I Did Not Like Professor Quah's Presentation.

Our economics department head, Danny Quah, is a clear and engaging speaker. I had seen him give an interesting, if a little fluffy, presentation at the LSE series "Thinking Like A Social Scientist" (which series, Prof. Quah's talk aside, has done more than anything else to convince me that I do not want to think like a social scientist), so I was looking forward to hearing him give a more substantive presentation for an economics-only audience. Yesterday I got the chance. Even better, his talk was about development and growth, which are very interesting topics to me.

The presentation went as follows. As a preface, he said that he preferred to take a data-oriented approach to studying growth rather than a model-oriented one. Then he began with some basic statistics about the phenomenal economic growth and inequality growth in the last one hundred and fifty years to motivate his talk. He then presented the Kuznets curve, an empirical curve that suggests that countries that have low inequality and low levels of development proceed to higher levels of inequality as they develop and industrialize, but at some point turn around and become more equal as they continue to develop. He then presented an economic model that could explain this wherein non-convexities in the production function lead to endogenous inequality. (This was essentially a mathematical form of the poverty trap hypothesis.) After this, he turned to the effects of trade on inequality, presenting a model in which a high-technology society and a low-technology society begin to trade with one another, resulting in greater inequality in the latter and less inequality in the former. Finally, he showed graphs of income inequality in the US and China that seemed to debunk this model, since they both grow over time as globalization proceeds.

Unfortunately, for a talk that was prefaced with praises of empiricism, the models Prof. Quah discussed were only compared with only the coarsest stylized facts. For the first model, we had only the Kuznets curve -- that is, that countries seem to become more unequal as they develop. To begin with, the Kuznets curve is based mostly on single-time multi-country data, not time-series data for a single country, so it's very unlikely that it describes an economic process that a single country proceeds through. But even if you take it at face value, presenting a single stylized model that can describe the generation of inequality does not inform your understanding at all without some effort to distinguish the evidence for this particular model from all the other potential explanations of the curve. Similarly, presenting a two-country world economy with factor endowments does not really inform our understanding of the world unless the evidence of its truth is discussed at length. At least Prof. Quah presented some very coarse evidence against this model. However, the model was so simple that you can argue away the difference from reality by saying that important particular considerations overwhelm the model's simple predictions (as he did for the case of Central America). Given this, and its non-conformance with US-China inequality data, why study the model in the first place?

My problem with this talk, which is a problem I have with almost every academic economics talk I attend, is that learning about a model is not the same as learning about the real world. It's easy to forget this when you spend an hour carefully trying to follow the algebra of an articulate and widely respected professor. But at the end of the day, talks like this, in my opinion, provide almost no added understanding of the real world. Economics is so complicated, and its data so rich and often counterintuitive, that discussion of it should be ten percent theory and ninety percent data. Instead, in academics, it seems to be almost always the other way around. If this is what it means to think like a social scientist, I think I'll stay a scientist.

Now, I'm sure Prof. Quah doesn't do his research like this. Doubtless he is a very clear empirical thinker and has simplified things for an audience of students. Also, he has another follow-on presentation to make on Wednesday, and perhaps then he will tie this first talk in with reality a little more tightly. Nevertheless, if this is how budding economists are taught, this is how they will think when they go into the real world to practice economics. And I think history has ample enough evidence of the harm that can do.