Thursday, December 22, 2011

As in medicine, so in development?

Jonah Lehrer has a great article in Wired documenting the difficulty of truly understanding causal forces.

Here is a representative section:

The story of torcetrapib is a tale of mistaken causation. Pfizer was operating on the assumption that raising levels of HDL cholesterol and lowering LDL would lead to a predictable outcome: Improved cardiovascular health. Less arterial plaque. Cleaner pipes. But that didn’t happen.

Such failures occur all the time in the drug industry.

To recap. HDL is the "good" cholesterol and LDL the "bad". Pfizer found a drug that did what the quote describes, but it turned out to kill subjects in the phase III trial and ended up costing the company billions in market capitalization.

In my opinion, much of macro development advice has worked the same way.

Experts observe that successful countries exhibit qualities A, B & C. Developing countries are advised, subsidized, threatened to emulate the successful countries on these attributes. But the patients do not improve!

Education, Institutions, "getting the prices right", openness to trade, the list goes on of macro advice given and to a surprising extent taken by the developing world, without the implicitly promised results.*

The only real difference in the medical and developmental analogy is that Pfizer lost billions of dollars due to their misreading of cause and effect, while the World Bank just chugs on and on with an ever growing size and budget, producing a new World Development Report every year and acting as if the past had never happened.

That is to say, there is little to no accountability for bad advice or improper diagnoses among the IFIs compared to pharmaceutical companies.

* In our 2007 JDE paper, Robin and I show that school enrollment rates, government spending, openness to trade, political constraints on the chief executive,bureaucratic quality, corruption, and overall law and order are all converging over time.

1 comment:

Simon Spero said...

Pretty selective reading of Hume in the wired article, of the kind discussed in the article linked to by Dr. "ooh look at me, I can count the right number of signatures for ballot access" Munger.

Hume never doubted the existence of casual relationships- just that they could be arrived at by pure reasoning.

A more relevant philosopher would be someone like Von Neurath or Quine, with their (w)holistic approach.

The wired article seems more to do with over simplistic reductionism than with causality, though there's a big chunk that is really about ignoring base rates.