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April 2011 posts

William Easterly on two new books about global poverty and aid

Mark D. White

In today's The Wall Street Journal, William Easterly, author of The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good and a tireless critic of traditional apporaches to global aid (see his Aid Watch blog), has a review of two recent books in the area: Dean Karlan and Jacob Appel's More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty and Abhijit V. Banerjee and Esther Duffo's Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.

He praises both books for their "on their ground" mentality:

More Than Good Intentions and Poor Economics are marked by their deep appreciation of the precariousness that colors the lives of poor people as they tiptoe along the margin of survival. But I would give an edge to Mr. Banerjee and Ms. Duflo in this area—the sheer detail and warm sympathy on display reflects a true appreciation of the challenges their subjects face. Messrs. Karlan and Appel are at their best in addressing the subtleties of behavior and testing them in the psychology laboratory and in the field. They have produced a remarkably readable and credible analysis of the intertwining of irrationality and poverty.

This echoes Jonathan's work with his co-authors in Accepting the Invisible Hand, in which they discuss the need for context- and culture-specific considerations when designing aid programs. Easterly continues in this same spirit:

Unfortunately, the books also indulge another sort of irrationality: the demand for big, general statements even if you're discussing limited, context-specific matters. The authors criticize over-promising and generalizing in the aid business, but they too often do their own exaggerating when it comes to what their methods can deliver. Both books end with overselling, "five key lessons" (Banerjee and Duflo) or "seven ideas that work" (Karlan and Appel), ignoring their own previous cautions about sensitivity to context and the limits to each intervention. Other economists criticize overselling as a common fault of those who do these small experiments.

Along the way, Easterly also makes a similar point to one I often make regarding libertarian paternalism and "nudges": behavior judged irrational by an outside observer may well have completely reasonable explanations for the decision-maker himself or herself. He provides this example from one of the books:

In More Than Good Intentions, for instance, we meet Vijaya, a flower seller in Chennai, India, who makes daily payments on multiple loans she has taken out to pay for rent, school fees, flowers from wholesalers and other expenses. She pays several points in daily interest, and she has almost nothing left at the end of every day after making her loan payments. But in an interview she just indifferently says her money is in "rotation"—and makes no effort to save, even in tiny increments, so that she might pay off her debts and keep some of her profits.

However, from later in the review, Easterly commends the authors for investigating this further:

In addition to testing out ideas, such field work also has the benefit of letting researchers chat informally with poor people—conversation that can be thoroughly illuminating. What looks like irrationality may just be the failure of outsiders to fully appreciate the problem. The flower seller Vijaya reveals that she doesn't want to take money home: "Whatever I bring home, my husband drinks it up." Paying the moneylender (or maybe accepting microcredit!) is preferable to helping a spouse stay soused.

A tragic situation, to be sure, but not one that implies irrationality on Vijaya's part. Would that behavioral economists and libertarian paternalists might take the same time to consider the multifaceted and complex motivations and interests of people whom they would happily nudge in whatever directions they judge as rational.

Boettke's Career Advice

Jonathan B. Wight

Peter Boettke offers sage “Advice to Undergraduates”  who are thinking of graduate school.  

To succeed in economics, Peter says to follow four rules:

1.      Learn how to say, “I do not know.”

2.      Follow your comparative advantage.

3.      Embrace Mises [okay, if you’re not Austrian you can substitute read Mises].

4.      Continuously fall in love with the discipline of economics.

People get into trouble trying to be who they’re not, by gravitating toward what one thinks others want to hear.  Peter notes that, “the stealth strategy talk is the most destructive idea I have seen for promising academic careers in my 25 years of teaching.” 

A key point in this essay is to be honest with yourself and others: in other words, strive to know yourself and be true to yourself – not a bad way to close any virtue ethics blog. 

The Royal Wedding and the Nobility of Commerce

Mark D. White

There's a very interesting article in today's Wall Street Journal about the commcerical background of the Middleton family, and how the impending royal nuptials can be seen as belated recognition of the worth of commerce and entrepreneurship:

Much has been made of the fact that Kate Middleton, Prince William's bride-to-be, is a "commoner." Her mother and father began their careers working as a flight attendant and flight dispatcher for British Airways, respectively. Yet she has known many of the privileges of aristocracy because her parents built a multimillion-dollar business that supported elite educations for her and her siblings.

