Economics & Marginalia: November 25, 2022

Hi all,

Happy belated Thanksgiving to all who celebrate it! We don’t have an equivalent celebration here in the UK—we’re much more likely to declare a public holiday for all the complaints we’d like to make, and to berate the people and institutions that have disappointed us, like Frank Costanza in Seinfeld. Of course, throughout much of the country, that could be any day of the week with a name ending in ‘y’. But if Complaintsgiving were a thing, let me list the greatest disappointments in British public life over the last year: Liz Truss and Kwasi Kwarteng for tying mortgage rates to a helium balloon; Her Majesty’s Treasury for continuing to sanction the use of aid to pay for entirely domestic expenditures; all British music for the last 12 months; and the Bank of England for a pretty weak response to an admittedly chaotic year, though it’s getting a bit better. The only two institutions that are coming out of 2022 with reputations enhanced are the Fourth Plinth in Trafalgar square, which replaced that monstrosity with a cherry on top with a stunning sculpture of the Malawian anti-colonial John Chilembwe; and Greggs, of course.

1. The new online magazine Asterisk has an absolute banger of a first edition, but the crown jewel in it is this wonderful essay by Dietrich Vollrath on convergence, or the lack thereof. It’s called Why Isn’t the Whole World Rich? And really, it’s a little history of everything we know about making economic growth happen. He takes us through some of the classical growth theories, and the problems with them, and shows how, for all the progress we have made, we still don’t have a very concrete understanding of exactly what drives growth, and how to get it. He ends with a few modest conclusions, but I think they’re actually a bit too modest. We know a lot about the kind of things that cause spectacular failure, and the ways in which a small flame of economic dysfunction can spread to a wildfire of economic collapse; and though it feels a bit rich for someone living in England in 2022 to say it, in most of the world, most of the time, we don’t do those things. That wasn’t true 40 years ago: political leaders set their whole economies on fire quite often. Entire countries self-sabotaged. We make mistakes, yes, but we know a lot about what not to do, and that is really, really important.
2. Another optimistic take on economics: each year new economists and new papers make modest but concrete improvements to our understanding of specific problems and how to combat them. One of the best places to see that is the Development Impact job market paper series, which I bang on about all the time. This week, it has featured a paper on how flood warnings and some basic information can help communities mitigate the costs of serious natural disaster, and another on how the market structure of resource extraction can determine both its profitability and the environmental damage it does. This stuff really matters, and it’s heartening that young economists keep finding things they can make concrete contributions to.
3. Tim Harford discusses Impossibility results in economics, the sub-genre (of which Arrow’s Impossibility Theorem is the best known) of usually mathematical modelling exercises that demonstrate that for specific problems some combination of obviously valuable characteristics are impossible to achieve at the same time. It’s very worth reading, but I am always drawn back to Amartya Sen’s critique of the Arrow result, which exposes a general problem with this class of problem. Sen argued that for most uses, you don’t actually need all of the requirements of that Arrow says are mutually incompatible: values and ethics dictate that some matter more than others for specific classes of problem, and when you relax the criteria, impossibility disappears. It speaks to a general problem in policymaking actually: we rarely properly specify what exactly we want to achieve when we start designing policy. We try to optimise on vague intentions and sometimes that’s helpful; but often it means we work at cross purposes.  
4. “So if we really want to continue with global inequality reduction, leaving Covid aside for the moment, we need to count on India growing fast and Africa growing very fast. When you translate that into growth rates that are needed for Africa to achieve this, these per capita growth rates are 4 or 5 per cent, which means 6 to 7 per cent overall for the GDP, or even 8 per cent. These are not growth rates that African countries have historically been able to sustain over a ten-year period, much less over a 20-year period. So I became relatively pessimistic about the ability to maintain the trend of declining global inequality.” All of Branko Milanovic’s excellent interview with Martin Sandbu in the FT is worth reading—do click through.
5. When David Roodman checks your working, a shiver should run down your spine, even if it is all for the greater good. Here he looks in great detail at a paper I like very much, Esther Duflo’s AER paper on the effects of school expansion in Indonesia, casting some doubt on the results she found (that expansion had substantial positive effects on wages). It’s excellent, well-written and thoughtfully researched, and you will learn a great deal about doing applied economic analysis by reading it.
6. Diane Coyle on a new book that suggests that, contrary to popular opinion, economists are rather less influential in public policy than we tend to imagine. I’ve argued this for a while. If politicians listened to economists and prioritised GDP over everything, two common complaints by non-economists, how do you explain UK politics since 2008? Maybe for 2010-15 you can make a case that it was a genuinely contested landscape and one side won; but since 2016 the vast majority of economists are united in considering UK policy to be idiotic, actively destructive of productivity, economic potential and welfare.
7. Speaking of the destruction of productivity and welfare, the World Cup is on, and my colleagues at CGD have reconstructed Dean Karlan’s ‘Utilitarian fandex’, which helps you choose who you should cheer for if you were a utilitarian who wanted to maximise global happiness (or minimize unhappiness). I fear that this exercise doesn’t work on me: my own satisfaction is maximised by the rending of garments and gnashing of teeth when big teams get thumped by minnows, a view that did not endear me to my Argentine wife this week. So with apologies to the Argentines and Brazilians…

Have a great weekend, everyone!

R