Why Malcolm Gladwell and TED Talks are a Terrible Way to Understand the Economy

The last few years have seen a slew of books that explore ideas about how nature governs far more of our lives than we might care to admit. Books like Stumbling On Happiness by Dan Gilbert and The Righteous Mind by Jonathon Haidt both explore the way that the subconscious mind governs many aspects of our lives. Meanwhile a number of other books like Malcom Gladwell’s Blink and Steven Levvitt and Stehpen Dubner’s book Freakonomics are working to explain the secret rules of economics in our lives. Book’s like this tend to distill highly complicated ideas down to bite sized stories, simplifying complex data into snippets of wit and good storytelling and removing the scientific uncertainty that may accompany many of the findings the books claim to show.

What’s far more interesting is how useless much of this data is. Take for instance this video from Vox.com about the statistical benefits of being good looking.

While much of the data seems interesting it isn’t exactly helpful, especially when we consider that this is in aggregate and doesn’t likely reflect your reality.

In fact many of these theories don’t reflect reality the way they hope. Freakonomics co-author and economist Steven D. Levitt found this out when they attempted to bribe students to improve their grades. While they did get some positive results, the reality was it was far from a resounding success. Even with an opportunity to earn $200 a week if the children continued to improve their grades many simply didn’t take the opportunity.

You may have never heard of Hernando DeSoto, but the Peruvian economist is sought after around the world for his insights about poverty and property rights. His book (which I love) outlines some of the most convincing connections between lack of property and the ability to improve one’s standard of living. His argument was that if squatters were given ownership over their home they would have collateral to borrow against and could start or improve their businesses. However, when in 2004 the World Bank carried out a program in Peru to test DeSoto’s theory that land titles would lead to more lending by banks. In actuality it failed in its entirety, with bankers unwilling to lend against the only asset of an impoverished family.

An actual simple truth is that life is unbelievably complicated and its hard to understand and know what governs many of the elements of our lives. Whether the question is nature of nurture, economics or social sciences in the end we seem to know very little about what drives some of the biggest events in our lives. In spite of the number of times these theories prove to be wrong, our media has come to speak more and more in absolutes. It is getting to be so that you can’t get on television or in government unless you claim to know all the answers without doubt.

Meanwhile there seems to be an actual deficit in useful information that the media ignores. For instance, a more intriguing statistic is that in a recent poll by Gallup, less than 25% of Americans were able to correctly identify what has been the most successful type of investment (You can do the quiz here). Over a third of Americans haven’t taken any steps towards planning their retirement and I’m sure that number is similar for Canadians. There is a knowledge gap opening up, where knowledgable investors will be able to save on average 25% more than less prepared and less knowledgable people, a reality that could be addressed by the news, but is being perpetuated through bad journalism.

 

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