School of Social Science

Economics: Science, Craft, or Snake Oil?

By Dani Rodrik 

Barbara Smaller/The New Yorker Collection

When economists skip over real-world complications, it’s as if physicists spoke of a world without gravity.

When the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (colloquially known as the “Economics Nobel”) was awarded to Eugene Fama and Robert Shiller, along with Lars Peter Hansen, many were puzzled by the selection. Fama and Shiller are both distinguished and highly regarded scholars, so it was not their qualifications that raised eyebrows. What seemed odd was that the committee had picked them together.

After all, the two economists seem to hold diametrically opposed views on how financial markets work. Fama, the University of Chicago economist, is the father of the “efficient market hypothesis,” the theory that asset prices reflect all publicly available information, with the implication that it is impossible to beat the market consistently. Shiller, the Yale economist, meanwhile, has spent much of his career demonstrating financial markets work poorly: they overshoot, are subject to “bubbles” (sustained rises in asset prices that cannot be explained by fundamentals), and are often driven by “behavioral” rather than rational forces. Could both these scholars be right? Was the Nobel committee simply hedging its bets?

While one cannot read the jury’s mind, its selection highlighted a central feature of economics—and a key difference between it and the natural sciences. Economics deals with human behavior, which depends on social and institutional context. That context in turn is the creation of human behavior, purposeful or not. This implies that propositions in economic science are typically context-specific, rather than universal. The best, and most useful, economic theories are those that draw clear causal links from a specific set of contextual assumptions to predicted outcomes.

From a War on Terrorism to Global Security Law

by Kim Lane Scheppele 

What happened when the United Nations Security Council passed Resolution 1373 to fight terrorism but failed to define it?

On December 11, 2003, when asked in a press conference whether his Iraq policy was consistent with international law, President George W. Bush joked, “International law? I better call my lawyer; he didn’t bring that up to me.”

But, in fact, since the 9/11 attacks, the United States government had aggressively constructed a new body of international law: global security law. While the Bush administration is probably best known for its CIA black sites, extraordinary rendition, and defense of torture, those policies were in fact rather short-lived, lasting a handful of years at most. By contrast, global security law not only still exists but is becoming ever more entrenched. More than a decade after the attacks, global security law remains one of the most persistent legacies of 9/11.

On September 28, 2001, the United Nations Security Council passed Resolution 1373. Operating under Chapter VII of the UN Charter, which makes resolutions binding on all member states (noncompliance is at least theoretically subject to sanctions), the
Security Council required states to change their domestic law in parallel ways to fight terrorism. Previously, the Security Council had typically directed states’ actions or urged states to sign treaties, but it had not directed changes in countries’ domestic laws. With Resolution 1373, the Security Council required states to alter some of the most sensitive areas of national law, like criminal law and domestic intelligence law.

Economic, Political, and Social Outcomes of Community-Driven Development

by Ruben Enikolopov 

The mandating of female participation by the NSP has resulted in increased male acceptance of women in public life as well as broad-based improvements in women’s lives, although there is no evidence that it has affected the position of women within the family. Image courtesy of Fotini Christia.

How has Afghanistan's largest development program affected democratic processes, counterinsurgency, and the position of women?

Each year, billions of dollars in foreign aid are directed to the developing world. Assistance comes in a variety of forms, but one particular method of delivery—community-driven development (CDD)—which came about as a response to large-scale top-down initiatives that were criticized for failing to empower aid recipients, has become especially popular. This approach emphasizes involvement of local communities in planning decisions and controlling investment of resources. Beyond benefiting communities with their involvement in planning decisions and the investment of resources, CDD is intended to encourage sustained participation through local representative institutions, thus improving social capital and local governance.

The CDD approach is particularly popular in the context of weak or fragile states, in which government bureaucracy often fails to provide public goods and services. From 1996 to 2003, World Bank lending alone for such projects rose from $325 million to $2 billion per year, reaching $30 billion in total as of 2012, toward the support of four hundred programs with CDD components in ninety-four countries. Yet, rigorous empirical evidence of CDD value remains limited.

My work with Andrew Beath from the World Bank and Fotini Christia from the Massachusetts Institute of Technology contributes to understanding the effectiveness of this approach by assessing the impact of a large-scale CDD program in Afghanistan known as the National Solidarity Program (NSP). NSP is the country’s largest development program, implemented in over thirty-two thousand out of Afghanistan’s thirty-nine thousand villages at a cost of over $1 billion. Funded by a consortium of international donors and administered by the Afghan national government, its aim is to both improve the access of rural villagers to critical services and to create a structure for village governance centered on democratic processes and female participation.

Understanding Networks and Defining Freedom

Gene regulatory networks are the source of many human diseases. How do we infer network structure from partial data? What is the network most likely to have produced the little bit that we can see?

From capturing interactions and inferring the structure of data to determining the infringement of freedom

In November, the Association of Members of the Institute for Advanced Study (AMIAS) sponsored two lectures by Jennifer Chayes, Member (1994–95, 97) in the School of Mathematics, and Quentin Skinner, Member in the Schools of Historical Studies (1974–75) and Social Science (1976–79). All current and former Institute Members and Visitors are members of AMIAS, which includes some 6,000 scholars in more than fifty countries. To learn more about the organization, upcoming events, and opportunities to support the mission of the Institute, please visit www.ias.edu/people/amias/. Following are brief summaries of the lectures by Chayes and Skinner; full videos are available at http://video.ias.edu/2013-amias-chayes and http://video.ias.edu/2013-amias-skinner/.

AGE OF NETWORKS

Jennifer Chayes, Distinguished Scientist and Managing Director of Microsoft Research New England and New York City:

Everywhere we turn, networks can be used to describe relevant interactions. In the high-tech world, we see the internet, the world wide web, mobile phone networks, and online social networks. In economics, we are increasingly experiencing both the positive and negative effects of a globally networked economy. In epidemiology, we find disease spreading over ever-growing social networks, complicated by mutation of the disease agents. In problems of world health, distribution of limited resources, such as water resources, quickly becomes a problem of finding the optimal network for resource allocation. In biomedical research, we are beginning to understand the structure of gene-regulatory networks, with the prospect of using this knowledge to manage many human diseases.  

What We Should be Doing with Diversity on Our College Campuses

By Danielle S. Allen 

Scholars of network theory have shown that increased social connectivity through bridging ties, in particular, brings improved social outcomes.

College campuses struggle with how to think and talk about diversity of all kinds, a struggle that has gone on for more than two decades now. Every year, there are stories from around the country about anonymous hate speech and offensive theme parties with equally offensive T-shirts as well as controversies about “political correctness.” Nor has there been a year in my roughly two decades in higher ed when I haven’t read or heard someone wondering, “Why do all the black kids sit together in the cafeteria?”

What are the stakes for how well we deal with diversity on college campuses? There are two answers to this question, one concerning the stakes for the campuses themselves, the other the broader social stakes.
First, for campuses. Social scientists have long distinguished between two kinds of social tie: “bonding ties” that connect people who share similar backgrounds and “bridging ties” that link people who come from different social spaces. Since the 1970s, scholars have been aware that “bridging ties” are especially powerful for generating knowledge transmission; more recently, scholars have argued convincingly that teams and communities that, first, emphasize bridging ties and, second, successfully learn how to communicate across their differences outperform more homogenous teams and communities with regard to the development and deployment of knowledge.

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