Wealth and Antisocial Behavior: Reverse Causality?

There is quite a bit of buzz about this just-prepublished article in the Proceedings of the National Academy of Sciences.  Here is the abstract:

Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals. In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals. In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals. Mediator and moderator data demonstrated that upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.

The tone of the first wave of commentary, as far as I can tell, is that we knew it all along—rich people are nasty.  I would like to put in a word, however, for the other direction of causality, that dishonesty and putting one’s own interests ahead of others are conducive to wealth.  I certainly don’t mean this deterministically; there are lots of stone-broke cheats and chiselers out there.  Nevertheless, at many key moments of life people face a choice, whether to shade a bit and advance their own career, or remain honest and end up back in the pack.  Do you take credit for someone else’s work in order to get a promotion?  Do you leave out some information that would reduce the likelihood of a sale that would make you a tidy profit?  And if you find yourself in a zero-sum situation where your gain is someone else’s loss (or more gain for you means less gain for them), do you push your advantage as hard as you can?

The reason I bring this up is because there is a constant background murmur in our society that says that greater wealth has to be a reward for more talent, more effort or more contribution to society.  When Steve Jobs died, he was a poster child for this view.  Yeah, he was something of a jerk, but he gave us all those great gadgets, and that’s why he was so rich.  Could it be, however, that among all those whose intelligence, creativity and obsessive toil drives progress, what separates the Steve Jobs from the Unknown Nerd is the bundle of personal traits that add up to claiming for oneself alone the contribution of everyone else?  There are a lot of people who could never imagine raking in billions while those who do the physical work in China are driven to, or past, the brink of suicide.  They won’t get to be CEO.  Nor would the people taking in the super-bonuses at Citi, G-S, BoA and the rest be where they are if they put as much energy into making sure mortgage borrowers were treated legally and fairly as they do into squeezing a little more profit into the kitty.

Maybe the reason a lot of people are vulnerable in this economy is that they’re too damned decent.  Between, say, Tyler Cowen and Leo Durocher, who do you think has a better handle on how the world really works?

Might The Rush To War With Iran Slow Down After Friday?

Maybe. The reason is that Iran is having parliamentary elections this Friday, something barely noticed in most US media. This means that just as with our GOP candidates (all but one of them anyway) competing to see who can be more hawkish and promising war against Iran, so the Iranian political leaders have been hyping their standing up to the US and Israel and the various threats that have been made with various assertions and threats of their own, most prominently the one to close the Strait of Hormuz to oil exports, even though this would largely cut off their own exports, a seemingly completely irrational thing to do.

As it is, given that their election oversight bodies have ruled out almost all seriously anti-governmentment candidates from running, not much is going to come of this election, and reportedly the disaffected in urban areas are not likely to turn out to vote much, although not particularly in response to calls by some outside dissident groups to boycott the election. As it is, with this sort of apathy by those who would like a more secular regime, the election is largely between competing hardline theocrats who are playing an Iranian version of what the US GOP candidates are doing (that is, all but one of them), making as loud and aggressive noises as they can to out-Islamistize each other.

In any case, there is reason to believe that the rhetoric on the Iranian side may cool off somewhat after the election this Friday is over. There might even be some openings to talks. Maybe some slowdown of the rate of enriching uranium to 19.5% would do it (95% is what is needed for nuke bombs, and none is being enriched to that level). The latest hysterical reports had to do with their accelerating these activities beyond what is needed for their medical research reactor, and this has led some to speculate that their accelerated activity was being done precisely to pile it up in anticipation of talks that would lead to them cutting back on this activity. We shall see, but there may be hope for some cooling off, with an accompanying reduction of pressure on oil prices.

Life in Ohio

Toledo, Ohio, where I reside, is an old Rust Belt city with bragging rights over very little. Two exceptions are: this is the city that produced the greatest jazz pianist - hell the greatest pianist - who ever lived, Art Tatum. And we have been represented in Congress for ages by one of the best, Marci Kaptur. But the Republicans in the state-house have redrawn Kaptur's 9th district to make it run in a thin line from Toledo to Cleveland - some 150 miles - along the edge of Lake Erie, encroaching on Dennis Kucinich's old district and forcing the two into an elimination match in the Democratic primary. For me, this is no contest: Marci is much the better choice. I hope she prevails.

Are Rents Rising?

