28 June 2008

We Need Economic Experimentalism Instead of Experimental Economics

I've just read this column by Harvard economist Dani Rodrik commenting (very favorably, but hardly without reservation) on the recently released report from The Commission on Growth and Development. In his commentary Rodrik distinguishes between the traditional "presumptive" policy stance taken by economists and the "diagnostic"one adopted by the CG&D.
"The traditional policy framework, which the new thinking is gradually replacing, is presumptive rather than diagnostic .

It starts with strong preconceptions about the nature of the problem: too much (or too little) government regulation, too poor governance, too little public spending on health and education, and so on. Moreover, its recommendations take the form of the proverbial “laundry list” of reforms, and emphasize their complementary nature – the imperative to undertake them all simultaneously – rather than their sequencing and prioritization. And it is biased toward universal recipes – “model” institutional arrangements, “best practices,” rules of thumb, and so forth.

By contrast, the new policy mindset starts with relative agnosticism about what works. Its hypothesis is that there is a great deal of “slack” in poor countries, so simple changes can make a big difference. As a result, it is explicitly diagnostic and focuses on the most significant economic bottlenecks and constraints. Rather than comprehensive reform, it emphasizes policy experimentation and relatively narrowly targeted initiatives in order to discover local solutions, and it calls for monitoring and evaluation in order to learn which experiments work.

The new approach is suspicious of universal remedies."
In other words, the new report is advocating a broadly experimentalist stance toward political-economic problems, one that takes advantage of local knowledge and looks to see what remedies might work where instead of peddling off-the-shelf blueprints. Like Rodrik, I think this is a large, positive intellectual step for a field characterized mostly by policy dogmatism in the form of market fundamentalism.

Of course, many of the problems of "economic development" plague broad expanses of both rural and urban areas of the United States. So, one might hope that a new Democratic administration - one committed to "change" -might embrace the intellectual posture that the CG&D has adopted. Instead (and I have posted on this already), Obama seems to be embracing predictable positions in tired debates on the basis of advice from economists who strike a "presumptive" intellectual posture. Since writing that earlier post I stumbled across this essay too in the NYRB suggesting that Obama's approach reflects the influence of experimental economics. Note that this is very different from the sort of economic experimentalism that the CG&D endorses. The folks discussed in the NYRB essay (Dick Thaler and Cass Sunstein, among others) are simply defining a new presumptive stance based on a new and (to my mind) not terribly compelling basis - the lab experiments of which they are enamored.

What we need is a diagnostic approach to our deep and pervasive political-economic problems, an approach that is willing to experiment with new institutional remedies and policy solutions based on the particulars of situations that we might encounter if we entertain a range of possibilities that might work on the ground. What seems to be in store is a re-fashioned presumptive-cum-experiment approach. This is not the place to even attempt an outline of my objections to work in experimental economics. Suffice it to say that, if the human mind is essentially incomplete, the implication is that we rely necessarily on external contrivances in order to think. These are the sorts of 'prosthetic devices' that Wittgenstein, Bruner, & Geertz mention in the cluster of remarks you can find mid-way down my sidebar. (These passages. of course, merely afford initial warrant. For a more systematic warrant see research by, say, Andy Clark, Edwin Hutchins, or Scott Page, among others.) So, if we think with external resources, it is no surprise that, placed in a lab and deprived of just those resources, we regularly screw up. The anomalies the experimental economics crowd "discovers" - and on the basis of which they advance a new "presumptive" basis for policy prescriptions - actually are artifacts of their basic approach. To the extent he is listening to the likes of Sunstein & Thaler then, Obama remains a "presumptive" nominee. He is mistaking the nature of the relationship between experimentalism and economics. The likely consequences are, in my estimation, not auspicious.

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Anonymous Dawei_in_Beijing said...

It sounds like a reasonable enough framework -- provide economic solutions on a case by case basis, with policies that are sensitive to the local reality, culture, and so on. Unfortunately, this cannot work in practice. We live in the age of globalization. The global market, and the sophisticated financial architecture that underpins it, is promoting just the opposite of what the Harvard economist suggests. What we are seeing is the total homogenization of economic practices worldwide. And it is necessary to have a singular, cohesive, and universal, system that allows investors worldwide to participate easily, if we are going to couple our economies. Not everyone plays fair in this global system *ahem, China, ahem* but we're getting there.

28 June, 2008 21:16  
Blogger trane said...

Hi Jim,

Thanks for the info on Rodrik. I realy appreaciated the discussion of his book at Crooked Timber, by the way.

I would be interested in hearing if you have had any reactions from economists on the article by Knight and yourself that you have referred to a couple of times (the Priority of Democracy one). It seems to me to be the most sustained and systematic attack on economists' standard models. Also, it would be interesting to read about the overlaps and differences between your theory and that of Elinor Ostrom. My impression is that as regards displacing broad policy metaphors and blueprint solutions ('Market', 'State') there is a lot in common between you and Knight's view and Ostrom's. But she appears, also in her 2005 book to give more weight to explanations of institutional change that focus on mutual cooperation and learning than to bargaining and conflict.

As regards Rodrik's work, it would also be interesting to hear what he thinks of the socalled Second Generation Fiscal Federalism (Weingast).


19 November, 2009 15:18  

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