Rationality and Public Policy Making (encore, 09/29/2009)

It's week 4, which means it must be time to take another close look at Eugene Bardach's A Practical Guide for Policy Analysis, a book that has always struck me as a kind of Rorschach test. While Bardach recognizes that policy analysis is "more art than science," he is, ultimately, an optimist. He thinks that public policy is improved when it is informed by rigorous empirical research. As a dyed-in-the-wool futilitarian, the Washington Buckeye is less sanguine about the prospects of rationality in the policy-making process.

The October 8, 2009, issue of the New York Review of Books contains a remarkable article that bears on the issue: "The Anarchy of Success," by William Easterly, an economics professor at NYU. The article is a review of two new books, Leonard Mlodinow's The Drunkard's Walk: How Randomness Rules Our Lives, and Ha-Joon Chang's Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Unfortunately, the NYROB won't let me attach a link to Easterly's article because it is premium content.

So here's the nub of the argument. Easterly says that the phenomenal rates of economic growth enjoyed by Hong Kong, South Korea, Singapore (see skyline photo above), and Taiwan in the period between 1960 and 2007 inspired a tsunami of research by economists eager "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."

Think of it. After the investment of billions and billions of dollars and Euros in the righteous cause of economic development, we actually don't know the causes of growth. According to Easterly, summarizing Mlodinow, economists have identified 145 factors associated with growth, but "most of the patterns were spurious, because they failed to hold up when other researchers tried to replicate them." As for Bad Samaritans, Easterly says that Chang criticizes "those who have made overly strong claims for free trade and orthodox capitalism, but then he turns around and makes equally strong claims for protectionism and what he calls 'heterodox' capitalism, which includes such features as government promotion of favored industries, state-owned enterprises, and heavy regulation of foreign direct investment."

Could it be that "the science of muddling through" is the best we can do?