“Why is economic theory such a difficult discipline?” Wondered the Nobel laureate in economics, Paul Krugman, in “Selling Prosperity,” a book published in the mid-1990s. His answer: in part, because it cannot be boxed for controlled experiments and because it deals with human beings who do not behave simply and mechanically.
But could the latest work by Nobel laureate economists (focusing on controlled and natural experiments) create a kind of revolution in the social sciences and help improve public policy?
Ryan Cooper, a Chilean economist who was a former student of Joshua Angrist, who was awarded the Nobel Prize in Economics this year, believes so and in this interview with LR he explains why.
How applicable to our countries are the research of the latest Nobel Prize winners in economics?
Most of the research carried out by the economists who have won the Nobel Prize in Economics 2019 and 2021 and other colleagues, are very applicable to the reality of Latin America and, in particular, to Colombia since the learning is related to general concepts and theories of the economy and its application to public policies, rather than to the evidence of the specific intervention subject to experimentation.
For example, with Card and Krueger’s famous 1994 study of minimum wage in the United States rather than staying with the exact magnitude measured of the effect on employment of raising the minimum wage in Pennsylvania, what is really important to retain is that it is not obvious that raising the minimum wage will always increase unemployment.
This learning, in addition to having very powerful consequences for the implementation of wage policies in general, has it for different countries since the mechanisms that explain the learned phenomenon (in this case the existence of monopsonies) do not vary from country to country.
This has been evidenced by studies by other researchers who have obtained the same results in different countries and contexts. The article by Neilson et.al. 2013, for example, studies the effect that neonatal treatment in low birth weight newborns has on the human capital of these people a decade later and finds exactly the same result (a positive and statistically significant impact) in Chile and Norway.
Why do you think we are facing a revolution that will help improve public policies and social innovation?
Public policies are based on ideas, intuitions, ideologies, available resources, among other ingredients, but they are not fed by scientific evidence. Current public policies resemble medieval medicine.