Suppose you went to your doctor’s office with a broken arm. The doctor tells you you’re in luck because there’s some recent research about healing broken bones.
She tells you this research statistically demonstrates that smearing your arm with peanut butter will cut your recovery time by 90 percent. Dutifully, on your way home you stop to buy peanut butter, of course – not much, mind you, because you only need a couple days of peanut butter.
Three days later, expecting your arm to be healed, you remove the cast, and, guess what? It isn’t healed.
But the research said …
Remembering you had some statistics training in your past, you decide to read the research yourself, and you see a whole host of issues: The bone wasn’t actually broken in test subjects; the peanut butter was put on after three weeks of healing; and none of the reported statistics demonstrated any significance anyway.
Clearly, this is absurd. Or is it?
That’s the point.
Recently, a report issued by Moody’s Analytics claims the increased use of credit and debit cards added almost $1 trillion to global economic activity from 2008 to 2012.
Any economy worried about slumping economic growth would be tempted to cast off the shackles of cash and go all-in with bank cards.
And, yeah, that does make sense. It makes it easier to buy stuff, I don’t have to worry about carrying around a lot of cash and it sure beats the hassle of writing a check.
A reduction of hassle should increase economic activity, except when it doesn’t.
The research results sound reasonable, and they are presented with a patina of authority and fancy models. And who wants to read the fine print anyway (like the rapid-fire disclaimers at the end pharmaceutical ads)?
But the fine print in this report says that credit-card use has no statistical effect on consumption, output, employment growth or anything else.
So why is that important? In Croatia, for example, this “research” has received a fair amount of attention, with some policymakers advocating abolishing cash.
firstname.lastname@example.org. Robert “Tino” Sonora is an associate professor of economics and director of the Office of Business and Economic Research at Fort Lewis College.