Big Think

The Idiot’s Guide to Answering Queen Elizabeth

by William Easterly Queen Elizabeth famously asked why economists did not predict the crisis. I wanted to add to the large chorus of responses, partly to save the reputation of mainstream economics as something still very useful to development, and partly to have a chance to reproduce this photo from my favorite Hollywood comedy The Naked Gun. I can offer an Idiot’s Guide to answering the Queen because the subject is so far outside my area of specialization within economics, yet even an ignorant outsider like me knows the answer. First, Your Majesty, economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market. This applies also to other asset markets like housing prices. If you think it is useless to be told you cannot predict the market, then you should change your Palace investment advisor. This knowledge will protect you from a lot of investment scams like Mr. Madoff’s and will also provoke a serious discussion of how to protect your Royal Wealth against risk in an uncertain world. Second, economists did just fine pointing to fundamentals that were creating large risks of a financial crisis. Even an outsider like me heard long before the crisis hit about the dangers of opaque instruments like derivatives, excessive mortgage lending and leverage, and the bubble in housing prices. Economists have contributed a lot to understanding bubbles, but we can’t time exactly when they will burst (see EMH above). So unlike some of my more venerable economist colleagues who are falling all over themselves apologizing to Your Majesty for OTHER economists (see for example your knighted subject Robert Skidelsky yesterday in the FT), I see nothing for which to apologize. So please tell your subjects in poor countries to keep studying basic mainstream economics. This economics not only survived the crisis, it also is the proven set of ideas that get countries out of poverty.

August 7, 2009, 1:00 AM

Hilary offers trade opportunities to Africa – except when we don’t feel like it

by William Easterly Secretary of State Hilary Clinton had good news for Africa in the Nairobi forum yesterday on the US African Growth and Opportunity Act (AGOA). AGOA offers breaks from quotas and duties on African exports to the US. First enacted under Bush, AGOA is at least a partial success story, with exemplars like textile exports in Lesotho and Madagascar. Secretary Clinton yesterday endorsed new efforts to “maximize the promise of AGOA.” She declared “we are committed to trade policies that support prosperity and stability.” Except when we aren’t. AGOA privileges can be revoked for political reasons, like if the President and the US Trade Representative (USTR) decide a country does not have sufficient “rule of law.” Which is exactly what is threatened now with that success story of textiles in Madagascar. Ever since a political crisis and change in government in Madagascar last spring, the USTR has been threatening to revoke Malagasy eligibility for AGOA, which would effectively destroy the Malagasy textile industry (worth between 6.5 and 8 percent of GDP and accounting for 50,000 jobs). We had a previous blog post on this, which had a dramatically nonexistent effect on USTR actions. Of course, the USTR implementing AGOA has good intentions – to promote good governance. There are two problems with this: (1) we don’t have a clue how to do this in Madagascar, and (2) why try to do it by punishing private individuals instead of the government? On (1), Malagasy politics are not really that hard to understand, as long as you have a Ph.D. in Malagasy history, political science, sociology, economics, and familiarity with the byzantine maneuvers of the FOUR way-far-from-perfect quarreling rivals for power. All the US government asks in exchange for continuing AGOA is that these four guys who hate each other come to an instantaneous consensus on early, free, and fair elections. USTR officials confirmed to us on background yesterday that these efforts continue. It’s not totally clear why USTR is being so insistent, when “rule of law” is so vague as to allow the eligibility of DRC, Guinea, and Guinea Bissau (as we ineffectively pointed out last time). (This arbitrariness is what justifies the snarky title of this post.) On (2), all I have to say to elaborate on “why punish private individuals”, is – why punish private individuals? Time is running out for Madagascar, as incentives to invest and produce for advance US orders are disappearing further the longer the USTR dithers. Political risk comes not from the Malagasy or other African governments, but from the US government’s failure to follow any consistent rule of law on how to apply the AGOA rule of law provision. This arbitrariness weakens the AGOA incentives for ALL African countries. Please USTR, try to make Secretary of State Clinton’s promising words come true, don’t throw away one of our all-too-scarce development policy successes.