Some have wondered if Kate will be a "people's princess," in the mold of Prince William's late mother, Diana. But Kate and her family actually embody a noble, if relatively modern, tradition of their own: a tradition of bettering oneself and one's family, while improving the lot of society. In other words, entrepreneurship.

For centuries in Britain, commercial activities were looked down upon by many in the aristocracy, whose wealth lay in landownership and who would not deign to dabble in trade. This week's wedding can be seen as the culmination of a long process of elevating the social status of entrepreneurship itself.

It's curious that Deirdre McCloskey's name didn't show up anywhere in this article, which is an straightforward application of her work defending the honor of commerce and tracing its historical development and importance.

Amartya Sen on India and China (in New York Review of Books)

Mark D. White

In the new issue of The New York Review of Books (May 12, 2011), Amartya Sen has an article titled "Quality of Life: India vs. China" about the meaning (or lack thereof) of the comparison between GDP growth rates in India and China:

The steadily rising rate of economic growth in India has recently been around 8 percent per year (it is expected to be 9 percent this year), and there is much speculation about whether and when India may catch up with and surpass China’s over 10 percent growth rate. Despite the evident excitement that this subject seems to cause in India and abroad, it is surely rather silly to be obsessed about India’s overtaking China in the rate of growth of GNP, while not comparing India with China in other respects, like education, basic health, or life expectancy. Economic growth can, of course, be enormously helpful in advancing living standards and in battling poverty. But there is little cause for taking the growth of GNP to be an end in itself, rather than seeing it as an important means for achieving things we value.

It could, however, be asked why this distinction should make much difference, since economic growth does enhance our ability to improve living standards. The central point to appreciate here is that while economic growth is important for enhancing living conditions, its reach and impact depend greatly on what we do with the increased income. The relation between economic growth and the advancement of living standards depends on many factors, including economic and social inequality and, no less importantly, on what the government does with the public revenue that is generated by economic growth.

Unfortunately, the article is not free online (though the $6.00 charge does not seem unreasonable).

Is Studying Abroad Morally Corrupting?

Jonathan B. Wight

Colleges have been pushing students to study abroad as a way to broaden their parochial horizons.  While there is an academic purpose (to understand the world) there is also a heavy dose of moral idealism lurking in the background.  Someone who has traveled the world is less likely to be morally absolute, more likely to take the view “When in Rome, do as the Romans…."

Thanks to Brent Butgereit, a student attending a recent APEE conference, I received this lovely quote from The Wealth of Nations (V.1.164).  Smith takes the view that sending young people off – unsupervised – during highly formative years will generally result in disaster:

In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school, and without sending them to any university. Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years. In the course of his travels he generally acquires some knowledge of one or two foreign languages; a knowledge, however, which is seldom sufficient to enable him either to speak or write them with propriety. In other respects he commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business than he could well have become in so short a time had he lived at home. By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and control of his parents and relations, every useful habit which the earlier parts of his education might have had some tendency to form in him, instead of being riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but the discredit into which the universities are allowing themselves to fall could ever have brought into repute so very absurd a practice as that of travelling at this early period of life. By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes.  (Wealth of Nations V.1.164)

My experience is that many students who study abroad do come back with positive life-changing experiences; study abroad achieves its objectives on many levels.  Of course, there are exceptions.  But for those exceptions – students seeking unsupervised mayhem overseas – wouldn’t the outcome be the same if they had stayed behind?  Students are also largely unsupervised these days when they stay at the home university, so Smith would likely be equally critical of that.

Any thoughts?

Consequences of Economic Downturn -- Part IV: Borrowing & personal responsibility

Martha A. Starr

Conseq Today’s topic is one on which Mark has much to say: personal responsibility. Looking back at the years before the financial crisis, a big question is why households were increasingly borrowing via ‘exotic’ mortgages and other high-cost methods, even though such borrowing was pushing their debt burdens towards all-time highs. Accumulating evidence from behavioral economics suggests they may not have understood what they were doing: because people’s financial choices seem to be very sensitive to how options are presented, perhaps lenders were tilting them into products that maximized their profits, but saddled consumers with exorbitant debt costs.

