Archive for November 4th, 2009

Poverty Action Lab’s seven suggestions to achieve MDGs

November 4, 2009

Millennium Development Goals or MDGs were at one point of time the most talked about thing in economics. It was allover the place. Now we just have no coverage apart from an article or two once in a while in the mainstream media. Nonethless, achieving or nearing the goals is very important.

Esther Dulo of Poverty Action Lab suggests 7 buys for UN that can help reach MDGs:

Governments need rigorous evidence on program effectiveness to make informed choices on where to invest scarce resources in the fight against poverty. Randomized evaluations use straightforward statistical techniques like those used in medicine to measure program effects. By distinguishing programs that work from those that don’t, and sorting highly effective programs from those that work but come with a higher price tag, randomized evaluations help answer tough questions on comparative cost effectiveness and are central to generating rigorous evidence for development effectiveness.

More than ever before, we have the scientific evidence to guide global policy. Practical and rigorously tested interventions exist that can inform policy to reduce poverty and, if massively scaled up, produce tangible and timely progress on the MDGs.

Her 7 buys:

  • deworming of children
  • to provide remedial education to children who lack basic reading skills
  •  Doing away with small user fees on bednets
  •  Quotas for women in politics
  • provide free primary school uniforms to girls
  • Smart subsidies to farmers to push them towards adopting technology
  • Children Immunization to be backed by little incentives

Her presentation to UN is here. In the ppt, she shows how each of these are linked to the MDGs. It is not necessary that one buy helps in one goal. For instance deworeming helps both overall health and children education.

She also points to research studies which show that above 7 buys have been proven. In nut shell it points to 7 most effective strategies J-PAL has found which can help alleviate poverty.

This I found to be quite a useful way to reach out research findings. PAL’s main work is not to just do research and argue whether random experiments work or not. It is also to inform the public policy think-tanks on what seems to be most likely to work in improving well-being and eradicate poverty.

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A profile of John Geanakoplos works’

November 4, 2009

WSJ has a very interesting article profiling the works of John Geanakoplos of Yale University. I had posted about his work sometime ago. The moment I read his work, I was like wow. Drawing insights from Shakespeare’s Merchant of Venice, he shows the importance of collateral in a financial cycle. And he went about explaining the model to people but was ignored. Now, he is getting his share of pie.

The article also reviews the economic modelling history and how it is going to change:

Mr. Geanakoplos has yet to develop his theory into a comprehensive model. “His work assumes that the leverage cycle is bad, but gives little guidance [about] to what extent regulators should control it,” says Markus Brunnermeier, an economist at Princeton who specializes in financial bubbles. (Read a related article.)

The goal for economists now is a model that takes account of what happens in the financial sector, yet is simple enough to apply in policy making. The quest is bringing financial economists — long viewed by some as a curiosity mostly relevant to Wall Street — together with macroeconomists. Some believe a viable solution will emerge within a couple of years; others say it could take decades.

Coming up with the right model could force economists to move away from the ideas of efficient markets and rational expectations on which much of their current work relies. “If that happens, that will be a change of enormous proportions,” says Martin Eichenbaum, a professor of economics at Northwestern.

Mr. Geanakoplos is convinced such a paradigm shift is under way. He hopes it will prove beneficial in protecting people from the excesses of the financial markets. To that end, he believes central bankers should collect and publish data on the amount of leverage in the system, and intervene if it gets out of line.

Right now, that would require the Fed to step in where banks fear to go by lending against risky assets such as mortgage bonds, but it would also mean limiting investors’ ability to use leverage in exuberant times.

“Our policy seems geared largely toward rescuing banks and bankers,” Mr. Geanakoplos says. “If we could manage these cycles better, I think we’d all be better off.”

Toqrads the end, there is brief profiles of important works of economists that help us understand the current crisis:

In the wake of the worst financial crisis since the Great Depression, economists are racing to provide policy makers with the tools they need to avert a repeat — a process that some believe could require a revolution in economic thought. In doing so, they are building on the work of colleagues who saw early on the dangers presented by an unstable financial sector. Here are some of the people who did the early work, and who are now using it to build new models of the economy.