Dean Baker has a good put down of an article in the New York Times that tries to claim there is a shortage of rental housing. The one piece of economic data that the Times presented was:

rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation

A nominal price increase over one year doesn’t sound that convincing. How hard would it have been to present matters adjusted for inflation? Dean presents a graph that takes the increase in owner equivalent rent over the 1991 to current period. It appears that there was no nominal increase in the previous year. Compare this to the 2.9% increase in the consumer price index over the past 12 months and the 1.6% increase over the previous year and a some elementary arithmetic indicates real rents have fallen over the past couple of years. And yet the Times claims that rents have been rising due to some alleged shortage?

Detroit News Endorses Austerity

Actually, this op-ed endorsed Mitt Romney to be our next President. There was one paragraph that actually made sense:

We disagree with Romney on a point vital to Michigan — his opposition to the bailout of the domestic automobile industry. Romney advocated for a more traditional bankruptcy process, while we believe the bridge loans provided by the federal government in the fall of 2008 were absolutely essential to the survival of General Motors Corp. and Chrysler Corp. The issue isn't a differentiator in the GOP primary, since the entire field opposed the rescue effort.

Of course, this paragraph was omitted in the version of the op-ed that the Romney camp distributed. Too bad as the rest of the op-ed was the kind of GOP spin we’ve come to expect including a claim that Bain Capital was all about job creation and a clever way of making a virtue of how the architect of RomneyCare contradicts himself as he condemns ObamaCare. But it is its praise for austerity as an alleged cure of our unemployment problem that is the most laughable aspect of this silly op-ed.

Romney knows how government policies affect private sector decision making. He understands the consequences of actions that raise business costs. And he gets that business is not the problem in America — a bloated and wasteful government is. He knows how to encourage the former and deflate the latter. Romney has been criticized by his opponents for downsizing troubled companies and firing workers. He acknowledges that those are often wrenching decisions. But if America is to avoid financial catastrophe, the next president must be willing to downsize government, jettison some of its operations and slash a federal work force that has grown by 12 percent over the past four years. Romney is best equipped for that task.

Our graph shows employment by the Federal, state, and local governments from January 2007 to January 2012 hoping to make a few points. One is simply that the Federal government is not the only government employer. Local and state government employment was over 87% of total government employment as of January 2012. Mark Thoma provides us with What’s Wrong With This Picture showing how local and state government employment has been declining over the past few years.

The other thing about our graph is I don’t see this alleged explosion in Federal employment. It is true that employment by all sectors of the government was rising in 2007 (before the recession) and continued to rise a bit in 2008 (before Obama became President). But over the past four years, Federal employment has risen by only 3.4%. If one looks at the last three years, Federal employment has increased only 1.4%. Over this same three year period, total government employment has declined by 2.7 percent.

And Riding to the Defense of Developing Country Airline Companies Is…..

Martin Khor has made a career of fashioning progressive arguments in favor of developing country business interests. His latest tack is to denounce the intention of the EU to charge a carbon tax on flights to European airports. It’s a violation of national sovereignty, he says, practically a reimposition of colonialism. It forces people in the poor countries to pay for a problem that was caused by the rich. It will be much too expensive. Such an awful idea.

One complaint in particular struck me: the EU has no business imposing a carbon tax on flights over non-EU airspace. Presumably the solution is to monitor the flight path of each plane and prorate the tax on the basis of its route. Planes will be zigzagging to avoid the surcharge, of course, and who knows how international airspace will or won’t be treated.

I would be the last person to defend the halting, timid and largely captured EU carbon regime; nevertheless more carbon pricing in this and other spheres is surely better than less. I would ask those inclined to give Khor the benefit of the doubt to consider two propositions. First, not taxing carbon is subsidizing it, since the costs it imposes on current and future generations, not least the poorest and most vulnerable of us, is real. Second, in the absence of a strict global agreement, meaningful action against climate change is necessarily national and regional, and no jurisdiction will step forward unless measures are taken that neutralize the advantages that foreign businesses have if they are free from carbon constraints.

If Khor is really concerned about the well-being of people in the bottom billions, he should raise questions about where the carbon money is going, and who benefits from free permit allocations and dodgy offsets.

Economic Bias

Noah Smith has an excellent post on the political biases baked into conventional macroeconomic models, especially DSGE. His view that the principal source of bias comes from the assumptions needed to make the models tractable accords with my take on microeconomics, particularly the ideological significance of convenient second-order conditions. I think we agree that these assumptions are not made out of explicit political motivation, but simply because they make life easier. Still, the bottom line is the same: bias is bias. Perhaps where the politics comes in is in the inclination not to worry about it.

