Noble goals

Talking about growth and development yesterday made me think of the twin institutions that bear the brunt of a decent portion of the anti-growth, anti-capitalist, anti-America, anti-"economics" anger in the world. Those would be the World Bank and the International Monetary Fund (perhaps we could throw the World Trade Organization in too). Remember the Seattle riots around the WTO meeting in 1999? How I sympathize with those who would criticize these institutions, who would debate their goals and their practices. Yet here I go, so help me, to try to raise the defense.

Forget for a moment, if possible, any prejudice for or against these institutions. These were not organizations born of evil purpose. Let's read along with the part of the Bretton Woods agreement that set up what is commonly known as the World Bank:

"The purposes of the Bank are:

(i) To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs and the encouragement of the development of productive facilities and resources in less developed countries.

(ii) To promote private foreign investment by means of guarantees or participations in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital, funds raised by it and its other resources.

(iii) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories.

(iv) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first.

(v) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate post-war years, to assist in bringing about a smooth transition from a wartime to a peacetime economy."

This reflects both the origins of the Bank as an institution of post-war reconstruction. The World Bank was set up to help nations and people who were in need. Don't these goals seem kind of noble, or important?

The IMF equivalent:

"The purposes of the International Monetary Fund are:

(i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

(iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

(v) To give confidence to members by making the Fund's resources available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium. in the international balances of payments of members."

It's a triumph of global cooperation that institutions like these exist, with the aims - broadly expressed - of achieving stability, development and prosperity. It's amazing. Like I said, part of me hates playing devil's advocate for institutions that are routinely characterized as evil tools of evil people in evil countries, but, if you don't like these institutions, at least tell me you don't reject the idea of these institutions.

Yes, we know that these institutions have dropped the ball - to put it mildly - in the past, and that is not an economists versus the world thing, it's just a fact. Yes, it's incredibly, astonishingly misguided to put headquarters of these institutions in the capital of America, and all the more unfortunate given the strong feelings that alone arouses. Yes, the balance of power in the World Bank, the IMF, the WTO, hell, the UN too, is probably a mess.

But here's the rub: I want international cooperation that tries to tame the beast of the global economy, of the complex and difficult problems that arise when everyone in the world interacts while trying to make the best out of what they have. I want to worry about figuring out how to help countries and people who want help, and then giving it. I want to acknowledge that we're all in this together and that our decisions matter for each other.

We - everyone - are the people who can embrace the ideals that gave us unprecedented international cooperation in the aftermath of a bloody and destructive war, and develop those noble ideals into institutions that work, practically, for everyone. I can only quote the first principle of the World Trade Organization: "The first step is to talk". If you believe the institutions are sick, let's cure them rather than let them die.

The Making of an Economist, Redux

Last summer I read "The Making of an Economist, Redux" by David Colander, a 2000s do-over of a 1980s survey of whats going on in the wee brains of economics grad students. A little bit of introspection goes a long way, but not much of what's going on in the book really seems like me or economics grad students I know.

Right up front we get a peach of a definition:

"For example, were an undergraduate student to ask an economist how to become an economist.... he would most likely tell her, 'To become an economist who is considered an economist by other economists, you have to go to graduate school in economics.'"

And we thought defining "economics" was hard! Indirectly, this really tells you as much as the book itself about what economists are up to - that is, forming a closed shop where only PhDs may enter. That would be less worrisome if we weren't beating diversity out of PhDs almost as aggressively as we beat it out of "Principles of Economics" students...

Anyway, the book surveys economics graduate students. Well, economics graduate students at one of the "elite" (book's word) schools (Harvard, Yale, Stanford, Chicago, Columbia, MIT, Princeton, Yale). Colander defends this choice by pointing out - correctly - the disproportionate influence of economists stationed at those schools, which hire new faculty predominantly from one of the others' PhD pools. Perhaps limitations in the research budget are to blame, but it would be very interesting to see what was going on at other institutions as well. Non-US universities, smaller schools...

It might change a few of the most surprising results of the surveys. On the issue closest to my heart, 40% of the grad students surveyed disagree that "we can draw a sharp line between positive and normative economics". Which makes my eyes water.

On the other hand, a bunch of boring-type economic policy questions drew pleasingly all-over-the-place answers. One with some degree of consensus: A strong majority agreed with the statement "Income distribution in developed nations should be more equal", which is emphatically not what I would expect the public perception of an economists' opinion to be. It probably partly reflects political beliefs; the students' stated political allegiance breaks down like so:

Conservative: 16%
Moderate: 24%
Liberal: 48%
Radical: 6%

Not sure what "radical" is trying to catch, but there it is. Is it strange that all these budding economists are "liberal"? In my experience, not really, and in any case, the stereotypical right-wing markets-crazy economist is actually not one with actual basis. Believe it or not, devotees of the "economic method" are not necessarily fiscal conservatives, for example.

More relevant to the issue of what economists do is the question of what the students believe helps people succeed in grad school: a full 67% said "having a thorough knowledge of the economy" was unimportant, which I would wholeheartedly agree with. In courses at the undergraduate level, I was exposed to plenty of history, of the subject and of the world, and plenty of policy debates; at the graduate level, math. And statistics.

The closed shop isn't much interested in policy debate. It's not necessarily the job of academic economics to do these things, but I can attest that it makes most graduate-level courses as much fun as a slap to the head. We dive down the rabbit-hole of the literature of our chosen field, but lose whatever tenuous grasp on reality we once had.

An interesting side-effect of this infatuation with what other economists have written (even at the expense of what other economists have thought) and of the closed shop is that PhD theses are interchangeable. Everyone's doing pretty much the same thing, geared towards the ubiquitous "job market paper" that is supposed to prove to the union bosses how good you'll be at publishing papers like theirs. It's either a theoretical paper that looks like other theoretical papers, or an empirical paper that looks like other empirical papers.

I don't know how much this is true of other disciplines, but I often feel that very little of what we research is question-led, which also kills a big chunk of the chance to be daring or creative. There's not a lot of big-picture, big-idea, thesis-for-its-own-sake intellectual masturbation going on - and I do mean that as a criticism. Colander's survey shows our diversity; do we really all want to produce the same work? Can there be more than one way to do good science, good economics? What made us want to become economists? What happened to the questions we wanted to ask? Graduate students: this might be our last chance to ask them.