Economics can't be encapsulated into knowledge pills. And that matters for research funding.

Antibiotics - when they work - are miraculous.

A patient does not have to understand what antibiotics are, or why antibiotics are effective. All that is required is for someone somewhere in the world to create an effective antibiotic and put it into a pill. Then it can be shipped to someone with a bacterial infection, and the patient will be cured.  

Economics isn't like that. There are economic pills: Eliminate Barriers to Trade. Cut Government Spending. Target Inflation. Target NGDP.  Tax Consumption Not Income.  And some countries do take their economic medicine. But swallowing economics pills does not always lead to the hoped for results.  

Partly that's because some economic prescriptions are simply bad medicine.

But the point I want to make here is that patient cannot use economic medicine effectively unless they understand how it works. Take, for example, carbon taxes.  There is a fairly high degree of consensus among economists carbon taxes are a good idea (see here). Yet it's not possible to simply swallow a carbon tax pill. Designing and implementing a carbon tax requires specific knowledge.

Take, for example, the treatment of cement under a carbon tax. Manufacturing cement is highly energy intensive. Canada both exports and imports the product. If Canadian cement producers have to pay a carbon tax, but international producers do not, then carbon taxation would increase of the cost of producing cement domestically relative to importing it (and decrease the competitiveness of our exports). Given our free trade agreements, it is not obvious we would be able to impose a carbon tariff on imported cement to protect our domestic producers.  Under a worse case scenario, Canadian carbon taxation could cause Canadian cement production to become uncompetitive, and cement consumers would switch over to imported products. 

This is not to say that carbon taxation is a bad idea, or that carbon taxes are impractical. The point is: policy makers have to actually understand what they are doing to translate the insights of economic theory into good economic policy.

This matters for research funding. When pathbreaking research can readily be encapsulated into little knowledge pills, it doesn't matter where research is done, or who does it. The knowledge pills can be shipped from wherever they are manufactured to people all around the world, who just swallow them and receive the benefits of that knowledge.

[If the pill metaphor doesn't work for you, think of an iphone, and all of the incredibly sophisticated engineering and software design that goes into creating a device that a not particularly bright two-year-old can use.]

But for economic research, local knowledge matters. Yes, it's possible for an economic expert to fly into a country, feed the locals knowledge pills in the form of workshops and consultant reports. But it's hard to translate economic theory into good policy, and people have to understand not only the theory but the local constraints, because otherwise everything can go badly wrong (for an example, pick you favourite failed or flawed intervention - mine would be the 1989 post-Soviet transition in Russia). 

In economics it is not enough to fund "pioneering thinkers" to create "groundbreaking insights." Those groundbreaking insights have to be understood - and I mean seriously, deeply, understood, not one-day-conference understood, but experienced-researcher understood - by local experts.

That means that if the Canadian government is funding economic research, and wants to generate any benefit at all to the average Canadian, that research has to build knowledge of Canada-specific constraints, it has to train Canadian experts, and it has to build Canadian policy capacity.

One might think this point is obvious. Trust me, it's not.

Comments

[anonymous]

Frances,

Is this a (thinly-veiled) criticism of CIFAR?

Out of curiosity, I clicked the link you provided to their website, and then went to their inequality page. Lo and behold, I found there a big picture of Daron Acemoglu, who is apparently one of their Senior Fellows! Undoubtedly a great economist, but probably someone with zero knowledge about anything "Canadian-specific" (please correct me if I'm wrong about this - perhaps he has a distant cousin in Moose Jaw or something). Looks like he was in Canada to "feed the locals knowledge pills in the form of workshops and consultant reports."

[Frances Woolley]

Anonymous - not at all.

CIFAR funds pioneering thinkers to create groundbreaking insights - Acemoglu would be getting summer money from CIFAR and going to small CIFAR-sponsored workshops (ones for CIFAR fellows and a very limited number of other researchers). The point is that this interdisciplinary team of world-class researchers will be able to come up brilliant insights - ideas they wouldn't have had without CIFAR funding. CIFAR doesn't do much by way of funding workshops for policy makers or wider audiences, and doesn't (directly) fund consultant reports at all.

