The confusion of correlation and causation is a problem that
plagues all sciences: natural, as well as social. We observe two things
changing over the course of a given time period. The question is: does the
change in the one thing cause the
change in the other thing, or is it merely correlated
with it.
For example, we know that, in the vast majority of cases, eating
food causes us to feel less hungry.
We’re hungry, we eat, we feel less hungry. If we didn’t eat, we’d still feel
hungry. Without the cause (eating), the effect (feeling less hungry) does not
materialize.
Now, imagine that a person only eats their meals in front of
the television, and they never watch television otherwise. This person would
observe a strong correlation (or
association) between watching television and feeling less hungry. They might
even believe that watching television is a joint cause of them feeling less
hungry: after all, in this person’s experience, it is only by eating and watching television that their
feelings of hunger abate.
Luckily, this being a problem of natural science, there is an
easy way to determine whether watching television is a cause or not: isolate
the variables. This person should do an experiment:
get hungry, and then try watching television without eating at the same time. Then, try eating without watching
television. They will find that the television alone did nothing for their
hunger, while the food alone did. Eating food is revealed as the cause; watching television as a mere correlation. Problem solved.
For many problems in the natural sciences, this method of
variable-isolating, laboratory experimentation can help determine whether
something is a cause of, or merely correlated with, a given effect.
In the social sciences
though, this method is very rarely applicable. Virtually every aspect of human
society is constantly in flux. We can use history and statistics to,
imperfectly, observe individual aspects of society at various points in time;
but we cannot observe what effects
the changing of just one aspect has on the totality. This is because it is
never just that one aspect that is changing; everything else is changing along
with it. Without the ability to time travel, there is no laboratory experiment
we could set up that would be otherwise.
Alright, so the social scientist cannot isolate his
variables. Does that mean that correlation and causation will be perpetually
confused; rendering the entirety of social science a hopeless muddle? We need
not leap to that conclusion just yet. Human reason has another tool at its
disposal for dealing with these issues: deductive logic.
Deductive logic starts with basic, well-known truths about
reality (what we call ‘common sense’), traces out the various implications of
these, and then uses them to shed light on more complex problems. Here is an
example:
Premise 1: Whenever someone performs an action,
they expect that that action will make them more satisfied.
Premise 2: It is very likely that the individual
himself will know what will satisfy his own desires better than anyone else
will.
Implication of Premise 1:
When two individuals
undertake a voluntary exchange of goods or services, both individuals expect
that they will be more satisfied after the exchange is complete.
Implication of Premise 2:
It is very likely
that the individual himself will know what voluntary exchanges will satisfy his
own desires the best; better than anyone else will.
Conclusion: It is very likely that allowing
individuals to decide upon and execute most of the voluntary exchanges that
they want will result in the maximization of their desire satisfaction. This
should be taken into due consideration before proposing to coercively restrict
any voluntary exchanges.
By using deductive reasoning in this way, we can first come up with a theory that makes
sense, and then look for empirical
evidence (via history or statistics) that might support this theory. Because it
is often the case that two social commentators will agree on the facts
themselves, but disagree on the proper interpretation
of those facts. In order to determine whose interpretation we should accept,
we have to determine, by examining the logic on which it is based, whose theory makes more sense.
For example, both Keynesian (left-wing/bigger government)
economists, and Austrian (free-market/libertarian) economists, agree that in
the 1930s, the United States was in an economic depression, and that after
World War II, the United States was no longer in a depression. But they have
very different explanations for how this came about.
The Keynesians argue that the war gave the government an
excuse to go on a massive spending spree, a spree which boosted aggregate
economic demand and stimulated the economy greatly, thereby putting an end to
the depression. The implication is that, in the case of any future depressions,
the government need not wait for a major war to break out; they could just
engage in a massive peacetime spending spree and achieve the same beneficial
result.
The Austrians, on the other hand, believe that the
fundamental cause of depression-era unemployment was a mismatch between the
wage demands of the powerful labor unions, and the amount of productive capital
invested in the economy. If more productive capital had been invested, the wage
demands could have been met without creating unemployment. Likewise, if the
wage demands had been lower, less unemployment would have resulted. Other
factors too, such as the uncertainty for businesses created by the Roosevelt
administration’s radical economic innovations, and the sharp turn towards
protectionism/economic isolationism, also contributed towards keeping the
depression going.
World War II shook things up by causing the suspension of
normal consumer life in the United States via strict rationing. Private
citizens were forced to consume less than they had been, in order to free up
resources for the government to prosecute the war effort with. Luckily for the
post-war economy, the government’s great new demand for armaments and war
vehicles enabled and encouraged private companies to invest heavily in the advanced
manufacturing facilities necessary to produce these things. It so happened that
after the war, these facilities were relatively easily converted to peacetime
uses. The post-war economy was, therefore, much more capital-rich than the
depression-era one, which allowed it to meet the wage demands of the unions
without causing much unemployment (there were also fewer workers to find
employment for, due to wartime casualties). The fact that the
government’s economic policy was more stable in the post-war, and that the
United States was in a prime position to provide much-needed goods to the
countries who had been pulverized by the war, also helped greatly.
The implication of all this is that future depressions can be
solved by encouraging more capital investment, by assuring businesses that
future policy changes will not be detrimental to their interests, and by
withdrawing support from labor unions who demand wages that are too high
relative to the economic situation.
Okay, so we have two very different interpretations of the
same sequence of historical events, resulting in two very different
implications for future policy-making. It is imperative, for the sake of our
economic well-being, that we determine which theory is correct. In order to do
so, the empirical facts are not enough; we must examine the logic behind the
two theories.
On this front, we have an easy winner: the free-market
Austrians. The theory on which the Keynesian interpretation is based doesn’t
make sense. There can never be a problem of aggregate demand for goods and
services being ‘insufficient’. Until we reach a state of paradisiacal
super-abundance, people will always want as many (or as high quality) goods and
services as they can afford. The economic problem is never one of consumption;
it is always a problem of production. Economic progress consists of a society
being able to produce more and more, and better and better, goods and services,
with a smaller and smaller quantity of human labor.
Seen in this light, the notion that a war could possibly be an economic boon is absurd. Wars redirect
human effort away from improving society’s material standard of living and
towards destroying lives and economic goods. They might accidentally result in some peacetime benefits afterwards, but
society would almost certainly have been better off if it had just focused its
efforts on peacetime improvement directly.
Therefore, because the Austrian theory has both logic and evidence on its side, we can accept
the causation that it posits. And, since the Keynesian theory does not have logic on its side, we must
dismiss the causation that it posits as mere correlation.
In sum: in the social sciences, the correct procedure is to start with a logical theory, and only then to look for historical evidence that might back it up. Failure to do
so will invariably result in the confusing of correlation with causation, and
the consequent suggestion of some very bad policies.
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