How the Mixed Marriage of Economic Institutionalism and Philosophy Can Save the

World from Poverty

Joshua BraggNorwegian University of Life

Sciences: Business School (UMB)

I do not see how one can look at figures like these without seeing them as representing possibilities.

Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s?

If so, what, exactly? If not, what is it about the “nature of India” that makes it so?

The consequences for human welfare involved in questions like these are simply staggering:

Once one starts to think about them, it is hard to think about anything else.

Robert E. Lucas, Jr.

Marshall Lectures: On the Mechanics of

Economic Development (1988)

Recipe for Economic Growth

Orthodox economics is:

• in many ways an empty box

• trapped in an idealized, mechanistic view of the world

• has obtained a few insights, but the whole basis is deeply flawed

• isolated from its roots when economists theorized purely to illustrate and understand the great practical issues of the day

"Why did nobody notice it?" - Queen of England

“we are very careful in all our papers to speak of ‘association’ and not ‘causality’.”

Reinhart Rogoff Response to

Critique - Wall Street Journal

(April 16, 2013)

“Population, when

unchecked, increases in a geometrical

ratio. Subsistence

increases only in an

arithmetical ratio.”

“[scientific theories are] designed specifically to be blown apart if proved wrong; and if so destined, the sooner the better.”

Edward O. Wilson in Consilience: The Unity of Knowledge (1998)

utilizing universal postulates of behavior and technology, and the simplifying assumption that the unmeasured variables remain constant”

“Economics is that discipline within social science that seeks refutable explanations of changes in human events on the basis of changes in observable constraints,

1. Pick three random numbers (0-9) X1 X2 X3

2. Now reverse them X3 X2 X1 or 321

3. Where the three-digit num X1 X2 X3 > X3 X2 X1, subtract the smaller three-digit number from the larger; i.e. 321 - 123 = abc

4. X1 X2 X3 - X3 X2 X1 = integers a b c

5. Now add results a + b + c = Y

18

Economists

MONIAC (Monetary National Income

Analogue Computer)

created by the "Indiana Jones of Economics", Bill

Phillips

A working Phillips Machine can be

found at Cambridge University

"It is hard to find [laws] in nature and we are always having to make excuses for them: why they have exceptions – big or little; why they only work for models in the head; why it takes an engineer with a special knowledge of real materials and a not too literal mind to apply physics to reality."

- Nancy Cartwright

Economist: “On the one hand…, but on the other hand…”

“Someone please give me a one-handed economist!”

The classroom at University of Copenhagen where I first learned about TFP

“Since we know little about the cause of productivity increase, the indicated importance of this element may be taken to be some sort of measure of our ignorance about the causes of economic growth.”

Moses Abramovitz, first economist to attempt to determine the sources of productivity growth (1956)

Romers' Growth Model:

“Innovation, economies of scale, education, capital accumulation, etc. are not causes of growth; they are growth.” - North and Thomas

Douglass C. North, recipient of the Nobel Memorial Prize in Economics in 1993, for his work in economic history and the importance of institutions celebrating his 90th birthday with Elinor Olstrom (2009 Nobel prize winner in Economics).

Economic Institutions as Determinant of Growth

• Geography• Culture• Luck• Institutions– Property rights -> incentive

to invest in physical or human capital.

–Market economy -> incentive to allocate resources efficiently.

“Institutions are the rules of the game in a society or, more formally, are the

humanly devised constraints that shape human interaction”.

- Douglass North

Institutions can be non-economic. i.e. Social, Political,

Legal

Institutions are a product of our cultural heritage as humans.

• Cultural heritage is handed down over generations (deeply embedded) as set of institutions and beliefs.

• They are the eye-glasses in which we see the world (paradigms) (Muslim, American, tribal, plutocrat)

• They produce a mix of good and bad that shape the way we make choices.

• They influence the way societies approach problems.

• Cultures evolve as beliefs from the past meet new experiences. Both heritage and experiences shape our understanding of the world.

There is a hierarchy of institutions. Political institutions determine the distribution of de jure political power, which in turn affects the choice of economic institutions.

- Robinson, Acemoglu, Johnson (2005)

How do we Establish Causality?

• Scatterplots, OLS regressions, correlations

• Natural experiments- Korea post-WWII- Reversal of Fortune

(Colonialism)

Peter Geach (1961) exemplifies how causation becomes difficult to pinpoint when there are numerous and counter-acting causal factors:

A heater is capable of warming a room to 25 degrees within an hour, but it might not actually reach that temperature. In addition to the heater, there might be an open window, or even an air-conditioner, disposing towards cooling the room.

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