An Ivy's Worth

A column in the Journal recently argued that Americans "hate" [macro-]economics because it over turns common sense (for example that paying people to not work leads to less working) and -- unlike, for example, physics which can be equally counter-intuitive -- does not, generally, work.

The counter-claim that macro-economic conclusions are strongly data-driven, is easy to call into question.

For example, the President's nominated Chief Economist is, in part, known for research showing there is no economic benefit to elite undergraduate education. This conclusion is only superficially data-driven. It turns out -- unsurprisingly -- that, controlling for objective academic measures, elite college grads do economically better. In other words, Penn alumni with 1400 SAT scores tend to make more money then Penn St. alumni with the same scores.

To get around this, Krueger suggests there are un-observed material variables -- such as "motivation and creativity." In an initial paper, he modeled these factors by schools a student was accepted to. He found that students accepted to, for example, Penn with equivalent SAT scores were likely to make equivalent money even if they chose to attend Penn St. In a later paper, he found "quality of schools applied to" a more precise proxy.

This is, of course, crazy-talk. Common sense dictates the following: A Wharton finance major is likely to make a lot more then a Penn St finance major; Concentrating on women's and religious studies is not a recipe for economic success whether from Penn or Penn St; A C student has better prospects from Penn than Penn St.; Some students are better served by Penn St. and, knowing who they are, more likely than others to turn down Penn; Quality of school applied to says more about social resources and expectations than intrinsic motivation or creativity (which are, in any case, likely the stronger factors).

Which is all to say: Students ought think twice before dumbly following what Dr. Krueger (B.S. Cornell '83, Ph.D. Harvard '87) says. And Conservatives are absolutely right to be skeptical of the "data-driven" conclusions of macro-economic models.