What aid critics could learn from movie critics

The Wall Street Journal yesterday had an article on "2010: worst movie year ever?". Movie critics have a way with words that leaves us aid critics in the dust.

Hollywood is fighting a war on numerous fronts, and losing all of them.

And movie critics are even worse at something aid critics are often accused of: much more focus on the negative than on constructive positive suggestions -- "just stop."

Stop making movies like "Grown Ups," "Sex and the City 2," "Prince of Persia" and anything that positions Jennifer Aniston or John C. Reilly at the top of the marquee. Stop trying to pass off Shia LaBeouf—who looks a bit like the young George W. Bush—as the second coming of Tom Cruise. Stop casting Gerard Butler in roles where he is called upon to emote. And if "Legion" and "Edge of Darkness" and "The Back-up Plan" and "Hot Tub Time Machine" are the best you can do, stop making movies, period. Humanity will thank you for it.

Scorchingly negative movie critics are like aid critics in their social function -- clear away all the bad stuff to make room for the good stuff. Without movie critics, we'll have an octogenerarian Sex and the City 8. With critics, we have some hope of some day having another Godfather or Annie Hall.

How skill beats luck in the World Cup of Development

This blog periodically points out the role of randomness in development, much to the frustration of many readers. This post is how to set things up so that skill triumphs over luck. Today’s official metaphor is, of course, for us sports-obsessed nuts, the World Cup. Early rounds have seen remarkable upsets: Switzerland beats Spain, Japan beats Cameroon, Serbia beats Germany. Yet no super long shot team has ever won the World Cup. In fact, 14 of the 18 previous World Cups were won by only 4 teams: Brazil, Germany, Italy, and Argentina.

The World Cup uses a tournament to make skill beat luck. There’s a preliminary round won by 16 out of 32 teams, and then there’s four rounds of elimination to determine the champion. To simplify for illustration, let’s just discuss a five-round single elimination tournament for 32 teams.

The tournament magnifies the importance of skill versus luck. Based on the above upsets, a weak team still manages to win a single game sometimes, let’s say for illustration 15 percent of the time. So roughly for every 7 games, there will be one huge upset, which explains why the Cup with lots of games has seen a few surprising upsets.  To win a single elimination 5-round tournament, however, this weak team would have to reel off 5 straight upset wins. The probability of this is .15 x .15 x .15 x .15 x .15 = 0.000076, i.e. 13,000 to 1 odds against this weak team winning the tournament.

In contrast, a strong team who wins a single game 85 percent of the time has a .85 x .85 x .85 x .85 x .85 = .44 probability of winning the tournament. Of course, there’s still a slightly worse than even chance that this particular strong team does NOT win, but the probability that SOME strong team will win is very, very high. (We have to make all the probabilities for all 32 teams consistent by making sure they add up to one, but I ignore this since I am only discussing a few teams.)

OK, now it's time for the clumsy transition from the World Cup metaphor to development. As this blog likes to frequently point out, economic growth has a lot of random variation. Over a short period of time (metaphorically equivalent to one game), a country with bad policies and bad institutions still might have a good growth rate. But over a long period of time (equivalent to playing many successive games), the consistent winners are very likely to be countries with good policies and good institutions. So in deciding whether a particular set of policies and institutions are good or bad, you need to look at long periods (tournaments) and not at short ones (single games). How long  the long periods have to be will depend on how important luck is in the short term; the evidence we have on economic growth is that short term luck is very important, and the periods have to be pretty darn long for proper analysis. (Hint: the periods were NOT long enough in this Rodrik analysis as to why the Washington Consensus sucks.)

POSTSCRIPT for those who hate LUCK: we are all intensely uncomfortable with the idea that luck matters at all in something we really care about -- like the World Cup. Not even this luck-reducing therapy is likely to be enough.  The example above still implies which of the strong teams wins is random. But what do the words “random” or “luck” really mean? They could capture temporary and non-replicable fluctuations in human skill as well as pure luck. There are two competing narratives: (1) a strong player on a strong team just happens to be in the right place at the right time to receive the right pass to score a Cup-winning goal. (2) a heroic player consciously exerts extraordinary skill at the most crucial moment to score the Cup-winning goal. Scientifically we can’t really distinguish (1) from (2). Psychologically, we intensely prefer (2). Fine, go with that, just remember it’s not replicable. Same goes for heroic entrepreneurs and political reformers.