Homer Enter U. Chicago scholars Cass Sunstein and Richard Thaler, who argue that a good way around this problem is to “nudge” consumers towards good decisions -- by making “good” choices the default option and “bad” choices available by special order only. Some view this idea as nicely balancing consumer protection and personal freedom. But if this idea of “libertarian paternalism” rubs you the wrong way, you’ll love Mark’s chapter in Consequences of Economic Downturn, which eloquently slams it on several accounts. For one, “nudging” assumes the government can effectively identify what’s best for consumers, despite  great variations in their circumstances and the fact that government’s expectations for the future have no special claim to accuracy over those of consumers. For another, it ignores realities of government policy-making, whereby powerful institutions lobby Congress in favor of rules and regulations that best protect their interests. Finally, by taking responsibility for decision-making away from people, nudging actually cements any tendencies towards “cognitive flaws” they may have, and disregards fundamental concerns about building social environments that promote people’s agency, dignity and autonomy. {What do you say, Mark: Should Mr. Burns take the donuts out of the break room at the nuclear power plant?}

Deb Figart’s chapter takes a swing at a different proposed solution for curbing ‘imprudent’ borrowing: “financial literacy” programs, which have been rolled out by all sorts of government agencies, financial institutions, and nonprofits since the crisis. Most claim to aim to help consumers understand how to scrutinize financial products, identify those with low costs and risks that best meet their needs, and structure their spending, saving and borrowing patterns to minimize chances of financial distress. Yet as Deb points out, many do not actually focus on helping people become fully participating agents in control of their own economic and financial lives. Rather many aim to make them into orderly consumers, still taking for granted that the dominant work-and-spend lifestyle is the proper one and that ‘responsible’ use of borrowing products is fine. As with Mark’s view of ‘nudging’, Deb is skeptical as to whether these kinds of financial literacy programs actually respect people’s agency and enhance their capabilities. But whereas Mark thinks more can and should be expected of the individual, Deb objects to the assumption behind financial literacy programs that it’s up to the individual to make good financial decisions, avoid unscrupulous actors, attain financial security, etc., assuming that government and financial institutions do not also share responsibility for maintaining an orderly financial system that enables people to conduct their financial affairs without needing to constantly be on guard against risks of financial ruin. Thoughts, Mark?

Introduction to Kantian Ethics and Economics now available online

KEE Mark D. White

The full introduction to my forthcoming book, Kantian Ethics and Economics: Autonomy, Dignity, and Character, is now available to read at the Stanford University Press website. To whet your appetite, here's the first paragraph:

I love economics, I really do. And I always have, ever since my sixth-grade teacher Mr. Dalton drew a supply-and-demand diagram on the chalkboard. After he explained how it works, I thought he had revealed to me The Answer to Everything. But while I love economics, we definitely have a love/hate relationship. One way in which this book can be seen is as an exploration of that relationship, mediated ultimately by philosophy (and an unlikely choice for a marriage counselor).

Consequences of Economic Downturn -- Part III: More of the rich getting richer?

Martha A. Starr

Since the early days of the financial crisis, claims have been made that it was somehow caused by rising inequality. A big dose of suggestive evidence comes from statistics on income inequality: as the chart shows, on the eve of the 2008 crisis, inequality had risen to levels not seen since 1929.

Data for the U.S. from the Top Incomes database (accessed 4/12/2011)

Conseq But how exactly are inequality and financial crisis related? The chapter in Consequences of Economic Downturn by Jon Wisman and Bart Baker of American University takes on this question, identifying three dynamics implicated in both the 1929 stock market crash and the 2008 financial crisis. First, both crises came after years when real incomes rose for households at the high end of the income distribution, but stayed flat or slipped for others. Drawing on Veblen’s ideas about conspicuous consumption, they argue that this led average people to rely increasingly on borrowing to “keep up with the Joneses”, building ever more risk into the financial system. Second, with the consumption of the rich already very high (how many Audis, ski vacations, homes in the Hamptons, etc., does one actually need?), they tended to channel their rising incomes and wealth into financial investments, which kept interest rates low and encouraged the creation of new credit instruments with poorly-understood risk properties. Third, with rising economic clout, the rich gained increasing control over politics and ideology, shifting the government and public into a mentality of laissez les bons temps rouler. They conclude that, because these dynamics reflect structural economic problems –- spending levels above purchasing power, loanable funds above productive investment opportunities – we can’t expect measures to repair flaws in the financial system alone to put the economy back on secure footing.

