Signals v Causes: BINGO!

I’ve written about this a number of times myself, so it’s good to see when others, with better qualifications, agree.

I recommend reading The disease that is government by Antony Davies and James Harrigan in the Pittsburgh Tribune (HT: Mark Perry, Carpe Diem).

An excerpt:

We don’t expect our elected leaders to never make mistakes. But is it asking too much that they learn from them?
Getting the causality backward, government acted as if home ownership caused success.

Getting the causality backward again, government acts as if a college degree causes, rather than results from, success.

They write about how getting the causality in these situations backwards leads to bad policies, like distorting the incentives to encourage irresponsible people to wind up owning homes, by backing bad debt that results from lowering the credit standards for loans in the name of ‘spreading the American Dream of home ownership,” for example.

But, home ownership doesn’t cause responsible behavior, it is a result of responsible behavior — including scrapping to save a down payment and establishing a good income and credit history by being dependable and productive.

Do you want more people to own a home? Encourage these behaviors, instead of distorting the incentives so that these behaviors matter less. These behaviors are the real causes of success, not the home ownership itself.

A college degree isn’t a cause of success, it results from the behaviors that cause success (or used to) — everything from scrapping to pay for tuition, to studying instead of partying and being able to demonstrate your mastery of the material.

Do you want more people to get a college degree? Encourage these behaviors, don’t distort the incentives so that these behaviors matter less. These are the real causes of the success we see in the ‘college earnings premium’, not the college degree itself.

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