  • Bernanke and Mark Gertler
  • Nobuhiro Kiyotaki and John Moore
  • John Geanakoplos
  • Hyun Shin and Tobias Adrain
  • Markus Brunnermeier, Lasse Pedersen and Yuliy Sannikov

There also links to the key works of these economists as well (most are paid though). Excellent stuff.

 

Why Nobel Economics Laureates chose economics?

November 4, 2009

I came across this interesting paper from William Breit and Barry Hirsch which looks at above question:

This paper uses as source material twenty-three autobiographical essays by Nobel economists presented since 1984 at Trinity University (San Antonio, Texas) and published in Lives of the Laureates (MIT Press). A goal of the lecture series is to enhance understanding of the link between biography and the development of modern economic thought. We explore this link and identify common themes in the essays, relying heavily on the words of the laureates. Common themes include the importance of real-world events coupled with a desire for rigor and relevance, the critical influence of teachers, the necessity of scholarly interaction, and the role of luck or happenstance. Most of the laureates view their research program not as one planned in advance but one that evolved via the marketplace for ideas.

In short it tells you why these winners of Nobel economics prize (Economic Prize in the memory of Alfred Nobel is more politically correct) took up economics, what drove them, the key inquiries of economic thought they were looking for etc etc. And all this is basically analysing their autobiographical essays.

Here are a few points:

  • Few wanted to become an economist to begin with- James Tobin, Vernon Smith, William Sharpe, James Heckman
  • Some took up economics as alternative plans were closed or not worth it – Arthur Lewis, John Harsanyi
  • Some dont like calling themselves an economist – Clive Granger, (even Coase says so in his nobel lecture)
  • Role of Great Depression in taking up economics- James Tobin, Paul Samuelson, Robert Solow)
  • Some looked for current issues – Gary Becker, Edmund Phelps
  •  Role of Mentors/Teachers (Mentors mentioned in brackets; most cite Milton Friedman as well) -Myron Scholes (Prof McIver), James Buchanan (Frank Knight), Ed Prescott (Robrt Lucas),
  • Some got learning mostly from outside classrooms- Tobin
  • Importance of Work environment – Stigler, Klein and Sharpe (Klein adds his group was the best ever in economics producing 4 Prize winners) 
  • Role of luck – Friedman, Becker
  • Research evolved in search for ideas – Coase, Buchanan and Samuelson

The authors then point autobios help understand many aspects of these winners which is difficult to understand otherwise. The stories of Heckman, Lucas, Schelling are quite inspiring.

Finally why Milton Friedman took up economics?

Initially, Friedman had planned to choose mathematics because he liked the subject. The Great Depression was under way, though, and Friedman was intrigued by what he called “the paradox of great need on the one hand and unused resources on the other.” Moreover, making the decision process more difficult, he had offers of financial aid from two universities—one for the study of mathematics at Brown, and the other to study economics at Chicago. The final decision came down almost to the toss of a coin. Economics and the puzzle of the Great Depression won out. 

In  his autobiographical lecture he attempts to explain his choice. To do so he quotes Robert Frost’s famous poem “The Road Less Traveled.”

Two roads diverged in a yellow wood,
And sorry I could not travel both
I took the one less traveled by.
And that has made all the difference.

And yet, reference to the Frost poem does not seem appropriate in his case. During the Great Depression, when Friedman entered college, economics was not the road “less traveled by.” To the contrary, it was among the most popular of majors. He said he chose economics because of its relevance to the issues of the day, as with so many others of his generation. But this leaves us with a mystery. What is the relevance of Frost’s poem? Why did he quote it?

Perhaps the choice of the poem reveals something about Friedman that was hidden from him when he quoted its words. Even if entering economics during the Great Depression was not really taking the road less traveled, nevertheless Friedman’s subsequent career persistently took him along untrampled pathways within economics. Was this a conscious decision?

For in his attempt to answer questions posed by the depression, Friedman stood apart and almost alone. He rejected the Keynesian solutions that the overwhelming majority of the profession had come to accept. Friedman lived long enough to see many of his ideas become the consensus view of a younger generation of economists. Because he was different, he attracted attention; his persuasive powers, style, and charisma did the rest. For Friedman, the road less traveled indeed “made all the difference.”

🙂 Only Friedman knows the real answer but all this sounds quite good. This is an interesting Friedman – Frost connection. The impact of Milton Friedman on field of economics and economists was simply amazing.


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