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Wednesday, May 10, 2006

Strong correlation with nonsense

Pop-economics guru Thomas Friedman calls it the "petro-ist" state, and correlates wealth in oil with retarded economic and political reform. The Cato Institute's William A. Niskanen runs a regression and shows tax cuts lead to growth in the size of government.



Friedman's "First Law of Petropolitics," as expressed in a recent column, posits the following: "The price of oil and the pace of freedom always move in opposite directions in petro-ist states." Implying that wealth corrupts, and the higher the wealth, the less interested the powers that be are in sharing it.

This price, however, is the measure of the value of the oil, primarily to the United States. The price is not randomly generated, nor free from the interest of Americans. An equally valid formulation, one which Friedman avoids, is to say that the more valuable a country's oil resource to the US, the less democracy they can expect. The spin is a bit different, eh? And it IS spin, not sound thinking. But "Flat Earth" Friedman fails on one more ground. The most corrupt and corrupting oil rich state in the world is arguably the state of Texas, and he forgot about them.

Friedman is making big bucks these days on an old hustle, the information society, the horizontal game. He has whipped up hysteria about not being left behind as we enter a brave new world. Let's at least acknowledge that a whole mob of young people have already been left behind. The great rush into computer science that busted with the dot.com collapse is now marked only by the quality of staffing at our PC help desks. Eighty thousand dollar educations for $15 an hour jobs. We need everybody, amigos, for real problems, and this is just a new Klondike. The suppliers get rich, the prospectors go home broke.

Starve the Brain

A second remarkable article comes out of the Atlantic. The author of "Stoking the Beast" http://www.theatlantic.com/doc/200606/tax-cuts stalks the elusive honest man and finds him in William A. Niskanen, the chairman of the libertarian Cato Institute. The fellow "recently analyzed data from 1981 to 2005 and found ... when he performed a statistical regression that controlled for unemployment .. 'no sign deficits have ever acted as a constraint on spending.'" Thus, ta-da, tax cuts lead to big government.

Similar to Friedman's error, the variables are not independent, as is required for using regression analysis. A regression is a simple (for a computer) method of correlating data set A and data set B. But a correlation is meaningless by itself. Toes pretty much correlate to having elbows, for example, but toes do not cause elbows, nor do elbows cause toes. Both are common attributes of having a body.

And of course, here we have deep tax cuts correlating to booming government spending. Both are simply attributes of fiscal incompetency abetted by the current dominance of a predatory corporate culture. Fiscal responsibility comes in a different form and produces different results, two of which happen to be (over the past 15 years) smaller government and paying the bills.

Is Atlantic playing to a target audience when they run this kind of drivel? $75,000 plus white men, i.e, predominantly Republicans, but literate Republicans, with a need to obfuscate to cover their lifestyle? Their conclusion is not that the "starve the beast" claim is nonsense of a caliber equal to tax cuts during wartime, but that Mr. Niskanen has discovered something new and important.