The tools economists use

25 Apr, 2021 at 09:55 | Posted in Economics | 4 Comments

In their quest for statistical “identification” of a causal effect, economists often have to resort to techniques that answer either a narrower or a somewhat different version of the question that motivated the research.

Results from randomized social experiments carried out in particular regions of, say, India or Kenya may not apply to other regions or countries. A research design exploiting variation across space may not yield the correct answer to a question that is essentially about changes over time …

Economists’ research can rarely substitute for more complete works of synthesis, which consider a multitude of causes, weigh likely effects, and address spatial and temporal variation of causal mechanisms. Work of this kind is more likely to be undertaken by historians and non-quantitatively oriented social scientists …

Economists would not even know where to start without the work of historians, ethnographers, and other social scientists who provide rich narratives of phenomena and hypothesize about possible causes, but do not claim causal certainty.

Economists can be justifiably proud of the power of their statistical and analytical methods. But they need to be more self-conscious about these tools’ limitations. Ultimately, our understanding of the social world is enriched by both styles of research. Economists and other scholars should embrace the diversity of their approaches instead of dismissing or taking umbrage at work done in adjacent disciplines.

Dani Rodrik

As Rodrik notes, ‘ideally controlled experiments’ tell us with certainty what causes what effects — but only given the right ‘closures.’ Making appropriate extrapolations from (ideal, accidental, natural or quasi) experiments to different settings, populations or target systems, is not easy. Causes deduced in an experimental setting still have to show that they come with an export-warrant to their target populations.

The almost religious belief with which its propagators — like 2019’s ‘Nobel prize’ winners Duflo, Banerjee and Kremer — portray it, cannot hide the fact that randomized controlled trials, RCTs, cannot be taken for granted to give generalisable results. That something works somewhere is no warranty for us to believe it to work for us here or even that it works generally.

Believing there is only one really good evidence-based method on the market — and that randomisation is the only way to achieve scientific validity — blinds people to searching for and using other methods that in many contexts are better. Insisting on using only one tool often means using the wrong tool.

‘Randomistas’ like Duflo et consortes think that economics should be based on evidence from randomised experiments and field studies. They want to give up on ‘big ideas’ like political economy and institutional reform and instead go for solving more manageable problems the way plumbers do. But that modern time ‘marginalist’ approach sure can’t be the right way to move economics forward and make it a relevant and realist science. A plumber can fix minor leaks in your system, but if the whole system is rotten, something more than good old fashion plumbing is needed. The big social and economic problems we face today is not going to be solved by plumbers performing RCTs.