EconTech

I have to agree with Gelman on this one. Ceteris paribus, Levitt should have pointed out the endogeneity problem with this one.

The “all else equal fallacy,” one more time (this time using econ jargon), and also a discussion of the perils of “crossover” arguments

I was sorry to see Steven Levitt repeating the claim about driving a car being good for the environment. I wrote about this last week when it appeared in the other New York Times column of John Tierney, but perhaps it’s worth repeating:

These guys are making a classic statistical error, I think, which is to assume that all else is held constant. This is the error that also leads people to misinterpret regression coefficients causally. (See chapters 9 and 10 of our book for discussion of this point.) In this case, the error is to assume that the walker and the driver will be making the same trip. In general, the driver will take longer trips–that’s one of the reasons for having a car, that you can easily take longer trips. Anyway, my point is not to get into a long discussion of transportation pricing, just to point out that this seemingly natural calculation is inappropriate because of its mistaken assumption that you can realistically change one predictor, leaving all the others constant.

Unintended consequences of an economist forgetting about unintended consequences

I’m surprised that Levitt didn’t notice this, given that the distinction between “exogenous” and “endogenous” variables is such a big deal in economics. In fact, an important contribution that economists often make to public policy debates is to emphasize that you can’t simply assume “all else held equal” in an analysis. In fact, Levitt himself made this point is his column a couple months ago, in discussing unintended consequences. One of the consequences of switching from driving to walking is that you take shorter trips. Maybe this is a good thing, maybe it’s a bad thing, but I don’t think it makes a lot of sense to say, “Be Green: Drive” without realizing that distance traveled is affected by the choice.

P.S. Levitt buttresses his argument with the statement, “Chris Goodall [the person who made the walking/driving comparison] is no right-wing nut; he is an environmentalist and author of the book How to Live a Low-Carbon Life.” How relevant is this? Even a “right-wing nut” could make a good point, right? More to the point, I think we have to be careful about automatically trusting “crossover” arguments. Do we have to believe something, just because it comes from somebody who we wouldn’t expect to say it? I worry that this sort of crossover appeal is so appealing that otherwise-skeptical commentators (such as Levitt) forget their usual skepticism.

P.P.S. Yes, I realize that Levitt might just be trying to be amusing and thought-provoking rather than making a claim about public policy. From the standpoint of economics and statistics, though, I think this really a great opportunity to explain why the “all else equal” assumption can cause problems. A great example for a course in linear regression or econometrics.