Home > Uncategorized > ‘Nobel prize’ winners Duflo and Banerjee do not tackle the real root causes of poverty

‘Nobel prize’ winners Duflo and Banerjee do not tackle the real root causes of poverty

from Lars Syll

banSome go so far as to insist that development interventions should be subjected to the same kind of randomised control trials used in medicine, with “treatment” groups assessed against control groups. Such trials are being rolled out to evaluate the impact of a wide variety of projects – everything from water purification tablets to microcredit schemes, financial literacy classes to teachers’ performance bonuses …

The real problem with the “aid effectiveness” craze is that it narrows our focus down to micro-interventions at a local level that yield results that can be observed in the short term. At first glance this approach might seem reasonable and even beguiling. But it tends to ignore the broader macroeconomic, political and institutional drivers of impoverishment and underdevelopment. Aid projects might yield satisfying micro-results, but they generally do little to change the systems that produce the problems in the first place. What we need instead is to tackle the real root causes of poverty, inequality and climate change …

If we are concerned about effectiveness, then instead of assessing the short-term impacts of micro-projects, we should evaluate whole public policies … In the face of the sheer scale of the overlapping crises we face, we need systems-level thinking …

Fighting against poverty, inequality, biodiversity loss and climate change requires changing the rules of the international economic system to make it more ecological and fairer for the world’s majority. It’s time that we devise interventions – and accountability tools – appropriate to this new frontier.

Angus Deaton James Heckman Judea Pearl Joseph Stiglitz et al.

Most ‘randomistas’ — not only Duflo and Banerjee — underestimate the heterogeneity problem. It does not just turn up as an external validity problem when trying to ‘export’ regression results to different times or different target populations. It is also often an internal problem to the millions of regression estimates that are produced every year.

Just as econometrics, randomization promises more than it can deliver, basically because it requires assumptions that in practice are not possible to maintain. And just like econometrics, randomization is basically a deductive method. Given the assumptions, these methods deliver deductive inferences. The problem, of course, is that we will never completely know when the assumptions are right. And although randomization may contribute to controlling for confounding, it does not guarantee it, since genuine randomness presupposes infinite experimentation and we know all real experimentation is finite. And even if randomization may help to establish average causal effects, it says nothing of individual effects unless homogeneity is added to the list of assumptions. Causal evidence generated by randomization procedures may be valid in ‘closed’ models, but what we usually are interested in, is causal evidence in the real-world target system we happen to live in.

‘Ideally controlled experiments’ tell us with certainty what causes what effects — but only given the right ‘closures.’ Making appropriate extrapolations from (ideal, accidental, natural or quasi) experiments to different settings, populations or target systems, is not easy. “It works there” is no evidence for “it will work here”. Causes deduced in an experimental setting still have to show that they come with an export-warrant to the target population/system. The causal background assumptions made have to be justified, and without licenses to export, the value of ‘rigorous’ and ‘precise’ methods — and ‘on-average-knowledge’ — is despairingly small.

Apart from these methodological problems, I do think there is also a rather disturbing kind of scientific naïveté in the Duflo-Banerjee approach to combatting poverty. The way they present their whole endeavour smacks of not so little ‘scientism’ where fighting poverty becomes a question of applying ‘objective’ quantitative ‘techniques.’ But that can’t be the right way to fight poverty! Fighting poverty and inequality is basically a question of changing the structure and institutions of our economies and societies.

  1. lobdillj
    October 22, 2019 at 1:38 pm

    Amen! When will mainstream economists get real?

  2. ghholtham
    October 22, 2019 at 2:09 pm

    “Just as econometrics, randomization promises more than it can deliver,”. It depends what you think it is promising. Lars Sylls has excessive expectations and then blames two very different approaches for not fulfilling them. Of course experimentalists understand that the controls they apply are not comprehensive and in a different situation results should be re-tested if possible. They don’t think they are producing general theories merely guides to policy in particular situations.

