Jan 29th 2004
Too many economists misuse statistics
FIGURES lie, as everyone knows, and liars figure. That should make economists especially suspect, since they rely heavily on
statistics to try and resolve a wide range of controversies. For example, does a rise in the minimum wage put people out of
work? Are stockmarket returns predictable? Do taxes influence whether a company pays dividends? In recent years, helped by
cheaper, more powerful computers, and egged on by policy-makers anxious for their views, economists have analysed reams
of statistics to answer such questions. Unfortunately, their guidance may be deeply flawed.
Two economists, Deirdre McCloskey of the University of Illinois, and Stephen Ziliak of Roosevelt University, think their
colleagues do a lousy job of making sense of figures, often falling prey to elementary errors. But their biggest gripe is that,
blinded by statistical wizardry, many economists fail to think about the way in which the world really works.
To be fair, statistics can be deceptive, especially when explaining human behaviour, which is necessarily complicated, and to
which iron laws do not apply. Moreover, even if a relationship exists, the wrong conclusions can be drawn. In medieval
Holland, it was noted that there was a correlation between the number of storks living on the roof of a house and the number
of children born within it. The relationship was so striking that, according to the rules of maths that govern such things, you
could say with great confidence that the results were very unlikely to be merely random. Such a relationship is said to be
“statistically significant”. But the Dutch folklore of the time that storks somehow increased human fertility was clearly wrong.
Examples of similar errors abound. W.S. Jevons, an English economist of the mid-19th century, thought that sunspots