Podcast Summary
Economics straying from roots: Nobel Prize-winning economist Angus Deaton believes economics has overemphasized efficiency and productivity, neglecting philosophy, ethics, history, psychology, and sociology
Key takeaway from this week's special episode is that Nobel Prize-winning economist Angus Deaton believes economics has strayed from its roots by focusing too much on efficiency and productivity, leading to the neglect of important areas such as philosophy, ethics, history, psychology, and sociology. He expressed agreement with several criticisms of the profession, including the overestimation of the benefits of immigration, the role of globalization in reducing poverty, the importance of poverty in poorer countries versus in America, the underweighting of ethics, and the obsession with precise causal effects of policies. Deaton's book, "Economics in America," is a reflection of his love for the profession while also critiquing its current state.
Inequality and Immigration: The correlation between rising income inequality and increasing immigrant populations in the US, as shown in the Piketty-Saez graph, is an intriguing observation that challenges modern economic perspectives on immigration.
The immigration debate is often polarized between those who believe it's economically beneficial and those who believe it's harmful. However, it's important to consider long-term effects that may not be picked up by modern econometric techniques. The famous inequality graph drawn by Piketty and Saez shows a correlation between rising income inequality and increasing immigrant populations in the US. While this correlation does not prove causation, it's an interesting observation that economists often overlook. The author argues that we should be open to considering all evidence, even if it challenges our preconceived notions. The summary of the National Academy of Sciences report on immigration, which leans pro-immigration, may not accurately represent the evidence presented in the report itself. The author encourages a more balanced and nuanced approach to the immigration debate.
Immigration and Globalization Impacts: Multiple pieces of evidence should be considered before making major policy shifts based on a single correlation, as immigration and globalization have complex impacts on wages, poverty reduction, and overall economic outcomes.
While there is evidence suggesting that immigration and globalization have positive impacts, it's important to consider multiple pieces of evidence and not jump to conclusions about major policy shifts based on a single correlation. For instance, some studies indicate that immigration may not significantly reduce wages for low-skilled workers, but other factors, such as changes in public services and education, may play a larger role in poverty reduction in countries like India. Similarly, while globalization has contributed to poverty reduction in some countries, it's not the sole driving force, and there are counterfactual scenarios where different policies could have led to better outcomes for certain groups. Overall, it's crucial to approach these complex issues with a nuanced perspective and consider multiple perspectives and pieces of evidence.
Globalization and poverty: Globalization has lifted millions out of poverty but also created inequality and potential for smaller countries to be left behind, while poverty in America is a complex issue with debates over accurate measurements and comparison to other countries
The debate surrounding globalization and its impact on poverty, both in developing countries and in America, is complex and nuanced. While globalization has lifted millions out of poverty, there are concerns about inequality among the losers and the potential for smaller, poorer countries to be left behind if they are shut out of bigger markets. Similarly, the measurement of poverty in America has become politicized, with debates about the accuracy of poverty statistics and the comparison of poverty levels between countries. The speaker argues that poverty in America is a significant issue, with evidence of appalling poverty and rising health and morbidity measures, and that current poverty measurements may not be capturing the full extent of the problem. The debate requires a more nuanced and comprehensive understanding, moving beyond blanket statements and stereotypes.
International aid and economists: International aid can be counterproductive, and economists should consider a broader perspective beyond precise causal effects for addressing complex global issues like poverty and health
There are significant issues with the current approach to international aid and the role of economists in addressing complex global problems. Regarding international aid, Dambisa Moyo argues that much of it is counterproductive and can make governments unresponsive to their own citizens. Furthermore, economists often overlook the importance of ethics and the broader picture in their focus on precise causal effects. Moyo emphasizes that understanding and addressing big issues like poverty and health requires a broader perspective that goes beyond small-scale solutions. While there is value in the work of economists and plumbers, Moyo argues that the big questions in life, such as reducing global poverty, require a more holistic approach that goes beyond the scope of randomized control trials and narrow economic analysis.
Causality vs. Complexity in Economics: Econometricians use designs to study policy impacts but may shift focus from original question, historians tell stories acknowledging complexity, both have limitations, quality of arguments and evidence should be ultimate judge
While studying the effects of sharp breaks or interventions in specific places or times can yield interesting results, it may not answer the original question. Econometricians often use designs, such as the movers design, to study the impact of certain policies or factors, but these designs may shift the focus away from the original question. Historians, on the other hand, tell stories and acknowledge the complexity of causality. The concern is that moving away from rigorous empirical methods like RCTs could lead to less humility, less clarity about uncertainty, and potentially less accurate results. However, it's important to remember that the quality of arguments and evidence should be the ultimate judge, not the techniques used. Causality, as an obsession, is a relatively new development in economics, and it's debatable whether we were getting things wrong before without it. Ultimately, it's essential to be aware of the limitations and potential pitfalls of different approaches.
Limitations of economic research methods: Randomization doesn't create equal groups and statistical uncertainty is inherent in all estimates. Incorporate ethics, philosophy, and history for a deeper understanding of economics.
While various research methods, including the hypothetical deductive method and randomized controlled trials, can provide valuable insights in economics, they are not infallible. Angus Deaton expressed concerns about the limitations and potential misconceptions surrounding these methods. He emphasized that randomization does not create equal groups and that statistical uncertainty is inherent in all estimates. Furthermore, Deaton highlighted the importance of broadening perspectives in economics by incorporating ethics, philosophy, and history to foster a deeper understanding of complex issues. He also suggested encouraging the reading of history to gain a broader perspective. In essence, Deaton advocated for a more nuanced and humble approach to economics, recognizing the importance of considering the bigger picture and the potential implications of our research on society.
Broader perspective in economics: Nobel laureate Angus Deaton emphasizes the need for economists to adopt a broader perspective, considering issues like inequality and poverty, and not just focus on narrow economic concepts.
Learning from this conversation between Samaya Keynes and Angus Deaton is the importance of a broader perspective in economics. Deaton, a Nobel laureate in economics, expressed concern about the narrow focus of the profession and the need to consider a wider range of issues, such as inequality and poverty. He highlighted that there have always been economists on the fringes who bring up these issues, but it's crucial to return to this broader perspective. Despite these concerns, Deaton remains optimistic about the future of economics. He believes that writing and discussing these issues can provide support for those working towards positive change. Listeners are encouraged to check out Deaton's new book, "Economics in America," for further insights. Overall, this conversation underscores the importance of considering a broad range of economic issues and maintaining a nuanced perspective.