    Lars Sylls accuses the experimentalists of naivete but that is projection: the pot calling the kettle black. Consider his statement :”Fighting poverty and inequality is basically a question of changing the structure and institutions of our economies and societies.” You don’t say. And where is the blueprint for doing that?

    It is not ignoble or naïve to understand when political systems are entrenched and to look for ways to improve the situation within the political constraints. That is not inconsistent with supporting efforts at broader reform. The poor are not helped if feasible modest improvements are spurned while we pontificate about “the system”.

  3. October 22, 2019 at 2:58 pm

    It is amusing to read Gerry Holtham’s comments here. Although he seems to be agitated and upset by the critique yours truly launch against econometrics, he — like all other defenders of received theory — always more or less says that yours truly never come up with anything ‘new’, hasn’t really understood anything, and that Gerry and all other econometricians have always been ‘well aware’ of the problems, and so on, and so on.

    To me it seems as though Gerry is doing nothing but quoting from David Freedman’s list of vacuous responses to criticism of statistics and econometrics:
    “We know all that. Nothing is perfect … The assumptions are reasonable. The assumptions don’t matter. The assumptions are conservative. You can’t prove the assumptions are wrong. The biases will cancel. We can model the biases. We’re only doing what everybody else does. Now we use more sophisticated techniques. If we don’t do it, someone else will. What would you do? The decision-maker has to be better off with us than without us … The models aren’t totally useless. You have to do the best you can with the data. You have to make assumptions in order to make progress. You have to give the models the benefit of the doubt. Where’s the harm?”

    • October 22, 2019 at 5:26 pm

      Lars, point taken, but you are evading Gerry’s legitimate question, Where is your blueprint? Where, even, is your support for people who are attempting to find the different basis of understanding necessary if a new blueprint is not to be simply a rehashing of the old one?

    • Robert Locke
      October 23, 2019 at 10:00 am

      Lars, you, as a Swede must know that a considerable discussion of economics has taken place outside anglo-saxonian not only in the world but on the European continent. Take the idea of the firm for example; the American proprietary view of the firm and its governance was extensively discussed after WWI, i read about this discussion in Sonke Hundt’s Zur Theoriegeschichte der Betriebswirtschaftslehre (1977), Henrich Nichlisch, “Betriebwwirschaftslehre, was ist bei ihrem Studiium vor allem anderen zu beachte, (1921), and I described the discussion in The End of the Practical Man, 1984, pp.158-60), where I stress the issue as one of a proprietary vs an organic view of the firm, and a proprietary vs a co-determination view of firm governance.

      The Americans have pretty well establish their views in anglo-saxonia after WWII, but you do a disservice to the intellectual history of firm governance by not discussing the history of an organic view. E. Warren advocates placing workers representatives on the boards of corporations. If you don’t discuss how this idea has a long and successful history, then you let people believe that the US proprietary view is the norm and warren’s views are intellectually radical, which it is not your mission to do, if you know your subject.

  4. ghholtham
    October 23, 2019 at 10:01 am

    Well, I have never been called a defender of received theory before. I have been a steady critic of neo-classical theorising and the ultra-rationalist approach, not to mention spurious aggregation for years. Lars seems so keen to damn everything that goes under the name of economics that he does not recognise frank friends when he sees them. He is perilously close to methodological nihilism. He doesn’t like theory built on arbitrary axioms, he doesn’t like quantification, he doesn’t like statistical testing, he doesn’t like experimental trials. Like the preacher in Ecclesiastes he keeps repeating “vanity of vanities, all is vanity”.

    Where can we go from there?

  5. ghholtham
    October 23, 2019 at 10:08 am

    PS economics needs major surgery. We all agree about that. But surgery requires a scalpel, not a blunderbuss. Put down the blunderbuss Lars and let’s get more forensic.

  6. lobdillj
    October 23, 2019 at 1:52 pm

    How do you use a scalpel to excise the fraud that is built into the US system?

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