Banerjee: Against macroeconomics

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Abhijit Banerjee isn’t too keen on macroeconomics and the emphasis on growth as a means to alleviate poverty:

The problem with this comes down to basic economics: The one thing that everyone learns in their first economics class is that it all comes down to where your marginal product is highest. Even if growth were the best way to reduce poverty, we economists might want to focus on poverty reduction through other means if we think that is where we have the highest marginal product…

[T]he illusion of commensurability: Big questions must have big answers. Growth is surely the biggest question that we economists tackle. Hence the evidence that can inform growth policy must be evidence about big things…

There are at least two senses in which this is misleading: First suppose the conclusion from the macro evidence is that reducing corruption is vital for promoting growth. But reducing corruption how? And what form of corruption are the most worth fighting?…

In the end, details matter too much for it to be possible to do effective growth policy without experimental/quasi-experimental data…

It is not clear to us that the best way to get growth is to do growth policy of any form. 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.

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One Response to “Banerjee: Against macroeconomics”

  1. George Schubert Says:

    Eliminate Conflict of Interest and let free markets run their course?

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