Playing With Fire With Oil And Iran

Juan Cole is listing 10 reasons why the US sanctions against Iran making money from exporting oil are not working at http://www.juancole.com/2012/02/top-ten-ways-iran-defying-us-oil-sanctions-and-how-you-are-paying-for-it-all.html . While indeed Iranian oil sales have fallen, the impact of this has been at least partly offset by the rising price of oil due to all the war talk associated with the sanctions, along with the failure of Saudi oil production to increase to fill the cutbacks, along with declines in oil production in Nigeria, Syria, and Sudan for various reasons, as well as the decisions by India, China, Japan, South Korea, and others to repudiate the US policy. All of this threatens Obama's reelection as gas prices are heading up and Republicans are claiming it is due to Obama blocking the Keystone pipeline project, even as they call for an even more hawkish policy against Iran (see Jim Hamilton for the latest analysis of the Keystone project at http://www.econbrowser.com/archives/2012/02/workarounds_for.html ).

I largely agree with Cole on most of his points, with some minor variations. He argues that it is the "Israeli lobby," particularly AIPAC, that is responsible for the sanctions policy, although I would think that the lobby is responding to the Israeli government rather than being an independent source for this policy push. Israeli political leaders are fearful of a possible Iranian nuclear bomb, and according to the NY Times today, are probably not able to actually bomb out fully the four sites involved in the Iranian nuclear program, which may be why they are pushing even harder on the US, despite Israeli military intel reportedly agreeing with US intel and DOD that Iran does not have an active nuclear weapons program.

The US and UK have reportedly urged Israel not to bomb Iran as this would be "destabilizing." They may not do so for the reason noted in the previous paragraph, but it strikes me that Netanyahu may not mind encouraging destabilization by engaging in war talk and pushing the sanctions that have Iran engaging in talk of blocking the Strait of Hormuz. Bibi does not like Obama and would be perfectly happy to see him lose an election due to a bad economy driven by high oil prices, and all that applause he got in the US Congress may make him think he can get away with this, and he probably can, although maybe the economic recovery is just too strong to be overcome by the negative effect of rising oil prices.

I note some caveats on Juan Cole's post. He says that "Iran is sitting pretty." Not so. While oil prices have indeed gone up with all the war talk, the Iranian rial has declined by something like 60% against the USD. This is not helping the standard of living in Iran for people used to relying on imports of many consumer goods.

OTOH, this decline in living standards, hoped by the US to put pressure on the Iranian regime, is backfiring, just as the economic embargo against Cuba has for a full half century now. Reportedly Iranian citizens are rallying to support the regime against the US actions against their economy.

This fits in with another delusion pandered about in Washington, that we could get Iran to "stop its nuclear weapons program" by more vigorously supporting the Green movement opposition. First of all, any action to openly support the opposition would simply discredit that movement. Second, the opposition has long made it clear that it supports the peaceful civilian nuclear program of Iran. Getting them into power might make Israel slightly less paranoid, but it will not alter the nuclear program itself one bit.

The key to the nuclear program remains as it has been for a long time, the position of Supreme Leader Ali Khamene'i, although an article yesterday in WaPo by Ray Takeh [sp?] argues that there is a new "war generation" led by Ahmadinejad that wants nuke weapons. It is true that these young guys will outlive him and could move the existing program into one that does lead to nuclear weapons, but he has repeatedly issued fatwas against nuclear weapons, and as Juan Cole has pointed out repeatedly, Iran has not attacked another nation since the 1700s. These minor facts, supported by official US intel reports, somehow get lost in all the hysteria and pushing of economically damaging sanctions programs. To the extent these sanctions programs are being put into place to keep the Israelis from bombing Iran, the report today in the NY Times may have removed even that half-baked rationale for this stupidity.

In Some Circles, Economics Is Anathema

A pattern I find disturbing is that much of the left, at least in the English-speaking world, regards economics simply as a source of intellectual and moral corruption. Those who take this view make sweeping pronouncements on economic topics, but they pride themselves in not polluting their understanding by consulting economists or reading what economists have written.

Want an example? Check out the Uneconomics initiative and its “exposé” of how banks create money. Who could have imagined: private banks actually create money out of thin air when they make loans, and this creates the potential for economic volatility due to over- and undersupply. These secrets, supposedly covered up by sneaky economists and other elitists, are revealed by radical social critics, and we should be shocked, shocked.

Banking is a system that runs on make-believe and survives on ignorance.

