Why Anecdotes matter in Economics

Economists and people interested in politics often have strong opinions about Anecdotal Evidence. See this random excerpt from the top google listing for Anecdotal Economics:

One of my pet peeves is when commentators use their own anecdotal evidence to project/predict/pontificate about the state of the world’s economy or the state of the US economy. This is frequently true when I get into debates/discussions with people that I might disagree with politically. If we were doing a personal therapy session we might call it “transference” or “projection”—or “if it happens to me, then it must be happening to everyone.” Djobe

I can only really agree with what he says here, yet later on he makes the following excellent point:

There are objective statistical measurements that we can use to comparatively analyze the current state of the economy as a whole. Of course objective statistical measurements are boring and they don’t make headlines. Plus it’s hard to feel that personal connection with a rise in GDP, or slight increase in CPI, or an overall unemployment rate of 4.7%.

This is where the problem lies. It is hard to interpret this data. Which is why economists of varying political persuasions come up with Happiness or freedom indexes to explain what these mean.

As I explained before these artificially constructed rating systems are dangerous in many ways, because they present an interpreted subjective matter as fact. However as Djobe mentions there is a real need for non economists to understand the effect on the real world of such non artificial figures such as GDP, CPI etc.

For this I do believe Anecdotes do matter. In particular on matters of global economy. Most of us have a pretty good idea of whats going on in our country or city, but very few people in “rich countries” can accurately imagine what living in a country with a $5000 GDP/Capita is like. For me anecdotes are about putting things in perspective. You should not take anecdotes as evidence on their own, but rather use them to put a human face on numbers.

A great example of this are in the country studies that ILD did for the IADB, see more in How government causes poverty in Latin America. These country studies are thoroughly researched, but also have real case studies to put human faces on the numbers. These couple of pages are probably the most valuable part of the reports for non economists as you get to understand exactly what it means to be extra legal and why people join this so called sector.

As I now am back in Panama I will attempt to write a bunch of smaller anecdotes. Documented with photos, text and maybe video I would like to show some of the small little day to day things that people don’t necessarily connect to economics. Once I leave Panama I will do the same in Argentina and in Denmark. I encourage people elsewhere to do the same.

Read more Anecdotal Economics here