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Theory vs. Practice

by Paul deSa
October 6, 2010

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"Well, it may be all right in practice, but it will never work in theory." -- Warren Buffett on how the academic community regards his investment approach.

The Phoenix Center apparently thinks their latest paper is so good they named it three times. "Jobs, Jobs, Jobs" is a frothy mix of algebra and math jargon ("a 2 × 1 speed of convergence parameter vector, C is a matrix that defines the contemporaneous structural relationship among employment and investment expenditures, and et = [e1,t e2,t]' is a vector of mutually orthogonal structural shocks to these variables") apparently proving that investment creates jobs (or, "we have a one-way causal relationship, in a Granger causality sense, flowing from changes in capital expenditures to jobs"). So far, so obvious.

Less well supported is the headline of the accompanying (mercifully equation-free) press release "FCC's Regulatory Agenda May Have Serious Adverse Impacts on New Job Creation.” Perhaps there is a typo, as for all the evidence in the paper, an equally appropriate title would be "FCC's Regulatory Agenda May Not Have Serious Adverse Impacts on New Job Creation." In fact, maybe we could just compromise and agree on an alternative bipartisan title: "23 Pages of Theory Actually Says Nothing at All About the Practical Effect of FCC's Agenda on New Job Creation."

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