Does it matter that a significant swath of the left thinks that standard stuff in a money and banking course is a great discovery that will shake capitalism to its foundations? And if I complain, am I just defending my own privileges as a so-called expert? Funny, I thought the reason to spend years of my life learning an intellectual speciality was to be able to make a contribution. Sorry about that.

Stranger than Friction

Barry Schwartz argues in this morning’s New York Times that capitalism is all about efficiency, and the problem is that too much efficiency can be a bad thing.  A more profitable company, he says, is a more efficient one, and capitalists are right to pursue profit, but maybe we should slow them down a bit—add some friction to the process.

I am reminded of the students I have every year, and there are a lot of them, who just can’t accept the idea that “equilibrium” in a market does not necessarily imply “good”.  You can have equilibrium in a market for slaves, or for nuclear weapons, or simply for your ordinary neighborhood drone.  How markets work and whether we are better off because they work that way are two entirely different questions.

So also with profit.  A more profitable company is not necessarily more efficient in any sense other than better at making profit.  Transferring more of the value added from paychecks to dividends is not more efficient than the other way around, but it is more profitable.  To be more precise, to be sustainable a business has to be profitable, but a more profitable business does not necessarily contribute more to society than a less profitable one.  (Note: in a stakeholder economy the goal of business would be to maximize the probability of being profitable over a given time horizon, not to maximize profit per se.)

It is distressing that Schwartz can muse on the implications of the financial crisis for his notion of profit-seeking but never consider the concept of risk.  Higher profit purchased at greater risk is not always such a great bargain, especially in a world of limited liability, not to mention bailouts of the systemically hyperconnected.

How did it come to be that conventional wisdom, which was once skeptical of profit—maybe even too skeptical—has now embraced the assumption that more profit means more better?

Which Half?

From the abstract for "Your Right Arm for a Publication in AER?" by Arthur E. Attema, Werner Brouwer and Job Van Exel:

The time tradeoff (TTO) method is popular in medical decision making for valuing health states. We use it to elicit economists’ preferences for publishing in top economic journals and living without limbs. The economists value the journals highly, and have a clear preference between them, with American Economic Review (AER) the most preferred. Their responses imply they would sacrifice more than half a thumb for publishing in AER.

Housing and Net Imports Revisited

Readers of EconoSpeak with very good memories may recall that I raised this issue in late 07/early 08 (see here and here).  Now Karl Smith has again pointed out the connection between US current account deficits and its housing bubble.  His FREDgraph is intriguing:

Two words of caution, however.  First, the trade balance in this graph is net, while residential consumption is gross.  In reality, the capital inflows that financed our trade deficit were apportioned between housing and other loci of borrowing.  Second and far more important, it is dubious to assume, with Smith (and Bernanke and Obstfeld), that the primary direction of causality was from differential savings propensities (low in the US, high in China) to trade imbalances, when it was the other way around.  As far as I know, no one has ever rebutted the argument I made in Challenge five years ago.  If it’s right, trade is primary.

The Potential Output Debate And the Older Natural Rate and NAIRU Debates

So, Mark Thoma has Tim Duy on again, http://economistsview.typepad.com/economistsview/2012/02/fed-watch-again-with-potential-output.html , with Krugman chiming in with his semi-goofy "Duy on Bullard on Duy on Bullard on Tinker to Evers to Chance." I agree with Duy that Bullard understates the various ways that the bubble crash messed up the financial system, but I want to note the link between this debate and an older one that we have heard less of lately. Some of the links are curious. In particular, although he avoids the language of those debates, I see Bullard in effect supporting views of people who disagree with the old conventional consensus, although in this he may have been following Alan Greenspan as well as Jamie Galbraith circa 1996 analytically, even if not in terms of policy.

So, Arthur Okun coined the idea of NAIRU, which arguably was linked to the old textbook Keynesian story of a clearly defined potential output, with AS curves flat out to that level of output and then suddenly going vertical, in contrast to the one described by Keynes in the GT chapter on prices that had bottlenecks setting in well before then and "reducing elasticity" as one approached the "classical" zone where that elasticity went to zero. While I have never seen a coherent argument why NAIRU should coincide with this, when Milton Friedman posed the idea of the natural rate of unemployment, which simply swept the profession, most observers tied the NAIRU level of output to the level of output associated with Friedman's natural rate of unemployment, a level of output the economy supposedly goes to if there are no particular shocks and policy is more or less neutral, presumably an equilibrium level of frictional unemployment, hence only voluntary. Some would go further and link this with the old Wicksellian (picked up by some of the Austrians) natural rate of interest as well holding, a nice across the board general equilibrium level of output that could be identified in some sense with the supposedly clearly defined potential output of the old Keynesian textbook stories.

