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14 October 2019

Today's Nobel Prize winners show how economics can change the world for the better

Michael Sanders

MICHAEL SANDERS: Economics is more than an obsession with arcane theories and free markets

RCTs have had a big impact on poverty

It’s always fashionable to call economics the “dismal science”, or to rail against its obsession with rationality, with finance, and its disconnect from reality. There’s always mileage in a few column inches about how this “anti-social theory” is bad for the world, and how things would be better if it just didn’t exist. Those who do not believe that psychologists or sociologists should enjoy the privileged position of economists often believe that computer and data scientists will usurp them.


Some days there are reasons for hope, and even outright optimism, in the face of this negativity and the undoubted harm economics’ detractors and their views have done to the world. Today’s announcement of the Nobel Prize in economics, awarded to Esther Duflo, Abhijit Banerjee and Michael Kremer, provides us with one of those days, and with a reminder of the fact that these three winners have given us more than their fare share of hope in the past.


The three winners are mostly famous for being founding members of the Abdul Latif Jameel Poverty Action Lab (or JPAL), which is the epicentre of the move for experimental methods –  the use of randomised controlled trials (RCTs) – in international development, and increasingly in the application of evidence to tackling poverty in the developed world.


J-PAL don’t brag about how many RCTs they’ve run around the world, but the number is certainly north of 1,000 – an eye-watering number considering the comparative recency of their emergence into the world (J-PAL was only set up in 2003). Their evaluations have had huge and far-reaching consequences for international development; what is perhaps their most famous work, a collaboration between Kremer and Ted Miguel on the impacts of deworming programmes, has been hugely influential. Time and again, JPAL research uses a blend of the practical – coordinating trials around the world is hard work – and cutting-edge analysis to change the way we think about how to help the world’s most disadvantaged people.


To focus on J-PAL is, however, to underplay the importance of the three winners’ work. Although these are the faces that launched a thousand trials directly, the indirect scale of their impact is enormous. The experimental revolution has transformed economics (although many would argue that this transformation is far from complete), and policy as well.


The belief that we can do field experiments in economics – as RCTs are often called – did not begin with Duflo and her colleagues, but their work, along with that of others like Chicago’s John List, caught the imagination of a generation of economists. If we could do field experiments at scale in the developing world, why not in the developed world. If we could experimentally test interventions aimed at alleviating poverty, why not in education, in crime, in social care?


Out of this generation has sprung not just experiments, but institutions. From the UK’s What Works Network and the Behavioural Insights Team, to Innovations in Poverty Action, the Arnold Venture, the work of the Bill and Melinda Gates Foundation, and countless others across the world all owe their focus, or their very existence, to these three pioneers. Larger organisations still – from the World Bank to the Department for International Development (DFID), whose Chief Economist, Rachel Glennerster, was previously Executive Director of J-PAL – have had their focus and their rigour changed and enhanced by following the lead of Duflo and colleagues.


Looking forward, the decision to award the Nobel Prize to these three economists reminds us of some important things. First, that economics is more than an obsession with arcane theories and free markets – instead, it can be a tool for changing the world for the better. Second, that research is a contact sport, and that by empirically observing the world we can have more impact than by staying at home. Finally, that change, although slow, is coming to our profession. Duflo is only the second woman to win the Nobel, and the youngest laureate ever. As with experiments, the revolution away from old white men is incomplete, but, at the risk of being too optimistic, we’re on our way.

Dr Michael Sanders is a Reader in Public Policy at the Policy Institute, King’s College London, and Executive Director of the What Works Centre for Children’s Social Care.

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