POSTSCRIPT 2 for those who hate LUCK: luck matters even as much as it does for the World Cup because there has already been a lot of screening to select the best teams in the world. Saying luck matters does not imply the Balding Middle-Aged Econ Prof All-Stars would have a chance in hell against Brazil. Likewise, in development, luck matters for growth in the sample of societies as much as it does because most of them are already doing their best to achieve growth. If some whack job does a demolition job on their own economy, like Mugabe or Chavez, it’s pretty clear that bad policy will overwhelm good luck pretty quickly.

Miracles of spontaneous order: where to get a cab around NYU

The New York Times has this wonderful interactive feature today, where you can see where most cab pickups and dropoffs happen at any time of day on any day. It confirms a puzzling feature that I had already observed: getting a cab is hopeless at one corner, but if you move just one block over you are sure to get one. The map shows the number of cab pickups around NYU at 5pm on a Friday, the legendary time when it is most difficult to get a cab. Most of the immediate NYU area (around Elmer Holmes Bobst Library)  is a taxi desert, so you have to walk either west to Sixth Avenue (a well known hot spot along most of its length downtown), or east to Lafayette (for example, Astor Place).  One thing that has always puzzled me is that it's always very hard to get a cab on Broadway, running parallel to Lafayette  just one block west.

Here's one amateur theory: the less obvious hot spots (excluding train stations etc.) can emerge out of nothing.  Over time taxi customers expect to get a cab on one street corner. Then taxis are more likely to cruise that street corner because that's where the customers are.  Both customers and taxis keep going to that street corner more and more as both sides come to expect the other to behave that way. And bang, you have now gotten the 1,425,674th example of spontaneous order.

This is a good metaphor for development because....

Do what you're actually good at? or what you should be good at?

We have just finished the annual ritual in which Hollywood pretends that its job description is making quality indie movies,  instead of what it is actually good at -- producing crowd-pleasing blockbusters. Avatar was not only in the latter category by $2.5 billion or so and counting, it even got good reviews from critics. But it couldn't win Best Picture under Hollywood's hypocritical self-fantasy that rewards what they think they SHOULD be doing. Wait, I feel another Aid Watch metaphor coming on. How many aid agencies and NGOs have tried to do what they SHOULD be good at, instead of what they are actually good at? Just because a cause is worthy, or of critical importance to development -- does NOT mean that YOU are good at producing what the customers want in that area at a reasonable cost. Women's empowerment, fixing failed states, promoting good governance, community-driven development, social services for the poor -- all sound like things your agency SHOULD do. But where is your evidence that you are any good at doing any of these things? What if you are good at something else?

An interesting case in point is New Zealand aid. Before a major reform, its largest program was givng college scholarships to poor Pacific Islanders. I don't have any decisive evidence on how good they were at doing this, so this example is only suggestive, but a priori a scholarship sounds like a relatively effective way to help somebody help themselves -- the ideal formula in aid. Then the "SHOULD" nannies took over, and now the tiny New Zealand budget is divided among ALL the fashionable causes in development. (The picture below shows the breakdown between 37 possible sectors in foreign aid.)

As the New Zealand example shows (and it is characteristic of most aid agencies), the SHOULD criteria defeats the whole idea of specialization, and even tiny agencies wind up giving 5 percent of the budget each to 20 different causes. Since there are fixed overhead costs of operating in a sector (like employing sector specialists), this means that a lot of the aid budget is going to be wasted on overhead costs.

Who in aid and philanthropy will have the courage to stick to what they are actually good at? and resist pressure to pretend to do what they SHOULD be good at?

Lincoln’s Birthday Valentine’s Day Declaration: I ♥ Democracy

Democracy doesn’t attract as much love as it deserves in aid and development circles. Many wonder if benevolent autocrats might be better for development than messy elections, even though there is no evidence to support benevolent autocracy. There is a strong positive association between democracy and LEVEL of per capita income, which at least some authors argue is causal. (It’s true there is no robust association between democracy and GROWTH of income, but then there is no robust association between GROWTH and ANYTHING.) But even if there had been SOME material payoff to autocracy, why don’t we care more about democracy as a good thing in itself?

