ECONOMIC FALLACY #3 : CORRELATION VS CAUSATION Correlation does not mean causati

ECONOMIC FALLACY #3 : CORRELATION VS CAUSATION

Correlation does not mean causation.

I hesitate to include this one on the list because the phrase has become overused in some circles. It can be very easy to accuse someone of this and then not have to deal with their argument, even though there is good reason to believe causation exists. Inappropriately accusing people of this fallacy is especially easy when discussing economics. Economics is like a science in which you can’t account for all of the variables. Politicians can take credit, or blame others, for things without knowing the real cause.

One example of this fallacy is David Johnston’s assessment of the Bush tax cuts. I have no problem when he says the Bush tax cuts didn’t lead to the prosperity Bush promised, although I don’t blame Bush for that, and nearly every politician exaggerates when they are trying to sell something. The main problem I have is when he says “the data show overwhelmingly that the Republican-sponsored tax cuts damaged our nation.” This is a case of the fallacy because most of his evidence that the nation has been damaged is a decrease in average income (his case that less revenue was collected is legitimate). It very well could be the case that the tax cuts made the average income higher than what it would have been.

The average income could have decreased for reasons other than the Bush’s tax cuts. I lean toward that conclusion because there is no conceivable way that tax cuts can cause a decrease in average income. I would be more than happy to retract my statement if someone could please tell me how this happens.

I first became aware of this fallacy while I was in college. I was discussing minimum wage with a sociology professor. There are better arguments for raising the minimum wage, but the one she was giving me was that raising it often decreased the unemployment rate. I was baffled that someone could say this because, again, there is no conceivable way that increasing minimum wage could cause a decrease in unemployment. She pointed to certain years when minimum wage increased, and unemployment decreased. It escaped her that minimum wage could have destroyed jobs in one place while a new business may have started up in another, showing a net increase in employment.

With both the professor and Johnston, they claim that they are just looking at the facts, and those of us with even a little understanding of what causes what in economics are blindly following an ideology with no connection to reality. All this tells me is that they have no interest in how economics actually works. They have a political position they want to advance and they hope they can find “facts” to support it, even if it doesn’t make any sense.