The Narrative in the Numbers

Abstract

This chapter describes how to finish bringing closure to an empirical study, in a way that both structures and enhances the narrative used to report that study’s methods, results, and conclusions. It emphasizes the importance of relating the study’s findings back to the essential facts of the phenomenon of interest, and argues that the study’s ultimate objective should be to understand that phenomenon on its own terms, not the terms prescribed by the researcher. In the process of doing this, the researcher will often unearth an “organizing principle” that grounds the behavior of the major actors involved in this phenomenon, and which also can ground the study’s narrative. These ideas spring to life in applications to the housing crash, the behavior of carnival workers, development in the tropics, teenage fatherhood, and more.

Food for Thought

• 1. What is the central problem of the economics profession? What organizing principle do I advocate for solving it? (For a hint, see Chap. 1.)

• 2. Woodford’s classic Interest and Prices (2003) considers optimal stabilization policy in a standard New Keynesian framework. His most basic model (pp. 400–401) generates a loss function that is a weighted quadratic in inflation and the output gap. While the literature often assumes equal weights on the two terms, he argues that in fact the weight on the former should be twenty times that of the latter. This conclusion can be made more organic by comparing it to estimates on the relative importance of these two terms from the literature on “the macroeconomics of happiness,” or a related literature on the macroeconomic determinants of summary measures of economic content such as the “Consumer Confidence Index.” How do these estimates compare with Woodford’s conclusion?

• 3. “Knot Yet,” a publication of the National Marriage Project, examines trends in employment, marriage, and childbearing over the last several decades in the U.S. These trends vary by education, leading it to develop not one organizing principle , but two, for the role that marriage plays in peoples lives: a “cornerstone” for some, and a “capstone” for others. After reviewing this publication, easily found online, briefly articulate what these two organizing principles mean, and describe the statistics supporting these conclusions. Which organizing principle do most Ph.D. economists use: marriage as capstone, or cornerstone?

• 4. Lucas ’ Models of Business Cycles (1987) and Bewley’s Why Wages Don’t Fall in a Recession (1999) approach the problem of unemployment in two different ways. Lucas (p. 56, 57) celebrates McCall’s (1970) micro-founded search theory , in which the long run unemployment rate is determined by the job separation rate, workers’ reservation wage, and the distribution of job offers.

  Asking questions of McCall’s theory invites us to think about unemployment in ways that fix-price and other macro-level theories can never lead us to do. Questioning a McCall worker is like having a conversation with an out-of-work friend: ‘Maybe you are setting your sights too high,’ or ‘Why did you quit your old job before you had a new one lined up?’ This is real social science: an attempt to model, to understand human behavior by visualizing the situations people find themselves in, the options they face and the pros and cons as they themselves see them.

• Bewley, instead, interviews hundreds of employers during a recession, documenting how rarely employers cut nominal wages and the reasons why they don’t. Here, for example, are the owners of a small nonunion machine shop and a medium-sized car dealership:

  I never cut anyone’s wage. That would be too personal. It would be putting too much power into your own hands and would be resented.

  If I cut pay, people would leave out of rage, even though they have no place to go. They would feel they had to. They live close to the edge anyway, spending 110 percent of their income , no matter what it is. The body shop people would certainly leave. They are crazy. They smell too many fumes.

• Compare these two authors in terms of their adherence to the ideals of organic knowledge and seeing the problem on its own terms. Are they closer to each other with respect to the first ideal or the second?