But then a funny thing happened on the way to Broadway, namely the mid-to-late 90s. As unemployment fell through what many thought was its natural rate and no acceleration of inflation appeared, indeed the opposite happened, Greenspan sent his minions to the basement of the Fed and decided that productivity was improving sufficiently rapidly that we did not need to tighten monetary policy to avoid crashing into NAIRU. While this did not fundamentally upend the concept, it coincided with critiques coming from people such as Galbraith who argued that the concept was profoundly flawed and fundamentally useless. And Greenspan's continued loosening of policy without any inflation happening burnished his image.

Indeed, from the very beginning of the natural rate discussion there had been people such as Phelps and later Summers who annoyingly pointed out the substantial endogeneity of the natural rate to past unemployment, how long spells of unemployment can make it harder for people to operate in the labor market, something that we are hearing again as voices are now being raised to claim that the natural rate has gone back up, although it remains unclear that if output were to rise sufficiently to push unemployment below that rate we would see an acceleration of inflation.

Now, Bullard's position on this seems to have two contradictory parts. On the one hand, while eschewing the language, he seems to recognize the very weakness and fuzziness of the whole natural rate/NAIRU argument. This is an implication of his valid arguments regarding the fuzziness of the concept of potential output. As with Friedman, it is supposed to be the outcome of a general equilibrium of the economy. However, what the general equilibrium is or should be depends on a bunch of things such as the number of effective sectors in the economy and the degree of price stickiness, and so on. It is not well-defined, implying that these other concepts are also not well defined. OTOH, it sort of appears that he is using this fuzziness, along with the legitimate concern that potential output, however measured or defined, will be growing at a lower rate due to the outcome of the bubble crash (for my part due to reduced capital investment, even if that is not his argument), that then we may need to worry about crashing up against it and should avoid doing so just in case it might also turn out to be NAIRU, despite the lack of any apparent inflationary pressure in the economy, not to mention still low levels of employment relative to working age population and substantial measured excess capacity of the capital stock.

For my part, to the extent the problem is indeed ultimately one of insufficient aggregate demand holding down real capital investment and thus the growth of the natural rate of unemployment output/potential output, etc., then the answer is most certainly not to tighten up any time soon on the macro policy levers, unless somehow Bullard is one of those folks who thinks that AD might actually be stimulated by higher interest rates. But I have not seen him claim that and doubt that this is what he is advocating.

Is Bullard Rejecting the Bush Boom?

Certain diehard believers of the Laugher Curve likely enjoyed Jerry Bowyer’s The Bush Boom thinking that the 2001 and 2003 tax cuts lead to an explosion in potential GDP just like the Reagan 1981 tax cut allegedly did. I hope (but do not expect) that they realized that the latest from James Bullard contradicts their sacred supply-side silliness:

I think it is plausible that such a line would be lower than the CBO potential line in Irwin's picture, and thus that the current output gap even by a production function metric would be smaller than the one in the picture.

Bullard essentially claimed that before the latest recession we were already beyond potential GDP. Now I’m not buying this argument and I applaud The Money Illusion for an excellent discussion that I wish I had penned.

Now admitting that estimating potential GDP is hard but also admitting that no one of us necessarily has a better series than the one put forth by CBO, I decided to look at the annualized growth rates in potential output implied by their series by decade. For the 1950’s we had 3.68% growth per year with the growth rate for the 1960’s being 4.2%. And yes growth in the 1970’s slowed to 3.25%.

Of course, the Reagan years changed all that and we had potential GDP growing at a 3.03% per year in the 1980’s. Oh wait – I thought there was supposed to be some supply-side miracle. For those roaring 1990’s, CBO is claiming that potential GDP grew by 3.15% per year.

But to my main point – the CBO estimates of potential output suggest annualized growth of only 2.36% during the alleged Bush boom. And Mr. Bullard thinks CBO was overestimating potential GDP? And the Republican recipe for faster GDP growth is a return to the policies of Reagan and George, Jr.? OK!

