The Nobel Poor

Nobel Prize EonomicsOne reason to celebrate this year’s prize is that it went to a woman, albeit shared with two men.  Professor Duflo is only the second ever female economist to get the chance to feel humbled by this ultimate gong.

The first was Elinor Ostrom in 2009. Funnily enough, history may well judge Ostrom’s work on “The Commons” more relevant to global poverty than that by the winning team of three:   Esther Duflo, her husband Abhijit Banerjee and Michael Kremer.

Another reason to applaud their work is that it has educated many about the real experience of those billions of really poor people  living on a few dollars a day or less : “…poverty at the level of 99 cents a day is (not) just a more extreme version of the experience any of us have when our income falls uncomfortably low. … life for the poor is simply not like life for everyone else.” (goodreads)

Laudable as it is to have done actual field work in the real world including pioneering practices like actually talking and listening to real poor people, it is the implementable results that won them the prize. And the utility of these results  for alleviating poverty turns out to be a lot more marginal than all the admiring praise suggests.

Poor Economics Duflo Banerjee

It is probably a sign of these target-driven and box-ticking times that  the trio of random, experiment and results managed to dazzle the metropolitan media into applauding their “Poor Economics” book into a plethora of prizes won.

This may have produced record breaking numbers of citations which, in turn, may have cost game theorist Ariel Rubinstein the prize? Or maybe it was because Rubinstein is well know for “slating his colleagues work”?  But then Paul Romer has been accused of “burning down the edifice” of mainstream macro and Oslo’s central bankers may well consider it prudent in the future to crown one of the next-paradigm hopefuls like Thomas Piketty, Steve Keen, Mariana Mazzucato or Kate Raworth.

This year’s winning team is so charmingly down to earth that Hamish McRae even hopes they will help the profession back on their crumbling pedestals of expertise.

Unlikely. Though it may just refresh some shallow delusions about micro foundations underpinning meaningful macro for those dogmatists still feeling crudely bashed for “not seeing it coming”.

More thoughtful mainstreamers  like Joseph Stiglitz, Angus Denton and others have previously voiced their concern about the “… aid effectiveness “craze” …”  which narrows our focus down so much it  “… tends to ignore the broader macroeconomic, political and institutional drivers of impoverishment and underdevelopment …”

As Sanjay G. Reddy argues in his comprehensive review of “Poor Economics”, their approach “… leads not so much to increasing rigour as to rigor mortis, by severely limiting the questions that can be asked. … It has been widely recognised that the only questions that are amenable to being answered through randomised trials are very narrow ones.  …

However, the authors attempt to turn their weakness into an advantage by arguing that they are at least providing “evidence-based” answers where possible, thus creating a scientific basis for policy-making … and promising, moreover, to change the world by doing so. … (But this concern) …with the amelioration of individual distress …  pays little attention to the conditions of sustained and socially inclusive structural transformation of national economies.”

Or as David R Henderson puts it : “The research by this year’s Nobel winners says little about how poor nations, and the people within them, can actually become rich, or at least much better off.”

Not that the winning team is likely to care much for the intellectual embrace of  equilibrium economics. They have made it their mission to swim in the nano spheres of micro matters, dealing with those “smaller, more manageable questions (that are) easier to tackle.” Bathed in the glory of their own marginal utility to the poor they are likely to be blissfully ignorant of being surrounded by water. If anyone had wanted to commission an illustration of what an a- or even anti-theoretical retreat to micro means :  here it is.

In fact their eclectic application of empirical methods to manageable questions is so pragmatic it has no particular need to be economics at all. It is hard to find an example of their work that could not, and indeed has not, been done elsewhere by some branch of applied social or medical science, including public health, admin, development or social studies departments.

Nor is the promise of  scientific rigor through experimental methods exactly new. Though there are obvious and persistent reasons why “economics has always been regarded as a non experimental science” … in the last half century both field and lab experiments have seen “… extraordinary success among economists…” writes Daniel Serra,  and “… experimental economics has … found its place on the economics research landscape.”

Apart from field experiments like Hong and Plott’s famous 1982 study “on the compared efficiency of two rate filing policies for USA inland water transportation” there has been the spectacular rise of “behavioural economics”, arguably in the wake of the 2002 Nobel Prize being awarded to Vernon Smith and Daniel Kahneman .

However, just like behavioural game theory,  behavioural economics was never going to rescue the mainstream equilibrium paradigm. Both undermine the foundational comittment to rational choice. The latter does so from the very start, being based on Herbert Simon’s  “bounded rationality”. Unlike game theory which empirically discovers unexpected deviations from individual utility maximisation, behavioural economics seeks to empirically “prove” the reality of hypothesized cognitive biases.

It is not obvious how the winning team’s pragmatic combination of field and lab techniques could contribute to “rethinking the rules” of experimental economics at a time of renewed methodological questioning by veteran experimentalists like Vernon Smith posing many … unsettling methodological questions.”

Nor how “Poor Economics” could  seriously revolutionize development economics. The fact that their particular “poverty lab” methodology has spread across campuses like the latest craze in flavoured water merely adds virtue-signalling insult to the fundamental injury of not even bothering any more about macro, let alone political economy.

This developmental experimentalism may keep the departments afloat with fee paying students, but it ain’t gonna rescue the Zimmer-framed mainstream macro.

Meanwhile it might be interesting to add up the (opportunity) costs of all these not really that randomized, nor strictly control-conditioned and unlikely ever replicable “experiments”?

But who would pay for that?

GaiaMoney YouTube

Good Economics for Hard Times

If we’re serious about changing the world, we need a better kind of economics to do it | Esther Duflo and Abhijit Banerjee

Good economics and expertise

“I have come to believe this deep urge among economists to separate the positive and normative – dating back to Lionel Robbins – is a mistake. Dani Rodrik’s Economics Rules, another excellent overview of ‘good economics’ is much more nuanced and less economics-imperialistic in this respect.”


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