Many just can’t get that excited about majority voting. But the MECHANICS of democracy (majority voting among many others) are not the essence of democracy, which is about VALUES. The latter we care a lot more about than the former. The donors who try to promote democracy are unfortunately obsessive about the mechanics and silent on the values.

Lincoln’s Birthday was February 12, so this is a good excuse to use the Emancipator to clear things up:

As I would not be a slave, so I would not be a master. This expresses my idea of democracy. Whatever differs from this, to the extent of the difference, is no democracy.

The brilliance of this definition is how it also includes equality. No group is so second-class that we can deprive them of their rights without opening the door to deprivation of our own rights. Slavery is an extreme that can be generalized to all forms of oppression by arbitrary self-appointed authorities, which then leads to guaranteeing all individual rights.

I think I care about slavery -- and my risk of being enslaved -- a lot more than I care about whether elections are winner-take-all or proportional representation.

These soaring ideals had very practical consequences. The brilliant work of economic historian Joel Mokyr links the Industrial Revolution to changes in ideas and ideologies. Putting my own spin on Mokyr, the idea of individual freedom from arbitrary authority transformed many fields besides politics, opening them up to many more independent participants:

•Scientific democracy: ANYONE, no matter how junior, can overturn wisdom of anyone, no matter how senior, using scientific method.

•Technological democracy: ANYONE, any junior innovator, can overturn incumbent elites with something new that just “works.”

•Social democracy: ANYONE can be a social reformer, as long as they persuade their fellow ANYONES of a social evil.

So the freedom of the individual as a VALUE was far more consequential than any specific MECHANICS on how this idea was implemented -- like the endless obsession with electoral rules.

Drawing on Aid Watch’s endless and increasingly farfetched supply of metaphors, here’s another timely example of mechanics vs. values:

mechanics:

The hypothalamus transmits chemicals to the pituitary gland, which releases hormones into the bloodstream, creating a rapid heartbeat and lightness in the head.

value that corresponds to these mechanics:

Love

Perhaps some Valentine’s Day Development Bureaucracy worked on the mechanics, say a Hypothalamus Transmission Stimulation Program, featuring “results indicators” like heartbeat speed. But I think most Valentine’s Day celebrations stressed the value rather than the mechanics.

Who gets the Last Seat on the Plane? Why Aid Hates Economics

Not long ago, I was returning home from a trip when the airline bumped me from my flight due to overbooking. The airline rep was very sympathetic, but I didn’t want her sympathy, I wanted A Seat On the Plane. She had traded off my wishes against those of other passengers, and I lost. Economists are unpopular because we say there is always SOME resource that is overbooked in aid, and aid is Forced to Choose: who is going to get the Last Seat on the Plane?

Politicians and advocates try to argue their way out of the Scarcity and Tradeoffs, using one or another of these proven strategies:

(1)   There really is no scarcity

This is Sachs’ central argument for more money in aid –you should never be forced to choose who should live and who should die, so you should always ask for more aid money. This has been effective as advocacy, but still doesn’t make aid money an infinite resource – there is still a limit on how much rich people will give. And the scarce resource is not only money – it is also political capital, rich peoples’ attention, or effective and accountable aid workers in the field. So using AIDS as an example, sure you should do some of both treatment and prevention – but how much of each? In the end, they are still competing for limited Seats on the Plane.

(2)   Our project doesn’t use any scarce resources

This argument is usually made by omission. The Millennium Villages don’t advertise that they are dependent on one extremely scarce resource -- Western experts -- perhaps it would then become obvious that they are neither scalable nor sustainable. And of course there is a big tradeoff between the Millennium Villages and better projects you could do with this scarce Western expertise. A better project replaces the scarce foreign expertise very soon with more abundant local expertise and labor – such as training programs to transmit foreign technical skills to locals, who will in turn pass it on to other locals.

(3)   My cause actually is the same as your cause

Advocates of one cause often argue many other causes NEED their cause. If the necessity is absolute, then indeed the tradeoff disappears. If it is less than 100 percent absolute, there is still a tradeoff. Hey, Other Passenger who took my seat: don’t claim that You are so Important that it’s pointless for Me to get on a plane without You! Unless You are the Pilot.

In summary, there really is scarcity and aid really is forced to make intelligent choices. Be sure to give a seat to the pilot.