While there is much to be said for this argument, I have small nagging doubts about it. For one, as popular as the “keeping up with the Joneses” story is, careful empirical research shows that people tend to emulate relatively successful people in their own social segments, not so much the rich. Sure, one can argue that pervasive media influence has widened our perceived social circles, so that we increasingly understand ourselves as peers of Donald Trump. But most people's spending is concentrated in everyday things like the rent or mortgage, food, utilities, transportation, health insurance, etc., not silk ties and mobile champagne coolers. For another, data on household finances show that, in the years before the crisis, high-income households were accumulating non-financial assets (residential properties, business interests), not increasingly risky financial assets; rather, it was financial institutions that were gobbling up the MBSs, CDOs, etc. So as much as interested readers will find this paper rich and nuanced in its historical arguments, I’m not sure we’ve yet got the story fully nailed down.

The changing purpose of faculty sabbaticals [UPDATED]

Mark D. White

Over at Prawfsblawg, Elizabeth Dale, who teaches history and law at the University of Florida, has an extremely thought-provoking post about sabbaticals for full-time professors, wondering if the original purpose--scholarly rejuvenation and renewal--has been replaced by "catching up" with work one wasn't able to complete during the normal academic terms and breaks.

From the end of her post (after she compares her sabbatical time with her normal working experience):

If sabbaticals supposed to be a time of rest and rejuvination, I blew this one.  I joke (much to the annoyance of my colleagues who are not on leave) that I am going to need a sabbatical to recover from my sabbatical. But truth be told, apart from reading a lot of mysteries (which I would probably have done if I was working normally) and occasonally meeting people for lunch, I have not exactly been frivoling away my time. Partly that's because you can't exactly afford to frivol when you are on half pay, but partly its because I've been so busy working to catch up I haven't had the time or energy to take a month off to see the sights or smell the daisies. That having been said, I don't want to complain too much--I'm working 7-8 hour days, not 10-12 hour days. That is a break, even if it's hardly time lazing in the sun.

But that suggests the other side of the problem. If I'm  working that much, and falling behind, during a normal year, then there's either something wrong with me, or something wrong with a normal year.

I'm inclined to think that there are problems with what are seen as normal academic expectations. We'll need to return to that in a future post (this one is too long as it is).  But my take away for today is that my sense is that even for tenured faculty, the demands of the rest of the time are such that sabbaticals are a time of trying to stay on track or play catch up, rather than a time of R&R, academic renewal and intellectual growth.  Or, to put it another way, distortions in ournormal working conditions are, to significant extent, undermining the original purpose of the sabbatical.

There is also some interesting discussion brewing in the comments section regarding sabbatical procedures over time and across different universities--well worth a look.

UPDATE: Professor Dale has a follow-up post here, with additional valuable insights.

The Virtue Ethics Approach to Bioethics

Mark D. White

The new issue of Bioethics (25/4, May 2011) is out, and among several articles is one that stands out for obvious reasons: "The Virtue Ethics Approach to Bioethics" by Stephen Holland.

This paper discusses the viability of a virtue-based approach to bioethics. Virtue ethics is clearly appropriate to addressing issues of professional character and conduct. But another major remit of bioethics is to evaluate the ethics of biomedical procedures in order to recommend regulatory policy. How appropriate is the virtue ethics approach to fulfilling this remit? The first part of this paper characterizes the methodology problem in bioethics in terms of diversity, and shows that virtue ethics does not simply restate this problem in its own terms. However, fatal objections to the way the virtue ethics approach is typically taken in bioethics literature are presented in the second section of the paper. In the third part, a virtue-based approach to bioethics that avoids the shortcomings of the typical one is introduced and shown to be prima facie plausible. The upshot is an inviting new direction for research into bioethics' methodology.