Q: When you read about where most private philanthropic dollars and official aid go, a lot of it goes into health, education and other areas that Oxford economist Paul Collier refers to as ‘photogenic subjects.’ Do you think the money going to these sectors is being used well?
Banerjee: The real issue is often in program design. Our endlessly repeated line is that details matter infinitely. The difference between successful programs and unsuccessful programs is not the sector, it is how you do it. Has the implementer thought completely about the reasons why a program might not work? In my experience, even when you talk to very competent, well-meaning organizations, that is the step where you see the biggest gap.
This is why macro is so sterile. Details matter. Looking at aggregates, the sine qua non of macroeconomics, like 'investment' or the 'interest rate' obscures so many important variables. To think there is a profound causal relation between some aggregate quantity like 'consumption' or 'the savings rate' and future growth, assumes that all the little details don't matter, but they matter a great deal.
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Another example, which you often hint at, is the large amounts of money spent on research/universities by our governments. It is decided that this "investment" is going to be good for the economy, and that's it.
Almost universally poorly designed, and with no thought of how this "investment" is really generating growth, it just wastes useful resources and generates inflation in funding requests, published papers, or you name it.
I wonder how much attention this form of inflation in government-funded research is actually studied by our research universities. Not that it would not be socially interesting. Rather that some strong incentives are at play here. I find it so sad.
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