Why Economics Is So Hard

One reason is the data used. A quote from Douglas Bernheim in his handbook chapter “Taxation and Saving” sums up the situation with respect to examining retirement saving:

As an economist, one cannot review the voluminous literature on taxation and saving without being somewhat humbled by the enormous difficulty of learning anything useful about even the most basic empirical questions. Having been handed two grand “experiments” with tax policy during the 1980s (IRAs and 401(k)s), it would seem that we ought to have learned more, and to have achieved greater consensus, than we have. In our defense, it can be said that we have done our best with the information at our disposal. As I have mentioned at various points in this chapter, it is often easy to identify the kinds of data that would have allowed us to answer the pressing policy questions with much greater confidence. Unfortunately, we have had to make do with data that is, at best, a caricature of the ideal. … the prospects for significant advances in empirical methodology will be severely limited unless researchers have access to higher-quality data. When one thinks of the budgetary costs of tax incentives, and of what is at stake in terms of economic growth and efficiency, it seems a shame that ongoing, comprehensive, microeconomic data collection has been such a low social priority.”

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