from Cafe Hayek, Krugman and Other Stuff by Russ Roberts.

When it’s convenient, Krugman ignores the “other stuff.” (We all do.) So according to Krugman, the economy of Kansas is struggling because the governor cut taxes. One variable explains everything. We can ignore the other stuff. Or Iceland is doing better than Ireland because Iceland didn’t listen to those foolish austerians and rejected the fiscal austerity that Ireland fell prey to. One variable, fiscal policy, explains everything. When it’s convenient, when it confirms our worldview, the other stuff can be ignored. More troubling for Krugman’s claims is that it appears that Iceland actually embraced austerity big time—raising taxes and cutting spending. How will Krugman explain Iceland’s success? Must be other stuff. But there is always other stuff. The world is a complicated place. I would suggest that our job as economists is to always remember the existence of other stuff, all the time and not just when it’s convenient.

So my point for Krugman and others is that too many macroeconomists suffer from the post hoc ergo propter hoc fallacy—after this, therefore because of this and ignoring other causal factors. We are all prone to confirmation bias, interpreting the events of the word and sophisticated econometric studies as all on our side. I think government regulation is too intrusive. Does that explain the mediocre recovery from the Great Recession? Convenient for my worldview as an explanation, but very unproven. Is there evidence? Sure, but it is nothing close to decisive. It’s just a correlation. This is a problem that afflicts all parts of the ideological spectrum. An honest economist should concede that the world is a complicated place and that teasing out causality or the impact of one variable on a massively-complex economy is a fool’s game.

Nassim Taleb calls it the narrative fallacy, the tendency we all have to construct a consistent narrative by emphasizing some aspects of the world around us while ignore others. Jonathan Haidt uses the metaphor of the elephant and the rider. The elephant is our heart, the rider, our mind. The elephant usually goes where it wants but it is not so hard for the rider to convince himself after the fact that that was indeed the direction he was headed all along. Macroeconomists and economists in general would be wise to read Taleb and Haidt.