The Unassuming Economist

Source: Ideas for India

In a recent column for the Ideas for India blog, development economist Jean Dreze writes about the perils of experimental policymaking. While data-based policy design is quite the rage now with randomized control trials (RCTs) being used to gather evidence on “what works” and then scaling up whatever does, Dreze writes how a more comprehensive approach to policymaking would be one where insights from data are interspersed with a sound mix of understanding the issues, value judgments, and deliberation on inclusivity.

He makes a case for this argument by discussing an experiment conducted in the Indian state of Bihar during 2012-13 to study a new financial management system in the Mahatma Gandhi National Rural Employment Guarantee Act (Banerjee, Duflo, Imbert, Mathew, and Pande (2020). From delivering counter-productive results in the form of reducing, not enhancing, the baseline expenditure on this scheme to delays in workers’ payments and the lack of significant differences between outputs of the treatment and control groups, this article draws attention to the challenges associated with hasty rollouts of interventions and subsequent conclusions based on them without negating the learnings. It concludes with some best practices for engaging with governments, conducting experiments at scale, and ensuring that the “do no harm” principle of RCTs stays put.

Source: Centre for Global Development

For the many urbanized and rapidly urbanizing countries, the East Asian experience with and response to emerging challenges is a model to look up to. As high-income East Asian economies approach peaking urbanization, they are now plagued with several challenges. From service sector and export-led growth outstripping manufacturing to rising carbon levels in cities, aging populations, and infrastructure that struggles to catch up with advances in technology- the concerns are aplenty.

In this working paper for the think tank, CGDEV, author Shahid Yusuf writes about how EA countries can respond to these challenges with the use of strategic long-range planning, technological advances, broader implementation capacity, and better resource mobilization. With that, he draws larger inferences that can guide policymakers in tackling the challenges of urbanization elsewhere.

Source: Project Syndicate

In a recent column, John H. Cochrane of the Hoover Institution and Jon Hartley of Foundation for Research on Equal Opportunity write about the US’ long-ignored issue of supply-chain bottlenecks contributing to raging inflation today.

“The return of inflation is an economic cold shower”

They write how sclerotic growth in the country is not so much due to the “secular stagnation” of demand-side factors, but more due to clogging of the economy’s productive capacity. “The United States needs infrastructure. The problem is not money. The problem is that building anything in America has become almost impossible, owing to the thicket of regulations and lawsuits that will stop or drive up the costs of any project.” Barriers such as rocketing housing costs, deteriorating quality of public education, restrictive labor laws, trade protectionism, and other things all add to the problem. The authors also discuss some solutions to systematically eliminate such challenges.

One of the most visible stylized facts in contemporary inequality research is the association, across national economies, between measures of cross-section income inequality and intergenerational mobility or persistence. Recent publications of the National Bureau of Economic Research by Cholli and Durlauf (2022) and Durlauf et al (2022) seek to understand the relationship between cross-sectional income inequality and persistence of income across generations (the Great Gatsby Curve, named after Jay Gatsby, protagonist of F. Scott Fitzgerald’s infamous novel who broke through poverty to become a flamboyant millionaire). Five distinct classes of theories, including models on family investments, skills, social influences, political economy, and aspirations are developed, each providing a behavioral mechanism to explain the relationship. Theoretical models imply nonlinear relationships between parent and child status that are often ignored in practice and offer potentially different interpretations of the evidence of heterogeneity in mobility across locations, groups, and time. They conclude with a vision to combine theory with empirics to understand this phenomenon better.

In conversation with Bill Gale, Arjay and Frances Miller Chair in Federal Economic Policy and senior fellow at the Economic Studies Program, Brookings Institution…

In this episode of Econofact’s podcast, Gill discusses the impact of inequitable racial impacts of government policy. Some notable points include the following:

1. Race-blind policies are typically neither race neutral nor race fair because past injustices cast a shadow on current conditions. The absence of racist animus does not mean a policy is not racist.
2. The mortgage interest deduction which favors homeowners who are disproportionately wealthier and white is discussed as a case in point to explain the difference between equity and equality.
3. He discusses the critical race theory (seemingly race-neutral policies lock in the effects of past racism).

Click here to listen to the full podcast.