Ross Gittins, me and the future of economics – some stray thoughts

Ross Gittins said some flattering things about me in his column this weekend – which was very nice of him.

One thing the column talked about was the “pressure – particularly from business – for the states to adopt a uniform approach” to various things like “workers compensation, occupational health and safety laws and so forth.” Listing these things and my suggestion that such systems of regulation could do with a national system which firms could ‘opt into’, he threw in national curriculum.  I read this in the morning realising that this was wrong.  I’ve never suggested doing this with curriculum. Still as I mulled over the idea it seemed worth considering.

Ross then emailed me to apologise for getting this wrong whereupon I responded that, though I’d not proposed it, it seemed like a good idea.  But isn’t something like curriculum supposed to be developed by either the State or the Feds? How would having them both do it work? Well, allowing either – as with the other systems – is an interesting way to go. That way, as schools decide which curriculum to go with, we can find out how greatly valued the two approaches are and we would end up with a bit of a ‘standards war’ like sony Betamax v VHS.  Schools might offer to teach the national curriculum with specific regard to the interstate mobility of the families whose kids it teaches. A dominant standard might emerge and if it did, that would provide information about the relative value of autonomy versus national consistency to parents.

And even if a standard emerged and become dominant, there would still be a pathway to challenge it and ‘fork’ the standard if the need arose.

This reminds me that I’ve wanted to post about a post Dani Rodrik put up a good while ago talking about ‘first best’ and ‘second best’ approaches to economics See also this one and the attached article.  Anyway the example of trying to have some regulatory competition by analogy with competition in ‘standards’ brings me back to a great post Rodrik put up the other day where he argues this:

Until very recently, if you spent anytime thinking about development policy, the chances are that you fell into one of three groups.  One group believes the problem with developing countries is lack of resources. So the solution is a vast increase in foreign aid.  A second group believes the real problem if lack of incentives. So the solution is more and better markets. The third group thinks the problem is lousy governments, so the answer lies with improved governance. I leave it to the reader to identify these positions with their most distinguished (or at least most vocal) representatives…

But there is something new afoot. Increasingly, some people are saying the right way to approach development policy is to start with the view that we actually don’t know where the problems lie, to acknowledge that the key problems may differ from setting to setting, and to adopt an explicitly experimental attitude to policy selection and formulation so that you can learn about the environment in which you operate. In this approach, monitoring and evaluation are key, as you want to pull back from mistakes and improve policies over time. Indeed, you build the monitoring into the policy process itself so that learning becomes part and parcel of it–rather than something you leave to your researchers or economists.  This way of thinking about development policy is radically different from the three schools I summarized above, as it admits much greater diversity and heterodoxy. It is humble about the extent of our knowledge but optimistic about our ability to learn.

Our friend Rafe might say (would feel an overwhelming urge to say) that this is Popperian and I guess it is.  Not just piecemeal social and economic engineering, but piecemeal learning to go along with it.  I think what Rodrik puts his finger on for development economics is true much more broadly in economics generally and that if that’s not clear today, it will become progressively more clear as we move from the easy things (like stroke of the pen deregulation and general attempts (more and less successful) to moderate the business cycle with fairly simple expansion and contractions of fiscal and monetary policy) towards the next stage of micro-economic reform in all those areas where ‘stroke of the pen deregulation’ won’t work particularly well even if some deregulation may be a useful part of the solution.  Reform in these areas will not be, should not be, as formulaic as the last stage. If it is it won’t work out well.