Dani Rodrik's weblog

Justin Lin's comments are music

to my ear at least. The World Bank's incoming chief economist speaks to the Wall Street Journal about his take on development policy.  Echoes of this.

Why I became an economist

I've got to kick myself off this autobiographical track, but upon popular demand here is one more (and for the moment, final) installment.

In my senior year at Harvard, I applied to six different graduate programs: a business school (HBS), a program in international relations (Fletcher), a doctoral program in political science (Harvard), a doctoral program in economics (Yale), and two public policy schools (HKS and WWS). In other words, I was as confused about my career goals as you can imagine.  Once again, I was the beneficiary of extraordinarily lenient admission committees who failed to narrow down my choices for me. 

Being forced to make a decision, I decided to go the WWS route for several reasons: (i) they were extraordinarily generous with their financial offer; (ii) they had a nice Turkish student (an occasional commentator on this blog) give me a call to sing me the praises of the program; and (iii) it didn't limit my future career options in any way.  (I might have gone to HKS instead if the nice personal note that the faculty chair of the admission committee sent me had not confused me with someone else...)

I had a great time at WWS, but I had simply put off the decision.  By the second year in the master's program, I knew that I wanted a career in research, but what was it going to be: economics or political science?

I remember well what settled it for me. One day in the library, I picked up copies of the flagship publications of the two disciplines--the American Political Science Review and the American Economic Review--and put them side by side.  One was written in English, the other in Greek. I thought that if I did a PhD in economics, I would be able to read both journals, but that if I did a PhD in political science, it would be goodbye economics.  That was my epiphany. (I should add that many political science programs now provide solid technical training that no longer leaves the AER beyond reach--but that was not true at the time.)   

But my luck with admissions committees now had (almost) run out.  With unjustified cockiness, I applied only to three doctoral programs: Harvard, MIT, and Princeton.  Harvard sent me a nice rejection letter, MIT did not give me money, and Princeton...  Well, I didn't hear from Princeton for the longest time.  I was encouraged to go work for a year, which I did at UNCTAD (quite a story for another time!), and when they eventually admitted me the following year, I imagine it was more out of compassion than conviction...

My early life as a political scientist

When I applied to Harvard College as a high school senior from Turkey, I wrote on my application form that I wanted to major in electrical engineering. Huh?  Wake up Dani, there is no electrical engineering major at Harvard College! Nonetheless, I was admitted, through some quirk of the Harvard admission process which I learned about years later.

It turns out that every member of the admissions committee has the right to admit one person, even if the rest of the committee votes negatively.  In my case, one member somehow saw a flicker of hope in my file, and used his prerogative to admit me, over the strenuous objections of others on the committee. (I know the story because I was told about it--not by my benefactor--when I returned to Harvard as an assistant professor.  The benefactor has remained silent to this day.)          

So within two months of arriving at Harvard, I set my sights on political science, which seemed like a lot more fun. The test was going to be survival in Harvey Mansfield's political philosophy course--required of all concentrators.

At the time, Harvey Mansfield and Michael Walzer alternated as the instructors of this course.  Aside from obvious differences in political orientation, these two also differed greatly in their grading policy.  One of the first things that Mansfield did on the first day of class was to write down on the board the grade averages in the course over the last few years.  The see-saw pattern was obvious: you didn't need to run a regression to know that the Mansfield dummy was negative and statistically significant.  Mansfield looked at the class and smiled. We nervously smiled back. 

In fact, Mansfield was soon to become (or perhaps was already, I do not remember) the Chair of the department.  So he extended his Quixotic fight against grade inflation throughout the Gov department. When graduating students complained that their low grade average--relative to concentrators in other departments--was hurting their graduate school placement, the result was that we all got a letter from Mansfield inserted in our file explaining that the Gov department was different, and that grades really meant something here.

But I persevered as a Gov concentrator. I did take a minor in economics thanks to my father's prodding. (My father still had hopes that I would go to business school and do something useful in life.) I stayed with Gov because the rest of the program was so fantastic and stimulating.  The courses I took with Stanley Hoffman, Joel Migdal, Joe Nye, James Q. Wilson, Sidney Verba were mind expanding. I am, I think, a far better economist for having studied political science early on.

But why did I end up an economist?  That's a story for another time.

Dealing with capital flows

The opinion page of the Financial Times is suddenly making more sense. 

Seriously, one of the benefits of writing a piece like this is that it gets you lots of intelligent responses.  Here is one that appeared in my e-mail box:

Are you a Kennedy Fag?  
re: Int'l capital flows
First: gas tax???    Second: Send the memo to E. Asia ??     WTO ???
Why not just a global currency standard, with some flexible rigidity?

That is meant as a compliment, right?

I better stick to my blog, where comments are always civil and well-informed.

