the elusive search for causes of growth

The success of the East Asian Gang of Four—and now China—has exerted an irresistible lure to researchers of growth. Academic economists who were used to studying whether a politically difficult tax reform might make Americans better off by an amount equivalent to 0.1 percent of US GDP rushed into a field of inquiry that promises to explain how to increase your income seventeen times over. Theoretical breakthroughs in the late 1980s by Paul Romer (now at Stanford) and by Nobel laureate Robert Lucas helped inspire a remarkable effort by economists to find in the empirical data which factors reliably lead to growth. Yet hundreds of research articles later, we wound up at a surprising end point: we don’t know. [my emphasis]

In 2003, Arnold Harberger, a free-market economist from the University of Chicago, observed that “there aren’t too many policies that we can say with certainty…affect growth.” A year later, a group of famous economists (including some on the liberal end of the spectrum like Paul Krugman and Joseph Stiglitz) produced something called the Barcelona Development Agenda that announced: “There is no single set of policies that can be guaranteed to ignite sustained growth.” And in 2007, the dean of growth research, Nobel laureate Robert Solow, said: “In real life it is very hard to move the permanent growth rate; and when it happens…the source can be a bit mysterious even after the fact.”

William Easterly, “The Anarchy of Success”, New York Review of Books 56:15 (8 October 2009).

NYU economist Bill Easterly is reviewing  The Drunkard’s Walk: How Randomness Rules Our Lives by Leonard Mlodinow (Pantheon, 2008; Penguin, 2009) and Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Random House, 2007; Bloomsbury, 2008) by Ha-Joon Chang. Mlodinow’s book offers a clue why so many writers continue to claim to have a prescription for economic growth: “Humans are suckers for finding patterns where none really exist, like seeing the shapes of lions and giraffes in the clouds.” Chang’s book is an example of this type of outlandish claim, namely “the success of such countries as the East Asian Gang of Four can be replicated by other countries”.

Bill Easterly blogs at Aid Watch.

Tags: ,

One Response to “the elusive search for causes of growth”

  1. […] Bill Easterly argues that the only honest answer to the question “What makes a nation rich?” is “We don’t know”. I agree. […]