Common mistakes made by economists (and donors)

Don't worry, we expect everyone to be completely rational. This game theory model tells me everything will be all right.

Ezra Klein lays out common mistakes made by economists (when prescribing policy). Except, occasionally, for for number five, I think this applies directly to development policy (just replace the word Washington with `recipient governments’).

So here’s a list of mistakes that I think economists and people who are heavily influenced by economists tend to make when they look at politics. I should preface this by saying I have, at one point or another, been guilty of literally everything on this list:

1. Political power matters. There are many outcomes that are economically efficient in the short term but lead to a dangerous imbalance of political power in the long term — which is, incidentally, not economically efficient at all. This has particular implications for how a lot of economists view unions.

2. Culture matters, as do the real ways that human beings behave. There are policies that fit with theory and evidence but not with communities and people. David Brooks is right about this.

3. If a policy makes sense only in the presence of a secondary compensatory policy — say, a regressive tax where low-income folks get some sort of refund — then you have to ask yourself whether the compensatory policy will pass. If the answer is no, then you need to come up with something that can pass or rethink your support for the policy. The fact that the losers of trade can theoretically be made whole doesn’t allow you to just assume they will be made whole.

4. Lots of policy problems can be solved with clever policy solutions. But Washington isn’t very good at passing or implementing clever. Simple programs and rules are often better in practice, even if they’re worse in theory.

5. Nationalism is a really, really, really powerful force, and you can’t make it go away by condescending to it.

6. “Theory implies” does not end arguments. Moreover, economic evidence should be treated with more humility. It’s often overturned later, or wrongly understood now. And a lot of the stuff you’ve told us in the past — particularly the recent past — didn’t turn out that well.

7. Listen to political scientists, sociologists, etc. They have perspectives, evidence and training worthy of consideration.

8. Policy arguments are often conscripted for political purposes. You may like Singapore’s health-care system, and a politician might find Singapore’s health-care system useful to invoke — usually incorrectly — in a speech against the Affordable Care Act, but before assuming the two of you are on the same side, try to figure out whether the congressman has introduced or co-sponsored legislation on this topic that you consider constructive. Nothing sadder than a policy expert who doesn’t realize he’s being played.

9. No one knows what the word “stochastic” means.

10. Odds are good that you primarily know one sort of person: highly educated, high-achieving, extremely cerebral, etc. Odds are also good that you give too much weight to feedback and ideas from this sort of person, while discounting arguments and complaints from people who don’t know the right way to persuade you. Try to keep that in mind.

Hat tip to Tyler Cowen.

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