A while ago, I discussed the limits of the deductive approach in economics (and, for that matter, in anything). Basically, one can be really clever and derive how the world could or should work. This might or might not have anything to do with how the world actually works.
Robert Waldmann takes Matthew Yglesias to task for deducing, when he should be inducing about the effects of state income taxes on the decision by rich people to leave that state:
You specifically write “The tax competition issue is real, but limited, and the further you get from New Jersey the less real it becomes.” “Real” in this context must be some sort of quantitative qualifier* If so you contest the work of Cristobal Young and Charles Varner forthcoming in June 2011 in The National Tax Journal. (warning pdf)
The New Jersey millionaire tax experiment offers a potent testing ground, given the magnitude of the policy change and the relative ease of relocating to a different state tax regime without leaving the New York or Philadelphia metropolitan areas. Using a difference-in-difference estimator, we find minimal effect of the new tax on the migration of millionaires.
What is less real than “minimal” ?
I am not upset because you missed the article especially since it isn’t, technically published yet. I wouldn’t be surprised if other researchers vehemently contest the conclusions of Young and Varner. In fact, I have no doubt provided one counts Koch financed hacks as researchers.
I am distressed, because you wrote ” I actually think this kind of question is better investigating initially through theory.” I don’t see how a question about the real world could be investigated through theory. I thought the idea that we could learn about the word through theory without evidence was proven to be nonsense in the 17th century. I think you mean to write “we should think about this issue before deciding which data to look at” but the theoretical work is the pre-investigation work, not another kind of investigation.
I am an economist and I know many economists who think that theory without evidence constitutes investigation. I frequently tell them otherwise.
An aside: If I’m not mistaken, Waldmann has had some training as a biologist, which might explain his predilection for those stupid fucking natural history facts.