Sunday, February 13, 2011

Matthew Yglesias writes

"I actually think this kind of question is better investigating initially through theory. If you’re thinking about Maryland, you can tell a very straightforward story about why lower taxes might lead to job growth."


"The tax competition issue is real, but limited, and the further you get from New Jersey the less real it becomes."

I throw a cow.

My comment.

You assume that their must be quite a bit to the argument about taxes and migration, because you hear it so often. I note that you also hear about the Laffer curve and how the US can't afford the ACA. Never assume that a common claim must be supported by significant evidence from anywhere.

You specifically write "The tax competition issue is real, but limited, and the further you get from New Jersey the less real it becomes." "Real" in this context must be some sort of quantitative qualifier* If so you contest the work of Cristobal Young and Charles Varner forthcoming in June 2011 in The National Tax Journal. (warning pdf)

They write

The New Jersey millionaire tax experiment offers a potent testing ground, given the magnitude of the policy change and the relative ease of relocating to a different state tax regime without leaving the New York or Philadelphia metropolitan areas. Using a difference-in-difference estimator, we find minimal effect of the new tax on the migration of millionaires.

What is less real than "minimal" ?

via Balloon Juice

I am not upset because you missed the article especially since it isn't, technically published yet. I wouldn't be surprised if other researchers vehemently contest the conclusions of Young and Varner. In fact, I have no doubt provided one counts Koch financed hacks as researchers.

I am distressed, because you wrote " I actually think this kind of question is better investigating initially through theory." I don't see how a question about the real world could be investigater through theory. I thought the idea that we could learn about the word through theory without evidence was proven to be nonsense in the 17th century. I think you mean to write "we should think about this issue before deciding which data to look at" but the theoretical work is the pre-investigation work, not another kind of investigation.

I am an economist and I know many economists who think that theory without evidence constitutes investigation. I frequently tell them otherwise.

I think that the fact that you have decided based on "theory" that this is a relatively real (evidently not "minimal") issue for New Jersey illustrates, and not for the first time, the sterility of theory without evidence.

I'm fairly sure you consider this post a criticism of those who claim that taxes have a large effect on migration. In passing you mention that their claims work for some places, notably New Jersey. I think you fell into a testable claim which is contradicted by forthcoming empirical research, because you were aiming for a moderate tone.


Anonymous said...

Why so angry?

Robert said...

I've explained back at Yglesias's blog why I was "oddly irate" while also effusively thanking him for the link.

I was so angry because of the claim that real world questions can be addressed by "investigating" theoretically.

My objection was to "investigating"*. If he had written "I think it's time for some theory" I wouldn't have a problem.

This is a very widespread view among economists. I think the opposing view that theory can at most pose the questions to be answered by evidence has gained ground, but the idea that economic theory can tell us something about the real world was very strong when I started studying economics (1985).

I stress I don't mean the idea that theorizing can be useful when attempting to understand the world, I mean the idea that theorizing alone without looking at any evidence can tell us something about the world (you know Plato's view).

I hate this idea very much. Yglesias carelessly stated it (I'm sure he meant that some theorizing should be done before we look at the evidence and not instead of looking at evidence).

And I threw a cow.

For one thing, the guy has a BA in philosophy, and, while he focused on meta ethics, he must have studies epistemology and he ought to know better (in fact he knows better).

*The quoted sentence (as quoted but I think I cut and pasted) is ungrammatical. "question is better investigat[ed]" is grammatically correct as is "question is better approached by first investigating".

I didn't notice this (I just typed "investigated" putting quotation marks around a word which was not in the passage I was quoting).