Tuesday, July 27, 2004

Productivity: Satan Increases Productivity?

It's proof gone to hell in a handbasket one could say. According the Federal Reserve Bank of St. Louis, a study was conducted that found a correlation between the belief in hell - mind you which begs the question of how this was determined objectively - and less corruption. Now I know that the Federal Reserve is grasping at straws in order to explain the productivity gap.

I first saw the study in a piece on MSNBC:

Economists searching for reasons why some nations are richer than others have found that those with a wide belief in hell are less corrupt and more prosperous, according to a report by the Federal Reserve Bank of St. Louis.

Researchers at the regional Federal Reserve bank acknowledged the importance of productivity and investment in the economic process but looked at some recent unconventional efforts to explain differences in national prosperity. [emphasis added]

Knowing the tendency of the press to get technical details wrong, I sauntered on over to the Federal Reserve Bank of St. Loius's website, hoping for a reasonable explanation for this otherwise outrageous statement. Unfortunately, it was true - it was all true. The Federal Reserve really was trying to imply that Hell, or at least the belief in it, was better for productivity.
Economists have long been interested in why some countries are rich and why some countries are poor. Differences in labor productivity, inflation, and saving and investment rates are traditional economic explanations for variations in wealth across countries. But when these explanations fall short, researchers sometimes turn to noneconomic factors. Two such factors are a country’s legal and social institutions. Religious factors can also help explain variations in economic growth, many economists are increasingly finding. In particular, in countries where large percentages of the population believe in hell, there seem to be less corruption and a higher standard of living.

Say it ain't so, Alan! It's so. Sadly too, because this is a good example of junk science. To prove my point, all you have to do is scroll down to the very bottom and look at two charts. Let's look at the very bottomost one labeled GDP per capita vs. Corruption. All the data points are tightly bunched together. There is a steady trend with tight groupings of data points going from right to left, with those with higher GDP per capita (vertical scale) being tightly to the left side of the graph (low corruption) and those not so high up (lower GDP per capita) being steadily to the right with the lowest to the far right where there is the highest corruption.

This is an example of a good data sample and results that are conclusive. Now look at the next to last chart, labeled generously Corruption and Fear of Hell. Well as it turns out, there are data points all over the place. There are some with pretty high corruption and fear of hell. There are some with low corruption and low fear of hell. There are some with high corruption but low fear of hell. There are some with low corruption but high fear of hell.

It seems that there is a weak correlation between the two, expressed by a slightly sloping line. But that correlation doesn't seem to hold. Remember when the oldman discussed the concept of standard deviation? The statistical significance of this correlation seems highly unlikely to be highly significant. The error bars, unshown, are probably huge reflecting that the points are all over the place and (pardon my language) scatter shot all to hell. The standard deviation value is probably larger than the resultant value, which is always the sign of a bad conclusion.

Even if there is a weak correlation between the fear of hell and lower corruption, it can be explained by non-causal relationships. For instance, Christian nations are historically more likely to have religions that believe in hell. As it so turned out, European and Christian populated nations in general such as America tended to industrialize and develop modern economies before non-European and non-Christian nations did. It may be that just as the average rate of childbirth declines with economic development, so does the average rate of corruption.

So the chart doesn't prove anything, and especially not with such a weak correlation and statistical significance and huge standard deviations. This is shoddy and junk science. I am frankly disgusted that the Federal Reserve Bank allowed this on their website.

However the rationale becomes clear by examining the motive professed in the cover piece in MSNBC. The rationale is to find increasingly bizarre and outre stretched explanations to account for the unrealistic gaps in productivity, which as the oldman has been blogging are highly suspect. In order to justify these numbers, as more and more criticism is brought to bear the Federal Reserve is apparently willing to cling to ever more outlandish and frankly strange explanations to justify their unrealistic productivity projections. Until, oh yes, the final straw is reached and they resort to the final justification of all scoundrels:

"The devil made me do it,"

Yes apparently the Fed wishes us to believe that it is the devil, or at least the belief in hell, that makes America so productive. What the hell is that all about?

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