UPDATE:  Martin Wolf has a comment on our oped, which includes a plug for his new book.  He says he is closer to the Rodrik-Subramanian view than he was five years ago ("When the facts change, I change my mind -- what do you do, sir?") and makes three points:

First, this is a matter for individual countries to decide. Capital account liberalisation should neither be forced on countries nor should they be prevented by others. Outside advisers, including official advisers, should analyse the pros and cons against the particular circumstance of the country concerned and offer advice on the feasibility of the set of policies proposed.

Second, capital inflows are not a substitute for an adequate level of domestic savings. Promoting the latter is an important policy priority (though not to the excessive levels now seen in China).

Third, countries should normally discourage domestic borrowing in foreign currency, unless they adopt the foreign currency for domestic monetary use. Otherwise, countries should restrict capital inflow to direct investment, portfolio equity and domestic-currency-denominated lending. The fact that the US borrows in dollars makes the consequences of the crisis smaller and the ease of dealing with it far greater.

I am on board with all three.

Mr Kristol, you get a C in economics!

There! I said it, and I feel better already.  I have waited a really long time to do this, and I am happy that Bill Kristol finally gave me an opportunity with his column in today's New York Times. More on what he wrote below, but first let me explain why I take great pleasure in pointing out his boo-boo.  No, it's not because we probably disagree on everything nowadays.

It's that he was my dreaded instructor long ago in two of the classes that I took as a Harvard undergraduate. He was a doctoral student at the time in the Government Department (no relation to the HKS), and I was a freshman and sophomore in the college.  The first course was Harvey Mansfield's political theory course (for which Kristol served as teaching fellow), and the second was a sophomore tutorial (a required course for government concentrators). 

In each course, we had to write short papers once every couple of weeks. I can say that my performance on these papers, which Kristol graded, was fairly consistent.  The essay on Machiavelli? Here is a C-.  The essay on the Federalist Papers?  Here is a C.  John Stuart Mill?  Well, how about, yes you guessed it, another C.  You can say that Kristol did his best to discourage me from pursuing a career in political science...

I remember well the very first time I saw  him.  It was the first meeting of the discussion session in Mansfield's course, and I had been assigned to Kristol's section.  He walked into the classroom and his first words were: "Hello, my name is Mr. Kristol."  To underscore the point that he was that, and not Bill or any other friendly appellations by which we students may have chosen to address him, he went to the board and wrote "Mr. Kristol." I may have been a poorly adjusted Turk in my first year in the U.S., but this still struck me as odd. He was certainly the only graduate student I met in my four years as an undergraduate who insisted on being called by his last name.  

Well, Mr. Kristol's column today takes aim at Barack (and Michelle) Obama, and does so quite unfairly in my view.  But I will leave a detailed exegesis of his argument to others.  What caught my attention was this passage:

Michelle Obama, in the course of a stump speech, remarked, “For the first time in my adult lifetime, I’m really proud of my country. And not just because Barack has done well, but because I think people are hungry for change.”

Michelle Obama’s adult life goes back to the mid-1980s. Can it really be the case that nothing the U.S. achieved since then has made her proud? Apparently. For, as she said later in the same appearance: “Life for regular folks has gotten worse over the course of my lifetime, through Republican and Democratic administrations. It hasn’t gotten much better.”

Now in almost every empirical respect, American lives have in fact gotten better over the last quarter-century.

Really? Look at the chart below, which comes from Frank Levy, my authority on such matters. It shows the median compensation since 1980 of different groups of prime-aged men, alongside productivity. 

 

People like me with graduate degrees have done great.  But the median compensation (that includes fringe benefits, by the way) of high school graduate men has declined by about 10 percent since 1980!  Mr. Kristol: that means that for a high-school graduate, the odds that his compensation would have fallen by more than 10% is 50-50.  Note that even college graduates have not seen any income gains since around 2000.  The increase in labor productivity has outpaced the earnings of all these groups, including that of workers with graduate degrees.  (The outcomes for women have been much better.)     

What is special about the last quarter century, as Frank Levy makes clear, is that it followed a period when productivity increases were broadly shared by different groups in society. That is no longer the case, and some groups have definitely been left worse off--not just in relative but also in absolute terms.

So statistics aside, who do you think has a better sense of what has happened to "regular folk" since 1980? Michelle Obama or Mr. Kristol?     

Shleifer the (counter-)revolutionary

Whenever I see Andrei Shleifer, he asks me how the revolution is going. He has in mind of course the kind of views I espouse in this blog, which he considers heretical.

But Andrei is promoting his own counter-revolution, one that enshrines the last quarter century as the age of Milton Friedman. In a recent short paper, he attributes the rapid growth of China, India, and a few others to the turn to markets and the victory of Friedmanite views on economic policy.

The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005. Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just as fast. Compared to 1980, many more countries in the world are democratic today.

The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.

