Scott Sumner makes a good point about the economy and studies of it in this EconLog post. He writes:
I recall a story that scientists are often unable to explain the “tricks” performed by magicians. Scientists tend to be smart, but also rather linear thinkers. They are not used to their test tubes trying to deceive them. Something similar occurs in economics.
The economy operates in very subtle ways, and often when I read academic studies of issues like discrimination, the techniques seem incredibly naive to me. They might put in all the attributes of male and female labor productivity they can think of, and then simply assume than any unexplained residual must be due to “discrimination.” And they do this in cases where there is no obvious reason to assume discrimination. It would be like a scientist assuming that magicians created a white rabbit out of thin air, at the snap of their fingers, because they can’t think of any other explanation of how it got into the black hat!
They forget how easily fooled they were by the magician.
Why is this important? Sumner also makes the point that the economy works in subtle ways which are often just as misleading as the magician’s misdirect. He brings up one example, the vexing problem of why dry cleaning prices are higher for women than men. Perhaps it’s gender price discrimination.
The truth test — as Dan Hill points out in the comments to Sumner’s post — is to ask anyone who makes such a claim to put their money where their mouth is. If discrimination is the reason for the higher prices, not costs of some sort (be they direct or opportunity), wouldn’t you be able to make a lot of money by opening dry cleaners that offer a lower price for women?
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