Rationalizing and Ratiocination

Heh. Ms. "rules for thee but not for me" tells us that we mustn't succumb to the temptation of rationalizing when attempting to understand economic events.

Words to Live By
Business Sep 9 2011, 8:26 AM ET 22
Wise advice from Arnold Kling:

What I would suggest is that any time you get the urge to provide an economic interpretation of asset price movements, lie down until the feeling goes away.

The context:

Back to Krugman. He makes three points. One is that the profession should have recognized the housing bubble for what it was. The problem is that you are tempted to explain asset prices, not to cry "bubble." Just the other day, Krugman himself gave in to that temptation regarding gold. In fact, his rationale for high gold prices is the same as my rationale for high house prices--low real interest rates.

The problem is not in our economics stars--it is in ourselves. As Robert Heinlein once wrote, "Man is not a rational animal--he is a rationalizing animal." We are constantly trying to make the universe make sense. That facility leads us to come up with plausible explanations even when the actual correct response is a slack-jawed "WTF?"

Well, Megan McArdle has certainly mastered the slack-jawed ignorance and refusal to examine failure--which is rather odd as she is an official expert on failure. As always, McArdle cherry-picks her data to her support her theories, when she bothers using data at all. It does not seem to occur to her that you cannot form a theory without data because the theory is an explanation of that data. McArdle has always said that she makes theoretical, not practical, arguments but has no idea how to argue. She tries to substitute verbosity, anecdotal evidence and jargon for data, reason and and theorem but fails abysmally.

But McArdle has not been the only lazy thinker. All too often I use terms such as "talentless hack" or "tool of the ruling elite" without taking the time to elaborate the basis for my complaint in detail. I, too, should take the time to examine exactly what my words mean and justify them with facts.

Megan McArdle does not think. Her brains exist only to fill in the empty space between her ears and such automatic functions as breathing, eating, and swiping her credit card. She does not read or interpret data, she reads others' interpretation of data and assumes the interpretation and data are both correct if they match her preconceived notions.

my mother suggested something that I hadn't thought of: the only reason that she was raised in that picture-perfect specimen of Americana was that the Great Depression had prevented my grandfather from leaving. He was an ambitious man--he worked his way up from a poor dirt farm, through a five-year stint delivering groceries, and into the ownership of a successful gas station. In ordinary times, he would have left town to seek his fortunes somewhere bigger (like my great-grandmother's cousin, Frank Gannett, who left a nearby town to go to Cornell and eventually founded the eponymous newspaper chain.)

But you don't pick up and move to a distant city when unemployment is running at 25%; my grandfather, born in 1915, came of age during the deepest part of the Great Depression. He stayed home where he had family who could help him find a job, and take care of him if things didn't work out. By the time the Great Depression really ended, he had a fledgeling business and a family. He wasn't going anywhere. Neither were the other men of his generation, who had carved out spots for themselves in the local economy. They sustained the prosperity of the town for a couple of decades beyond where it should have lasted. And I suspect that outside of the Dust Bowl, that's a pretty common story.

McArdle does not start by saying, "Hmmm, it seems that the Depression kept people home who would have otherwise moved away. Let's find out if that's true." McArdle also does not try to think of any evidence that might contradict her "theory," such as the very well-know phenomenon of men riding the rails across the country looking for work. In McArdle's head, smart, ambitious people go to her hometown, New York, or some other big city. Her grandfather was smart and ambitious, therefore something must have prevented him from leaving, such as the Depression. At this point the obvious thing to do is to read some history.

Here's an article titled:

Migration: The Theme of the Great Depression.
By Judy Busk
People moved: to find jobs, sometimes to find food, and then they moved again, and sometimes again. Some returned home to live with relatives when the search for work ended with disappointment. Some moved because businesses went bankrupt, some moved because they couldn't pay their rent, some moved because they heard a rumor that it was better "there." The United States was a nation on the move, the automobile became the vehicle of migration. For some, remaining stationary was an option as they lived simply on their small farms, raising the food needed to sustain their families.

In his classic novel of the Great Depression, John Steinbeck described the highway leading to California:

66 is the path of a people in flight, refugees from dust and shrinking land, from the thunder of tractors and shrinking ownership, from the desert's slow northward invasion, from the twisting winds that howl up out of Texas, from the floods that bring no richness to the land and steal what little richness is there.

"From all of these the people are in flight, and they come into 66 from the tributary side roads, from the wagon tracks and the rutted country roads. 66 is the mother road, the road of flight."

There is, of course, a great deal more information on migration during the Depression, enough to make anyone pause to reassess her theory. If she had, it might have occurred to her that success might have different meanings for different people and her grandfather might have preferred to live a small town life, despite its lack of bistros and gastropubs. But McArdle doesn't think.

Others do, however, and a commenter swiftly pointed out how McArdle's post about her grandfather was an example of someone rationalizing economic events. McArdle responded:

McMegan 3 hours ago in reply to Tony Comstock

I think I was pretty open about the fact that this was a just so story, no?

Liberals seemed to have gotten miffed because it included an observation--common among my parents generation who worked for various agencies--that the quality of civil service lifers had gone down. Yet the people who made this observation were themselves liberals, and moreover, the same people who got mad at me would probably receive very well a complaint from, say, Mark Kleiman that investment banking and Big Law were siphoning away talent that should be in public service. Which is exactly the same observation. :)

At any rate, the decline is a stylized fact. The cause is what's in question. The consensus among the people who witnessed the changeover was that it was the Great Depression. Maybe that's not right, but my understanding is that they pretty much got it from the horse's mouth.

"The decline is a stylized fact." A stylized fact "is often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail." McArdle assumes her anecdote is a fact, thereby eliminating the necessity of doing all that boring fact-checking and reading. A stylized fact is not something that McArdle feels in her gut based on her personal experiences, but McArdle obviously disagrees about that small point, and so another internet tradition is born.

This is where and when, if not why, McArdle is so often wrong. The why is more complicated. Suffice it to say that McArdle has no journalism training, very little curiosity, and is not held to high standards and ethics. McArdle thinks her ideological opponents just disagree with her point of view and become irate when they cannot get their own way. She expects people to be unable to overcome bias. It does not occur to her that some people use facts and reason to make a decision because she does not use facts and reason to make decisions.