March 26, 2007
An economist writes about the latest in development economics. He says economist study development economics as if it were a machine with predictable behavior. Increase funding for education and a smarter workforce will deliver economic gains. Provide legal security for private property and entrepreneurs will start small businesses. These single-factor arguments are seductively simple, yet they don’t work as advertised. In my opinion, the problem is that economies are not like machines, they are like the weather. The primal forces that govern economies are the Seven Deadly Sins. Economies are certainly not linear systems where one can add more X and get more Y. Instead, they are chaotic social systems (i.e., stupid humans) where you coerce people to behave less sinfully, more virtuously. Or, coopt their sinful behavior to produce more social good. This is why I often roll my eyes when I hear UN and World Bank do-gooders blather about some new social program. These plans often aren’t effective because they mistakenly believe that people will do what is obviously in their best interest. Go to school, have fewer children, take medicines, stop boinking hookers, etc. The steps to improving a poor country are easy, but those people aren’t willing to take these simple steps. Instead, progress will come slowly and randomly when the chaotic social machine suddenly inspires people to do the right things. Development experts should focus on psychology and marketing, not economics.