I'm off to the Wirral for a few days, so this incessant blogging should stop for a bit, thank God. Anyhoo, only two stories for today:

Samuelson at the Washington Post has been reading Gregory Clark's A Farewell to Alms:

Clark suggests that much of the world's remaining poverty is semi-permanent. Modern technology and management are widely available, but many societies can't take advantage because their values and social organization are antagonistic. Prescribing economically sensible policies (open markets, secure property rights, sound money) can't overcome this bedrock resistance.

Bedrock of resistance. Uh huh. Clark's main thesis (that has kicked up lots of controversy and book-sales... ah, how often those two marry) is that the industrial revolution was driven by two things: first, 'patience, hard work, ingenuity, innovativeness, education' -all that stuff. Second, the spread of these values by breeding. Successful men - and it would be men - of the time had more children than poor folk. Therefore, their values spread more.

Clark might be right - I'm not in any position to say either way, since I haven't read the book. Here's Dani Rodrik, though, and he has read it:

The book is much more effective in destroying previous explanations for the transition to modern growth than it is in proposing a viable alternative... [but] I find the idea that this lead to some form of genetic or cultural (why cultural?) selection that triggered changes in something related to the industrial revolution as completely unsubstantiated in the book.

Even if it is historically accurate, its a strange, a-historical leap from this to saying progeny-propagated culture can determine a country's development - and that's why poor countries are going to remain that way. We have this thing called education now. They even had it in the nineteenth century. Paine, pamphlets, barns, readings?

It reminds me of the World Bank's justification for poking about in people's communities, which (as I wrote about here) is quite at home trying to supplant behavioural norms and social structures, and propagandising to that end, to help build a market-ready country. But gosh, if even that's failed, it can only mean these darkies are just always going to be backward. Poor souls, we can but pity them. (Safety note: that was bitter sarcasm.)

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Someone asked Greg Mankiw last year: what have been the most important theoretical papers / breakthroughs [in economics] in the past ten to fifteen years? He replied...

Without doubt, the next hot research topic after new growth theory, at least here in Cambridge, has been behavioral economics, which integrates economics and psychology.

... and he linked to this Harvard Magazine article on the subject. As well as noting that 'the field is misnamed — it should have been called cognitive economics; we weren’t brave enough', the article tells of one particularly compelling experiment where a behavioural economist called Mullainathan...

... worked with a bank in South Africa that wanted to make more loans. A neoclassical economist would have offered simple counsel: lower the interest rate, and people will borrow more. Instead, the bank chose to investigate some contextual factors in the process of making its offer. It mailed letters to 70,000 previous borrowers saying, “Congratulations! You’re eligible for a special interest rate on a new loan.” But the interest rate was randomized on the letters: some got a low rate, others a high one. “It was done like a randomized clinical trial of a drug,” Mullainathan explains.

The bank also randomized several aspects of the letter. In one corner there was a photo—varied by gender and race—of a bank employee. Different types of tables, some simple, others complex, showed examples of loans. Some letters offered a chance to win a cell phone in a lottery if the customer came in to inquire about a loan. Some had deadlines. Randomizing these elements allowed Mullainathan to evaluate the effect of psychological factors as opposed to the things that economists care about—i.e., interest rates—and to quantify their effect on response in basis points.

“What we found stunned me,” he says. “We found that any one of these things had an effect equal to one to five percentage points of interest! A woman’s photo instead of a man’s increased demand among men by as much as dropping the interest rate five points!

The interest rate was the third most important factor. Exclamation mark! As the article notes, all this stuff wouldn't come as any surprise to advertisers, but this path of economic thinking is doing much to bring the academic mainstream closer to the marketers. Whoopee. Advertisers, however, are a feral bunch: this kind of randomised test to find out what works isn't really feasible within the advertising industry's structure. (Firms want results, ad firms pitch, they succeed or fail and survive accordingly; its more Darwinian than social scientific, but perhaps no less effective for that.)

And here's a sentence to puff the chest of every corporate communications manager:

Economists and others who engage in policy debates like to wrangle about big issues on the macroscopic level. The nitty-gritty details of execution—what do the forms look like? what is in the brochures? how is it communicated?—are left to the support staff. “But that work is central,” Mullainathan explains. “There should be as much intellectual energy devoted to these design choices as to the choice of a policy in the first place. Behavioral economics can help us design these choices in sensible ways. This is a big hole that needs to be filled, both in policy and in science.”

This suggests a future career-path: economist / graphic designer. Hmm... I can just imagine Bernanke now: 'the Federal Reserve System is open and operating, the discount window is available to meet liquidity needs and I've just knocked up a little flyer to that effect. Can someone take a look for me? I couldn't decide between aquamarine or navy.'