(click on graphs to enlarge)
TW: The first graph above is from Greg Mankiw's blog, he dismisses it:
"...Of course! But so what? This fact tells us nothing about the causal impact of income on test scores...This graph is a good example of omitted variable bias...The key omitted variable here is parents' IQ. Smart parents make more money and pass those good genes on to their offspring.Suppose we were to graph average SAT scores by the number of bathrooms a student has in his or her family home. That curve would also likely slope upward..."
TW: He is right. The graph implies causation when many other variables could be relevant (including although certainly not limited to IQ). But my guy Krugman counters with the second graph. Low income kids with high scores manage to attain fewer college degrees than high income kids with LOW scores. Why is that?
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