The article below was in the NY Times.  The 
online version (with links) is available at

http://www.nytimes.com/2008/02/20/business/20leonhardt.html


I thought many people on this list would find it 
interesting.

It makes strong claims about Econ and where we 
are headed.

I know historians of economics usually talk about 
where we've been, but I'd like to think that we 
can look ahead too.

It made me think of Colander's surveys and 
discussions I have had (with some of you) on grad 
econ curricula.  Could it really be that 
formalism will wane?  Will we really become 
storytellers again?  Will people study economics 
to be relevant in policy discussions and improve 
the world?  Unfortunately, I'm skeptical. How 
about you?

I'm interested in your reactions to the ideas and 
argument presented below.

Thanks,

Humberto Barreto





Economic Scene
Making Economics Relevant Again
Published: February 20, 2008
David Leonhardt


It was only a decade ago that economics seemed to 
be an old and tired discipline. The field no 
longer had intellectual giants like John Maynard 
Keynes or Milton Friedman who were shaping public 
policy by the sheer force of their ideas. 
Instead, it was devolving into a technical 
discipline that was even less comprehensible 
than it was relevant.

Some Wall Street firms had become hesitant to 
hire Ph.D. economists, and the number of 
undergraduates majoring in the subject was 
plummeting. ?A good deal of modern economic 
theory,? John Cassidy wrote in an article titled 
?The Decline of Economics? that appeared in The 
New Yorker in 1996, ?simply doesn't matter much.?

Over the last decade, however, economics has 
begun to get its groove back. Armed with newly 
powerful tools for analyzing data, economists 
have dug into real-world matters and tried to 
understand human behavior. Economists have again 
become storytellers, and, again, they matter.

They have explained why Americans don't save 
enough money ? and come up with clever ideas to 
increase savings. They have discovered that 
modest increases in the minimum wage don't 
actually destroy many jobs ? and thus made 
possible the recent state-by-state push to raise 
minimum wages. Since the mid-1990s, the number of 
undergraduates majoring in economics has risen sharply.

But there are more than a few economists who 
believe that the renaissance has come with a big 
downside. They argue that the new research often 
consists of cute findings ? which inevitably get 
covered in the press ? about trivial subjects, 
like game shows, violent movies or sports 
gambling. Economics may be popular again, but 
there still is no one like a modern-day Milton 
Friedman or John Maynard Keynes.

So when I recently set out to conduct my second 
annual survey of economists, I decided to try to 
uncover the next best thing. In its first 
incarnation, the survey simply asked for the 
names of the next generation of stars 
specializing in the economics of everyday life. 
This year, though, I went the other way ? toward 
the big picture ? and asked which economists were 
managing to do influential work on the crucial 
questions facing modern society.

Who, in other words, was using economics to make 
the world a better place?

I received dozens of diverse responses, but there 
was still a runaway winner. The small group of 
economists who work at the Jameel Poverty Action 
Lab at M.I.T., led by Esther Duflo and Abhijit 
Banerjee, were mentioned far more often than 
anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have 
a simple, if radical, goal. They want to overhaul 
development aid so that more of it is spent on 
programs that actually make a difference. And 
they are trying to do so in a way that skirts the 
long-running ideological debate between aid groups 
and their critics.

?Surely the most important societal question 
economics can help answer is why so many people 
are crushingly poor and what can be done about 
it,? David Romer, a professor at the University 
of California, Berkeley, said. The macro issues 
(like how to build a democracy) remain 
maddeningly complex, Mr. Romer noted. But thanks 
in part to the poverty lab, we now know much more 
about how to improve daily life in the world?s 
poorest countries.

The basic idea behind the lab is to rely on 
randomized trials ? similar to the ones used in 
medical research ? to study antipoverty programs. 
This helps avoid the classic problem with the 
evaluation of aid programs: it?s often impossible 
to separate cause and effect. If aid workers 
start supplying textbooks to schools in one town 
and the students there start doing better, it 
could be because of the textbooks. Or it could be 
that the town also happened to hire a new school 
administrator.

In a randomized trial, researchers would choose a 
set of schools and then separate into them two 
groups. The groups would be similar in every 
respect except for the fact that one would 
receive new textbooks and one wouldn't. With a 
test like this, as Vinod Thomas, the head of 
independent evaluation at the World Bank, says, 
?You can be much more accurate and much more 
clear about the effect of a program.?

The approach can sound cruel, because researchers 
knowingly deny help to some of the people they?re 
studying. But what, really, is the alternative? 
It?s not as if someone has offered to buy new 
textbooks for every child in the world. With a 
randomized study, you at least learn whether your a
id money is well spent.

Ms. Duflo, who?s 35, and Mr. Banerjee, 46, came 
to economics from opposite ends of the 
intellectual spectrum. She was studying history 
at the ?cole Normale Sup?rieure, one of the most 
prestigious colleges in France, when she decided 
that the more scientific approach of economics 
offered a better way to address global poverty. 
He dropped out of the similarly prestigious 
Indian Statistical Institute after two and a half 
months of studying math; he found the subject too 
abstract.

By 2003, they were both working on development at 
M.I.T. At the time, randomized trials were 
becoming more popular in the United States, but 
they were still fairly rare in the developing 
world. So along with Sendhil Mullainathan, a 
colleague, Ms. Duflo and Mr. Banerjee founded the 
lab. (It?s named for the father of an M.I.T. 
alumnus, who owned the exclusive right to sell 
Toyotas in Saudi Arabia.) Day to day, the lab is 
now run by Rachel Glennerster, who came from the 
International Monetary Fund, and it has become a 
magnet for some of the world?s best development 
economists, including Marianne Bertrand, Michael 
Kremer and Edward Miguel.

Mr. Kremer and two other economists, in fact, did 
the textbook experiment ? and found that 
textbooks didn't improve test scores or 
graduation rates in rural western Kenya. (The 
students were probably too diverse, in terms of 
preparation and even language, to be helped by a 
single curriculum.) On the other hand, another 
randomized trial in the same part of Kenya found 
that treating children for intestinal worms did 
lift school performance. That study has led to an 
expansion of deworming programs and, as Alan 
Krueger of Princeton says, is ?probably improving 
millions of lives.?

Mr. Banerjee estimates, very conservatively, that 
$11 billion a year ? out of roughly $100 billion 
in annual development aid worldwide ? could be 
spent on programs that have been proved to work. 
Unfortunately, nowhere near $11 billion is being 
spent on such programs. ?Right now, we don't have 
a lot of things that have been taken up by the 
policy world,? he said. ?But the policy lag is 
usually substantial. Now that we have a lot more 
results, I expect that in the next 10 years we will 
have a lot more impact.?

Mr. Banerjee and Ms. Duflo may not be a 
modern-day Keynes or Friedman. But they have 
still managed to do something rather profound. 
They have brought together the best of the new 
economics and the best of the old.

As has been the trend over the last decade, they 
have plunged into the world around them, refusing 
to accept the idea that economics is merely an 
extension of math. Yet no one can accuse them of 
working on some little problem that doesn't matter.