Shleifer's article is purported to be a review of two books with different takes on this period, one by Stanley Fischer and collaborators and another one by Joe Stiglitz and collaborators. No prize for guessing which one Andrei likes and which he trashes.

I have always found this view--attributing the successes of the last quarter century simply to market-oriented policies--as more obfuscating than clarifying. For one thing, countries like China and India have so many blemishes on their record that if you treat them as poster children for economic liberalism you run very quickly into trouble.  Had these countries been basket cases instead, the Friedmanite perspective would offer as good an explanation of their failure: look at the corruption, the pervasiveness of state controls, the extent of public ownership!

Secondly, the countries that did a real turn towards markets, chiefly those in Latin America, have been rewarded not by China-like growth, but dismal outcomes. Shleifer recognizes this.  His explanation: overbearing taxation and regulation!  With this kind of parsing of the evidence ex post, there is no way we can ever be wrong...

For a good antidote, turn to Berkeley economist Pranab Bardhan's demolition of China and India myths in the Boston Review.       

OK, now Obama has my vote

No, it wasn't tonight's debate with Hillary. It's this (HT: Andrew Leonard):

In case you are wondering, yes I can and do vote in two countries. Is that unfair?

Soccer and Middle East peace

What better way to foster peace in the Middle East than to stage the 2018 World Cup jointly in Palestine and Israel? Now if this isn't enough incentive for the parties to the conflict to bring peace to the region, I don't know what is.

You'll never guess who the (co-)author of the proposal is...

Is there useful work in economics?

David Leonhardt of the New York Times surveyed economists to find out, and he says the answer is definitely yes:

I received dozens of diverse responses, but there was still a runaway winner. The small group of economists who work at the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee, were mentioned far more often than anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have a simple, if radical, goal. They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics.

“Surely the most important societal question economics can help answer is why so many people are crushingly poor and what can be done about it,” David Romer, a professor at the University of California, Berkeley, said. The macro issues (like how to build a democracy) remain maddeningly complex, Mr. Romer noted. But thanks in part to the poverty lab, we now know much more about how to improve daily life in the world’s poorest countries.

...

Mr. Banerjee and Ms. Duflo may not be a modern-day Keynes or Friedman. But they have still managed to do something rather profound. They have brought together the best of the new economics and the best of the old.

As has been the trend over the last decade, they have plunged into the world around them, refusing to accept the idea that economics is merely an extension of math. Yet no one can accuse them of working on some little problem that doesn’t matter.

It is wonderful to see my colleagues up the river getting the attention that they deserve.  The work that Leonhardt describes (and much other work in the same style) is extremely important, and has infused development economics with fresh air--most importantly in giving it a needed experimental focus.

At the same time, I worry that Esther, Abhijit and others are setting themselves up for the inevitable backlash by appearing to oversell what the randomized field experiments teach us.  I say "appear" because they are sufficiently careful in their writings. But what the outside world sometimes hears is different.

The backlash will have several lines of attack. One is that the experiments in question have little economics in them, and teach us little about economics.  So what if we are saving lives, Esther and Abhijit will rightly respond.  Second, most experiments have unclear external validity, critics will say. In other words, we don't know if we can generalize to other setting, and if so how exactly.  (See the comments thread here for how this has played out in one of my recent posts.)  So, repeat the experiment in other settings, the randomizers will say.

One way to silence the critics is to have the randomizers tell us what are some social policies they have learned are good things that should be emulated in other settings. Or since their approach is broadly within the "many recipes" camp, it would be useful to hear from them what we have learned about context-specific policies--i.e., what kind of policies should be implemented in what kind of settings.  

While on the subject of randomized field experiments, see also the very useful discussion by Chris Blattman, whose blog has turned into the most interesting development blog around.

Customer satisfaction

An MPAID graduate writes me:

I wanted to take this opportunity to thank you for sending my resume to ... 2 years ago....  I love my job mainly because I get to do what I studied at the MPAID and most importantly do these things with the perspective that you've provided me via PED101. It's amazing how many development practitioners have such a siloed view of what they do. I can't explain to you how much your class and the program as a whole has grounded my perspective on development.

I can't tell you how often I've actually used your PED101 presentations for work purposes... [E]specially where you've got transitions from humanitarian aid to development needs, you need a holistic perspective like this and MPAID provides that perspective. In particular, it provides students with the tools they need to (a) question the advice of individuals who try to sell a "one-size fits all" approach to development e.g. structural adjustment loans or anti-corruption fixes and (b) equips students with the training now most needed (and in high demand) by government ministries - ability to provide sound policy advice to developing countries regardless of the most 'sexy' approaches e.g. globalization, trade liberalization, etc. which might not be appropriate in every context.

I wish I could say this is the typical e-mail I get from MPAID graduates (or that every resume I forward results in a job offer). No, the typical message I get is one that asks me for a recommendation letter. But I get this sort of feedback often enough to make me think we are doing something right.