interesting post.

Waste is merely a by-product of production and/or consumption.

Bottom fell out of recycling.

Its one of many indicators of unemployment. It helps confirms a 15% unemployment rate (add in Self Employed and Contract Labor). An additional indicator: plummeting tax revenues on a State and Federal basis.

Jul 22 09:54 PM