[anonymous]

Frances,

To clarify, I am very supportive of CIFAR.

That said, I think the spirit of your original post was about how "brilliant insights" coming out of places like CIFAR can be transmitted to Canadian policymakers. You seem content with CIFAR not taking any role in that process (and perhaps that is not any part of their mission), so who should be playing that role? SSHRC? University PR departments? Others?

More to the point, what mechanisms and incentives exist for researchers like yourself to engage in meaningful discussions with policymakers (or at least their underlings)? All the glamour goes to people like Acemoglu with their "brilliant insights" (i.e., we give tenure, promotions, grants, etc. to people who publish in Econometrica, not CPP).

[Frances Woolley]

Anonymous, if you were in the position of evaluating a cifar funded research program, what criteria would you use?

[anonymous]

Quite honestly, I have no idea what the true objective of a player such as CIFAR looks like. My guess is that it is solely status-oriented, e.g., maximizing its rank among other similar research institutions. In this sense, it is no different from any university (or economics department).

In any case, CIFAR's largest single source of funding is the federal government. Thus, the question to ask is what the Canadian government hopes to get from this investment. If, as you suggest, they want to somehow benefit "the average Canadian", then perhaps, as you again suggest, the economic research they fund "has to build knowledge of Canada-specific constraints, it has to train Canadian experts, and it has to build Canadian policy capacity." On the other hand, it could be argued that funding basic economic research (with no foreseeable policy applications) could also benefit "the average Canadian" (eventually, at least!).

[Frances Woolley]

Anonymous - I would say revenue seeking rather than status seeking, though if status leads to revenue, there may be little practical difference between the two.

Say CIFAR spends $50,000 a year funding Acemoglu (summer money + travel costs). What would you figure the marginal contribution of that money would be to Acemoglu's (and other people's) research output - i.e. what is *the increase in economic knowledge produced as a result of this money*? Think in opportunity cost terms - i.e. what would people have been doing with their time if CIFAR funding didn't exist? What's the benefit relative to that other use of people's time?

Then once you've thought about what that increment in economic knowledge is likely to be (e.g. two Econometrica publications) think about how much benefit that might deliver to the average Canadian.

Actually it's best not to think too much about these things. My house is made of glass; I shouldn't be throwing stones.

[Alex Usher]

This is also mostly what's wrong with technical assistance a la world bank.

[Avon Barksdale]

99% of funded research – in all fields – is ridiculous (and in some fields it's probably closer to 100%). Any serious economist looking at how economic research is funded would reach the conclusion that it's a system designed to produce a ton of mediocre and unimaginative papers. But the 1% that is not silly is often vital, producing major breakthroughs and a deeper understanding of reality. In economics, I would argue the most essential public good part is the government's role in the production of good datasets. We can't study what we can't measure, so let's at least not starved data collection of resources.

[Shangwen]

I think TEDx videos are basically the High Church of the pill crowd. The cult of big ideas and the pain of implementation are very different things.

[Tel]

Just look at the amazing results Krugman has achieved in Japan.

[Frances Woolley]

Shangwen - I agree, but my students love TED videos. Once I showed them a TED video on behavioural economics in intermediate micro, and they were just so sad that we weren't doing that for the entire term (though this may tell you more about intermediate micro than about TED talks).

[GMcK]

In Real Sciences(TM) you send people to where the data are. If you want groundbreaking insights into the nature of species, you send Charles Darwin to South America, Alfred Russell Wallace to New Guinea, or Stephen Jay Gould to the Caribbean. If you want to know the effects of increased seasonal temperatures on boreal forests, you send them to the Northwest Territories or Alaska or Siberia.

If you want to know about the foundations of particle physics, you send people to Geneva (CERN). If you don't care about data, you can send them anywhere, e.g. physicists to the Perimeter Institute in Waterloo.