August 6, 2009, 1:00 AM

Survey Results Are In: A Dialogue with Our Supporters and Critics

Our Sally Field moment: (Most of) you (mostly) like us! 83 percent of you gave us a 5 (26 percent) or 4 (57 percent) out of 5 overall. About 15 percent of you gave us an “eh, you’re all right,” 2 percent of you gave us a 2 out of 5, and one person gave us a 1 (you really hate us!) Also on the plus side, three-quarters describe the blog as both “informative,” and “constructively skeptical,” 58 percent as “encouraging of constructive dialogue and debate” and 53 percent as “entertaining.” Only 1 percent of you think that we are “harming global efforts to help the poor.” In the improvements-to-be-made category, 33 percent of you find us “too predictably negative,” and 17 percent said we are “too confrontational.” You want more of everything. All topics had an excess of those who want more on that topic over those who want less. The largest margins were for 1) analysis of aid policies and approaches, 2) analysis of how to achieve economic development, and 3) critical evaluation of specific aid programs or agencies. You want more positive stories on “what works.” Another big theme to what you want more of, and what you would change about Aid Watch is—as one of you put it—more “analysis of aid programs that are actually working (there are some, right??)” Well, we hear you, and our response to that is two-fold: First, the pushback. We wish it weren’t true, but good people in the aid industry do some dumb (ineffective, non-transparent, wasteful, arrogant) things! To identify dumb things to STOP doing is still positive change. When we run positive stories, you correctly sense that we are perhaps a little too arbitrary in our choices of “what works.” We’re trying hard, but the problem here is one of the central points of this blog—there is not enough transparency, evaluation, and accountability to know what’s working. Second, the concession. We will seek out the positive stories in aid even harder, and we will profile more specific programs (or components of large programs) that have the demonstrated potential to improve the lives of the poor. Sometimes we’re a little too snarky. As we have said on this blog before, satire is the weapon of the powerless against the powerful. We deploy it often because the aid establishment is so impervious to change and so resistant to a course correction, no matter how reasonable the case for change is. Satire and sharp words are also a reaction to the bureaucratic buzzwords and evasive language that sometimes passes for real debate on this subject. Having said this, it is a challenge to find the right balance—to calibrate our tone—and we take your point to be respectful of those we criticize. Although we are dissidents from a mainstream aid establishment, that’s NOT equivalent to thinking that we alone have the exactly correct view – another of our central points is that NONE of us know as much as we think we do. But we do pledge a better effort finding the positive (see above), being humble, even-handed, and giving the targets of our criticism a fair chance to explain themselves. We could use a makeover. Some of you commented on our less-than-bleeding-edge design and web functionality. Help is on the way: stay tuned for a redesign of the blog (and our parent page, NYU’s Development Research Institute) coming in early fall. You don’t like being put in boxes. Apologies to those of you who bristled at the narrow categories we provided for the ‘describe yourself’ question. We are pleased to discover our readership is even more diverse than we had guessed. In addition to a healthy percentage of students, economists, NGO workers, aid practitioners and consultants, your fellow readers also include entrepreneurs, aid recipients, congressional staffers, journalists, attorneys, technology consultants, bankers, missionaries and “interested bystanders.” Some categories we did not foresee: “Easterly groupie,” “Mets fan,” “hack bureaucrat,” and “Canadian.” In closing, a sincere thanks to all of you who participated for your feedback and many helpful suggestions.

August 5, 2009, 1:00 AM

Salvation is Not Ours to Bestow: A Review of Michaela Wrong’s new book

by Laura Freschi Michaela Wrong’s gripping latest book, It’s Our Turn to Eat: The Story of a Kenyan Whistleblower, is the antidote for anyone who knows the weariness of wading through the jargon of implementation plans and institutional treatises on governance and anticorruption. It’s the anti-boredom serum, the potion that brings you the real consequences of what happens when those plans are ignored. On one level, the book is the story of one John Githongo, the eponymous whistleblower. A former journalist and pro-transparency activist, Githongo was handpicked in the euphoria following the 2002 Kenyan election to serve as the new president’s special anti-corruption advisor. “The era of ‘anything goes’ is gone forever,” declared Kibaki in his acceptance speech, “Corruption will now cease to be a way of life in Kenya.” But when life very quickly began imitating that old Who song (“Meet the new boss, same as the old boss,”) Githongo fled the country, fearing for his life, with the tapes and documents that would blatantly incriminate government officials—up to the highest rungs—in a $500 million corruption scandal. On a different level, Wrong’s book is also the story of an international movement. Githongo was up against the looters and thugs who threatened to silence him. But he also found himself on the wrong side of the fence from much of the donor community, which wanted Kenya’s new president to be part of a generation of democratic leaders paving the way for a new and prosperous Africa. As Githongo gasped for air, Tony Blair was creating DfID and launching the Year of Africa: Playing to the industrialized world’s guilt complex, the Make Poverty History Campaign, Africa Commission and Gleneagles summit all shared one characteristic: the emphasis was on Western, rather than African action. Top-down, statist, these initiatives were all about donor obligations, pledges, and behaviour. What they definitely weren’t about…was highlighting the shortcomings of African governments set to benefit from future Western largesse. It’s Our Turn to Eat is an unblinking look at the roots and the consequences of sleaze (the violence during Kenya’s recent elections, a referendum on the corrupt leaders’ failure to spread the wealth, was the worst Kenya had seen since independence). It is also a condemnation of “the Western tendency to turn a blind eye to blatant graft and routine human rights abuse in the eagerness to save ‘the poorest of the poor’.” Despite Nairobi booksellers’ reluctance to stock the book, Kenyans are buying the book off street corners, reading it aloud on the radio, and debating it in church groups. Still, some of the best advice Wrong has to offer is for her Western readers. Worried Westerners, who so often seem to fall prey to a benign form of megalomania when it comes to Africa, would do well to accept that salvation is simply not theirs to bestow. They should be more modest, more knowing, and less naïve.

August 4, 2009, 1:00 AM

Aid Watch goes Lite for August

Since many of you downshift for August and we do also, Aid Watch will be posting shorter, less frequent blog posts this month, perhaps some with more entertainment value than substance. You can participate by submitting entries in a category we will have this month: Weirdest Aid Stories Ever. Meanwhile, you still have a chance to participate in our Reader Survey, if you have not already, to give us feedback on how we can make Aid Watch better. The survey closes at 5pm today, Eastern Daylight Time. We will post the results soon.

August 3, 2009, 9:13 AM