Reference Group Theory and Stupid Economic Inferences

In a NYT article examining the increasing death rates among white males, it was concluded that:

Reference group theory explains why people who have more may feel that they have less. What matters is to whom you are comparing yourself. It’s not that white workers are doing worse than African-Americans or Hispanics.

In the fourth quarter of 2015, the median weekly earnings of white men aged 25 to 54 were $950, well above the same figure for black men ($703) and Hispanic men ($701). But for some whites — perhaps the ones who account for the increasing death rate — that may be beside the point. Their main reference group is their parents’ generation, and by that standard they have little to look forward to and a lot to lament.

While there may be something to reference group theory (we feel depressed if we don’t measure up to our ideal…in this case our parents’ level of prosperity), the interesting thing is how easily the author treats people as aggregates. This is the same problem that occurs when using GDP as a measure of economic prosperity. Increased GDP may come along with massive decreases in individual wealth among 60-90% of a population. Similarly,  looking how the median earnings of white men doesn’t tell you what the modal earnings are, nor the earnings amongst the specific people who are dead or addicted to drugs.

I would observe that the “a lot to lament” comment, while likely true in the aggregate doesn’t necessarily work as a causal explanation for the increased deaths. For instance, BMI has increased in white populations, as has divorce, as have feelings of disconnectedness with their communities and political representative. Not only so, but the individuals who died may have had income significantly lower than the median income for white males in their age range. The fact of the matter is that unless you’re looking at the specific people who died or who are engaging in behaviours that contribute to likely deaths, there is simply nothing but a fuzzy correlation between median income and deaths.

I mean, the article compares the income rates of all while men (see above) to the death rates of white men with less education but with no reference to income:

The economists Anne Case and Angus Deaton reported in December that rates have been climbing since 1999 for non-Hispanic whites age 45 to 54, with the largest increase occurring among the least educated.

People think so much in terms of aggregates, that they don’t even look at the specific causes. “White people make plenty of money according to mean income…so these people must be dying early because they long for the income levels of their parents.” The article should have said, “reference group theory should be looked into as a cause for suicide, drug and alcohol abuse, and other factors leading to increased early mortality based on this apparent correlation.”

Anyway, I think that the New York times is mostly read by people who want their friends to think they’re smart.


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