21 June 2009

The Poverty of Growth Policy?

Abhijit Banerjee has written a strangely scathing attack on the study of economic growth. Now I am a fan of applied micro, and also of Duflo and Banerjee's revolution in randomisation, so this is no micro vs macro turf war. But to effectively say "forget about macro because macro research doesn't show anything anyway" is just stupid. Especially from an Indian. Um, when exactly did India's historic and massively poverty-reducing growth spurt start? Anything to do with macro policy reforms just maybe? His final paragraph is stunning.
Perhaps making growth happen is ultimately beyond our control. Maybe all that happens is that something goes right for once (privatized agriculture raises incomes in rural China) and then that sparks growth somewhere else in economy, and so on. Perhaps, we will never learn where it will start or what will make it continue. The best we can do in that world is to hold the fort till that initial spark arrives: make sure that there is not too much human misery, maintain the social equilibrium, try to make sure that there is enough human capital around to take advantage of the spark when it arrives. Social policy may be the best thing that we can do for growth to happen and micro-evidence on how to do it well, may turn out to be the key to growth success.
At least he has enough umms and ahhs in there. But seriously, growth is completely beyond our control until magically from the heavens a Chinese bureaucrat made some sensible economic policy reforms (privatized agriculture) and growth appeared? Because the sensible reform and the growth were completely unrelated? What?!

We know what is needed to get economic growth; basically not fucking up. Avoid a crisis. Avoid stupid dysfunctional macro policies, avoid driving disgruntled groups into rebellion, avoid stirring up ethnic tension. That is basically it. The tricky part is figuring out how to do all of that, which involves lots of difficult political questions. But a lot of hard work has been done by macroeconomists figuring out what those basic macro policies for stability are. There is just more to be done in encouraging politicians to give a damn.

And by all means have a social policy. But don't pretend that there aren't basic growth policies that we know and have been proven to work.

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