Poor Economics

Not as far behind the curve as usual (less than a year), I just finished reading Poor Economics by Banerjee and Duflo.  It’s well-written and certainly worth a close look by anyone interested in global poverty, which should be everyone.  Here are some reactions on my part:

1. At times the perspective of the book flirts with nominalism.  It seems to claim that only bottom-up perspectives and actions can meaningfully change the world: the search for a better “health policy” may be a chimera, for instance, while there is much we can do to improve the performance of this particular clinic in this region.  My guess is that the authors would not go this far and would say that they are simply redressing an imbalance—that previous analysts of health and other policies were too prone to make sweeping judgments at an altitude too far above ground level, and that it is time to become more fine-grained.  Fine, but I would like them to say this more clearly.  To put it a bit differently, interventions are needed at all levels, from the village (or even lower) to the international, and in an ideal world our experiences in each would inform how we go about the others.  To continue the example, just as national health policies should reflect what one has learned from the close study of a particular clinic, one would go about health policy at the village level differently depending on decisions taken higher up (for instance regarding what kinds of investments to make in training health professionals).  Maybe this wider view will show up in their next book.

2. The book works best in the later chapters that are more traditionally “economic”, such as those on insurance and credit; the early chapters are less successful.  The reason is not hard to find: the authors are rather narrowly trained as economists, and they do not cite much literature outside their own field.  An instructive example is their misuse of the term “iron law of oligarchy”, which dates to Michels’ study of the organizational structure of syndicalism.  It is not nitpicking to point this out: Michels is one of the canonical texts in the field of political sociology, and almost every sociologist knows his theory.  Inadvertently, B&D are telling us they do not have a background in social theory.  Of course, everyone cannot know everything, and we need a division of labor in the study of poverty, just as in any other domain.  But economists should know their limitations going in and make an effort to at least acquaint themselves with the thinking of other specialists on the topics they are studying.  The chapters on education and health, for instance, would have been much stronger if there were more attention given to what education and public health analysts have been saying and doing.

3. Even within economics the authors are rather narrow.  This is striking, because their spirit and instincts are generous, even though their analytical toolkit is not.  One telling example which runs through the entire book is their depiction of the “poverty trap”.  They present it as the hypothesis that there are increasing returns to some kinds of investment, so that at low levels of investment there is insufficient incentive to invest more.  This is good as far as it goes, but it doesn’t acknowledge other mechanisms.  If you think about a poverty trap as a kind of multiple equilibrium, you would expect three different varieties.  There are two kinds of static multiple equilibrium processes, increasing returns (the B&D hypothesis) and interaction (sufficiently strong cross-effects between the elements of an interactive system).  In addition, there is a third, dynamic basis, adjustment processes that alter the initial conditions (hysterisis).  The first of these, the B&D version, is the most widely “approved” within the economics profession; the third has made inroads beginning with the Sonnenschein-Debreu-Mantel intervention of the 1970s and the subsequent equilibrium unemployment literature, but is still on the margins; the second remains utterly heretical and is confined to cranks and misfits like me.  How does this translate to poverty?  Hysterisis is about how the coping mechanisms of poor people, which may be necessary to alleviate the worst effects of their situation, can also reinforce their situation.  Fatalism as a psychological strategy illustrates this.  Interactive traps would be those in which multiple economic, social and political factors combine to entrap individuals in poverty and are mutually reinforcing, so that it is not possible to make progress on any one front alone.  These are not idle speculations.

4. The authors are self-aware culturally but not politically-economically.  They are refreshingly honest about their preconceptions as outsiders from a much more prosperous background, and their learning process is one of the main themes of the book.  At the same time, there is no discussion at all about where their funding comes from, why some projects are funded and not others, who funds their local partners and why, etc.  This is important not only because there really are competing agendas in the world of development research and policy (surprise), but also because their approach is expensive.

5. Although B&D don’t seem to recognize it, their core recommendation regarding policy, that it be based on careful, ongoing assessment of outcomes, adheres to one of the major practitioner traditions of recent decades.  Its roots go back at least as far as Dewey’s “intelligent action”; another theoretical foundation is cybernetic theory, e.g. Stafford Beer.  (Schön’s reflective practitioner is not far from this either.)  The idea is that effective management requires a feedback loop incorporating information-gathering, analysis and plan revision, one that is built in from the beginning and operates continuously.  The idea has really taken hold in the “adaptive management” of natural resources, for instance in ecological restoration.  Academic readers of this blog may be familiar with it through the emphasis on assessment in effective teaching.  (You design your classes so that you get a continuous stream of information, in real time, on how students are learning, and you adjust your methods and content accordingly.)  I think the book would have benefitted enormously by making the connection between poverty policy and broader perspectives in management and the professions.