This week's guest Top 10 was compiled by Nathan Chappell, Judd Ormsby, Corey Allan and Eyal Apatov, research analysts at economic and public policy research institute Motu.
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Since the Nobel Prize for Economics was given last week to Angus Deaton (more on him in number 2), many of the usual criticisms of economics have come up. A good suggestion is that the economics prize be extended to include all social sciences (economics is, after all, a social science). However, most of the critiques of economics are many of the same old ones that have been going around for years.
The author seems to focus his critiques on macroeconomics and finance, ignoring the advances in microeconomics that have been made over the last 20 or so years, thanks in part to fantastic new longitudinal datasets. He also ignores the methodological revolution in development economics with the use of randomised controlled trials (RCTs). Will economists in general be free from association with the GFC at some point? Noah Smith gives a fun response to some of the criticisms here.
Angus Deaton works on the economics of consumption, poverty and welfare. Development economist Chris Blattman gives a personal account of why Deaton’s prize is well deserved. See also Tyler Cowen and Justin Wolfers on Deaton. Interestingly, although Deaton is in many ways the father of empirical economics, he pushes back against the focus on randomised control trials in development today.
“Deaton helped bring about this data and measurement revolution in several ways. One was to help establish expenditures and consumption as the best of a bunch of bad measures of poverty. Annual income works fine in a country like the United States where most people earn a regular salary from one source, but it’s meaningless when a household has dozens of small activities, varying day to day, most of which produce things the family consumes themselves. The other contributions were to show just how much we could pull out of these simple data….”
A 2004 study found, among other things, that mass deworming (pills that kill worms living inside you) increased school attendance and health. The effects were found in students at treated schools, and some spilled over to untreated schools nearby. This paper was huge in development economics -- famous authors, a top journal, a small army of research assistants, loads of citations -- yet when a team of epidemiologists tried to replicate the paper, some… issues arose. This Vox article is a nice summary of the disagreements. To illustrate the size of the fallout the World Bank’s Anthology of the controversy has around 50 links on it.
Given recent controversies in the scientific literature (e.g. the worm wars), it’s understandable if your confidence in science is a little shaken. This article discusses the problem of ‘p-hacking’, or publishing only significant results. There is a really cool infographic that illustrates what p-hacking is and interactively shows how decisions about what to include or exclude in your data can lead to vastly different conclusions. The main thrust of the article is that science isn’t broken, it’s just really, really hard to do. Scientists are people and, like all people, have biases and different ways of interpreting the same data.
They also have different ideas about what data it is reasonable to include or exclude from their analysis. The main takeaway is that science as a process is the best method we have for discovering the truth. However, scientific knowledge is not based on one study on a given topic, but a huge range of studies. If we want to know the answer to a question, we should look at the whole range of scientific literature on the topic, not just the first link that pops up in a Google search.
Why does the New Zealand Treasury use an 8% discount rate? Miles Kimball came for a short stay at the Treasury earlier this year and was unhappy with the practice. His basic argument: an 8% real discount rate would only make sense if government earns an 8% real return on its savings. Which it does not.
“The underlying logic of the 8% per year real discount has to be that the opportunity cost of a project is that the money could be put into the stock market … if it weren’t used for the project. This logic requires (a) that if funds weren’t used for the project that it is in fact realistic the funds would be added to the Superfund and (b) that the extra funds in the superfund would be earning an 8% per year real return.”
Also see philosopher Derek Parfit arguing for a 0% discount rate (after considering opportunity costs) in his tome ‘Reasons and Persons’. Or read him teaming up with economist Tyler Cowen against discount rates.
Philosopher Peter Singer argues in favour of effective altruism, the movement stating that we should do the most good we can. This involves not only donating, but donating wisely to causes that are backed with evidence. Also read the reply from last week’s Nobel Prize winner Angus Deaton, who criticises the movement for being too narrow and not considering the broader changes needed to lift the poor out of poverty. Peter Singer counter-replies: this is just an empirical question. If pushing for systemic change is the way to do the most good, then effective altruists should work towards that.
Relatedly: Engels was the father of effective altruism. A warning to those arguing that effective altruists should push for systemic change.
“Effective altruism is based on a very simple idea: we should do the most good we can. Obeying the usual rules about not stealing, cheating, hurting, and killing is not enough…. Living a minimally acceptable ethical life involves using a substantial part of our spare resources to make the world a better place. Living a fully ethical life involves doing the most good we can.”
Long! But brilliant. A fascinating interview with a famous economist. The talk is largely about understanding growth, in particular for developing countries. And Sachs is direct: on Acemoglu and Robinson’s book Why Nations Fail:
“One of my least favorite books. I think it is just a bad book, because it takes one thought and tries to drive it as the only explanation of history. That’s not a good approach in my view to history, which is a very interesting, complex tableau.”
On corruption’s influence on economic growth:
“It depends. Some places are so corrupt you first wouldn’t want to step foot in them and I’ve had the experience repeatedly when I’m talking to a head of state or a finance minister and I watch their eyes glaze over and realize they’re not interested in what you’re talking about. Those places can be driven absolutely into the ground by corruption.
Other places have been corrupt for a long time – I’m thinking of New York, Washington, Lagos, Beijing, and other places – and you get a lot of economic progress. In that sense, there is no purity in the world. I’m not a fan of corruption for a lot of reasons that have started with ethics.”
It’s interesting that Sachs emphasizes throughout the importance of context and different prescriptions for different countries. Duflo and Banerjee attack Sachs for being overly simplistic in the first chapter of their book Poor Economics. Maybe this is some development craze where everyone likes to say everyone else is too simple. Tyler Cowen is doing a whole series of interviews with famous economists, which you can check out here.
Could the European welfare states collapse following a sudden large-scale migration influx? Michael Clemens from the Centre for Global Development discusses these, and other migration related issues.
9) Berk Ozler (of the World Bank, and previously briefly at the University of Otago) on Cash Transfers. This is an hour long video that gives an excellent summary of one of the hottest topics in both development economics and effective altruism: cash transfers. All the evidence discussed comes from one of the hottest methodologies in economics, RCTs.
10) For a final light-hearted link, David Mitchell shares his thoughts regarding the recent economic downturns, which makes as much sense as most other business-cycle theories.