Monday, June 20, 2016

Best pop culture reference by an economist

via Brad

Excellent post by Dietrich Vollrath. In particular, the discussion of the World Bank’s Doing Business index ("Apples and Oranges") is easily worth a thread. For now, though, I've got to share this.

From by Can we get rich by "Doing Business" better? 

Growth Economics with Nigel Tufnel

Below I’m going to get to the gory details of why the Doing Business (DB) indicators generally suck as a measure of anything useful. But let me start with this note. The DB index Cochrane uses is a “distance to the frontier” index. Meaning you get a number that tells you how close to best practices in business conditions a country gets. If you are at the best practices in all categories, you’d get a 100.

Cochrane says, and I quote, “If America could improve on the best seen in other countries by 10%, a 110 score would generate $400,000 income per capita…”. Stew on that for a moment. Think about how that DB frontier index is constructed.

Cochrane went there. He said it could go to 11.

This brings up the bigger and more important questions of how someone as smart as Cochrane can descend so deep into silliness and how little impact the descent has had on his reputation as a serious thinker, but those are topics for another day.

1 comment:

  1. You could also mention that he may be fond of Pink Floyd, considering the name of the index.