It was not a good week for the science of economics in Canada. The Globe and Mail published an analysis (their words) that 'Corporate tax cuts don't spur growth' (their words again), based wholly on the fallacy that correlation is causation. Around the same time, the Canadian Centre for Policy Alternatives published a study (their words) using the same fallacious method. The 6-page 'study' is a breathtaking piece of ideological anti-science from a group with good people, who often does good work, and quite frankly should know better.
Sadly both the Globe piece and the CCPA study garnered a great deal of press. Stephen Gordon quickly published a rebuttal that contained 2 major points, which I'm paraphrasing:
- The Globe piece and the study got the correlations wrong.
- Correlation is not causation. You need to control for a great deal many other factors, which the advanced attempt to do. (He then links to those studies)
In response, Armine Yalnizyan attempts to defend against Gordon's criticism by stating:
As to the second point, that corporate tax cuts are associated with economic growth: a correlation does not a cause make.
I wish she had told that to the CCPA before they published their study. It seems a strange point to make in defense of the CCPA study. Armine goes on to make a number of excellent points and later in the week published a terrific piece in Economy Lab on the TFSA. She's a wonderful economist, so I'm a little puzzled why she would decide to attempt to defend the indefensible.
And their methodology is indefensible. This sort of correlation-is-causation anti-science is used by every group with an ideological axe to grind, from right-wing arguments against anthropogenic climate change to Stormfront-esque anti-science on differences between the races. I'm sure we've all heard the arguments of the latter: Group X is correlated with social bad Y, without accounting for little things like poverty levels or education.
That is not to suggest theories such as anthropogenic climate change or the effects of corporate income tax rates should be immune to criticism. The right way to do it is through careful study and taking into account those confounding factors, such as McKittrick and Essex have been doing with climate change.
The sad thing is that there's a lot we don't know about open economy macroeconomics and changes to corporate income tax rates. It may even turn out that the CCPA is right, which would fundamentally change the way we think about this issue, the way Card and Krueger fundamentally changed the way we think about the minimum wage. I believe Card and Krueger will win the Econ Nobel someday for their work. Economists who changed the way we think about open economy macroeconomics would receive similar praise.
The CCPA could be those economists and advance science. They have instead chosen to be another group that uses anti-science to advance their ideology. I find that sad, since I know they're capable of so much more.