Update: What We Don't Know

A brief update to the previous post on the state of the economics discipline with respect to understanding the determinants of growth in the developing world: In The Journal of Economic Literature, James Rauch has a review of A.K. Dixit's "Lawlessness and Economics: Alternative Modes of Governance." 

The article opens:

A consensus is building within the economics profession that good institutions are the key to long-run economic growth.

The reviewer quotes a number of very influential papers in the recent literature that argue this. Dixit's conclusion is as follows:

...neither empirical or theoretical research has yet advanced to the point of offering clear or confident policy recommendations for the process of institution-building or reform.

He's not alone. It's a bit of the mystery in the profession, economic growth. It cuts across ideologies and political orientations. The market-oriented recommendations called the "Washington Consensus" don't seem to have worked well, nor have other more interventionist approaches. Read the literature and you will see the same thing over and over again: We have learned a lot about what does not work. Isolated successes do not appear to generalize very well. The loose and fairly uncontroversial consensus that emerges: It is a mystery.

This does not lead to a recommendation of "doing nothing." Far from it. But neither does it warrant misrepresenting the current state of knowledge and morally browbeating those who debunk outlandish and unsupported claims.

You don't solve difficult problems by pounding your chest and pretending you already know the answers.

And when the public at large starts believing that we do know how to "fix poverty in Africa" if only developed nations had the will to do it, if only some demonized set of selfish policy-makers weren't so lazy and obstructionist--when a position that is "wishful thinking" at best becomes a club with which to pound away, without evidence or logic, at supposed opponents of inferior moral fiber--then maybe, just maybe, public attitudes impede the search for good and effective policy.

But enough on this silly movie. Next post will be on the Hurricane and its tragic aftermath.

P.S. Babcock

Comments

[Matthew Collin]

Dr. Babcock, I think you are confusing an attempt to build public awareness with

I watched 'The Girl in the Café tonight for the first time. The character Gina's outbursts were not an attempt at propaganda, but a portrayal of a very human reaction we have when confronted with the depressing statistics that accompany extreme poverty. The movie is an attempt at increasing public awareness, not making specific policy decisions, which is why it ends only with a declaration to tackle the problem, not with the reason how.

Some lessons learned: it's no fun to live in the LDCs of this world and our politicians are (for the most part) uninterested. We Americans are not treated fondly in the movie, but did were the actions of the US delegation actions unrealistic or their arguments unrepresentative of the arguments we usually make? When I was younger, my parents always chided me for being quick to dismiss their ideas without making many suggestions of my own, and I think that we in the US have a tendency towards the same behavior concerning discussion of global poverty: detachment and criticism, but little in the way of innovation.

No one is claiming to have an answer, but some of us are attempting to have this debate in a world that is growing increasingly uninterested due to a greater recognition of terrorism, a mind-bogglingly expensive war and now a unprecedented natural disaster on our own soil. It took 5 years for the topic of poverty to come up again with the (real life) G8 summit, but unfortunately the London bombings quickly diverted public attention.

No, we don't have the problem sorted out yet, but someday we will, but we must keep the public's interest, because when we do figure out the problem, it's going to take time, money, and political power.

[Matthew Collin]

Oops, gap in the first sentence there, it should read "...an attempt to build public awareness an attempt at preaching."

[philip]

Thanks for your comment, Matthew. I do agree with almost all of what you say (and certainly the important parts), though not with your characterization of the movie.

I think it was Robert Lucas who said that once you start thinking about development, it's hard to think about anything else. It is just *so* much more important than the other issues we think about. I'm glad that people like Tony Blair are calling attention to it. I wish that the current administration in the U.S. were more engaged in the developing world (though to be fair they are, rightly or wrongly, effectively or ineffectively, attempting to build institutions in a corner of the world that has had enormous suffering.) It IS appalling that there is such suffering in the developing world.

But...

I continue to believe that much of what the movie says, and much of what Sachs says, and much of what Jared Diamond says, and much of what the rock stars say, is propaganda. Period. It just isn't true.

So what? Heck, maybe it's a good thing to get people interested and engaged in Africa by lying to them. Maybe it's not even a really big lie. Maybe a little wishful thinking and optimism is helpful. Maybe people need to be benevolently deceived into doing the right thing.

Maybe. But I sincerely doubt it.

If we have learned anything at all about development in the past century, it is that external interventions to enhance growth, especially those that are driven by glib rhetoric more than by reasoned assessments, often worsen the problems they address or waste the resources they allocate. This holds for market-oriented and non-market policies. Not always, of course. But often.

Let's say I'm appalled by slavery in the Sudan (as I truly am). So let's say I donate to an organization that buys slaves and sets them free. Say I get celebrities involved. I make movies in which I say "if only we had the will, we could free these people." I encourage everyone to get off their butts and care and do something! Doing something is important, right?

Great. Wonderful. Except that this increased purchasing of slaves makes the slave-trade much more lucrative for the slave-traders. It leads them to enslave even more people. (There is evidence that this is, in fact, happening.)

There are countless, countless examples. "Caring about the poor" isn't enough. I wish it were. But unfortunately, the facts matter a great deal.

We need to care about the poor, wisely. Former world bank research economist William Easterly strikes me as someone who does just that. I highly recommend his book, as it summarizes a lot of the major research. Compassion leaps from the pages, but you don't get that big, warm tummy, "we'll be the greatest generation ever" feeling when you finish it. Nope. You get a sense of heaviness mixed with the realization that we must keep fighting, carefully, and keep trying to learn.

I think you'd have to be tone-deaf not to sense the timber of self-righteousness in the movie, and in Sachs, Jared Diamond, and the various celebrity spokespeople for the "all we lack is the will" crowd.

Any reasonably informed person has known about Africa for many decades. (Heck, it is one of the reasons I became an economist.) Any minimally decent person has and continues to be gravely troubled. There is nothing new in this! What IS new in the movie (and the movement) is the false and unsupported claim that we know how to fix it.

It's a feel-good movie. A feel-good movement. These can be helpful, but they can also be very dangerous in their glibness, their hubris, and their resistance to evidence.

Somebody, even a blogger with fewer readers than fingers and toes, shoud call attention to the actual evidence ocassionally.

Thanks again for your comment.

[Matthew Collin]

Thanks for the response. I actually have The Elusive Quest For Growth on my bookshelf, a couple of books away on my massive summer reading list for my grad course.