Friday, July 13, 2012

Post Hoc Ergo Non Propter Hoc

Ever hear of post hoc ergo propter hoc? It's a Latin phrase describing a logical fallacy: "after therefore because of." But of course just because one thing follows another doesn't mean one caused the other. It's a common mistake, especially in macroeconomics where it's so hard to determine causation. Yesterday Paul Krugman reminded me of a relative: "post hoc ergo non propter hoc" or "after therefore not because of this" (this was assembled via Google Translate so its Latin might be off). Here he is questioning calls for lower taxes on the wealthy:
When John F. Kennedy was elected president, the top 0.01 percent was only about a quarter as rich compared with the typical family as it is now — and members of that class paid much higher taxes than they do today. Yet somehow we managed to have a dynamic, innovative economy that was the envy of the world. The superrich may imagine that their wealth makes the world go round, but history says otherwise.
No where does he say why taxes on the wealthy shouldn't have hamper economic growth. Indeed, he seems to argue that it would enhance it!

Macroeconomics is very, very hard, especially when you draw on history. JFK's America was very different than our own: trade, technology, local and global politics, demographics, etc. etc. All of which have major economic implications. To say nothing of the fact that we are actually much wealthier now than we were 50 years ago.