The Time Series Consumption Function Revisited

macroeconomics, consumption, life-cycle hypothesis, consumer spending, income

Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development

There is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development. There is skepticism about the ability of econometric analysis to resolve these issues, or of development agencies to learn from their own experience. In response, there is movement in development economics towards the use of randomized controlled trials (RCTs) to accumulate credible knowledge of what works, without over-reliance on questionable theory or statistical methods. When RCTs are not possible, this movement advocates quasi-randomization through instrumental variable (IV) techniques or natural experiments. I argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding: two key issues are the misunderstanding of exogeneity, and the handling of heterogeneity. I illustrate from the literature on aid and growth. Actual randomization faces similar problems as quasi-randomization, notwithstanding rhetoric to the contrary. I argue that experiments have no special ability to produce more credible knowledge than other methods, and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority. I illustrate using prominent experiments in development. As with IV methods, RCT-based evaluation of projects is unlikely to lead to scientific progress in the understanding of economic development. I welcome recent trends in development experimentation away from the evaluation of projects and towards the evaluation of theoretical mechanisms.

Understanding the mechanisms of economic development

I argue that progress in understanding economic development (as in other branches of economics) must come from the investigation of mechanisms; the associated empirical analysis can usefully employ a wide range of experimental and non-experimental methods. I discuss three different areas of research: the life-cycle saving hypothesis and its implication that economic growth drives higher rates of national saving, the theory of speculative commodity storage and its implications for the time-series behavior of commodity prices, and the relationship between economic growth and nutritional improvement. None of these projects has yet been entirely successful in offering a coherent account of the evidence, but all illustrate a process of trial and error, in which although mechanisms are often rejected, unlikely theoretical propositions are sometimes surprisingly verified, while in all cases there is a process of learning about and subsequently modifying our understanding of the underlying mechanisms

The Financial Crisis and the Well-Being of Americans

The Great Recession was associated with large changes in income, wealth, and unemployment, changes that affected many lives. Since January 2008, the Gallup Organization has been collecting daily data on 1,000 Americans each day, with a range of self-reported well-being (SWB) questions. I use these data to examine how the recession affected the emotional and evaluative lives of the population, as well as of subgroups within it. In the fall of 2008, around the time of the collapse of Lehman Brothers, and lasting into the spring of 2009, at the bottom of the stock market, Americans reported sharp declines in their life evaluation, sharp increases in worry and stress, and declines in positive affect. By the end of 2010, in spite of continuing high unemployment, these measures had largely recovered, though worry remained higher and life evaluation lower than in January 2008. The SWB measures do a much better job of monitoring short-run levels of anxiety as the crisis unfolded than they do of reflecting the evolution of the economy over a year or two. Even large macroeconomic shocks to income and unemployment can be expected to produce only small and hard to detect effects on SWB measures. SWB, particularly evaluation of life as a whole, is sensitive to question order effects. Asking political questions before the life evaluation question reduces reported life evaluation by an amount that dwarfs the effects of even the worst of the crisis; these order effects persist deep into the interview, and condition the reporting of hedonic experience and of satisfaction with standard of living. Methods for controlling these effects need to be developed and tested if national measures are to be comparable over space and time.

Aging, religion, and health

Durkheim’s famous study of suicide is a precursor of a large contemporary literature that investigates the links between religion and health. The topic is particularly germane for the health of women and of the elderly, who are much more likely to be religious. In this paper, I use data from the Gallup World Poll to study the within and between country relationships between religiosity, age, and gender, as well as the effects of religiosity on a range of health measures and health-related behaviors. The main contribution of the current study comes from the coverage and richness of the data, which allow me to use nationally representative samples to study the correlates of religion within and between more than 140 countries using more than 300,000 observations. It is almost universally true that the elderly and women are more religious, and I find evidence in favor of a genuine aging effect, not simply a cohort effect associated with secularization. As in previous studies, it is not clear why women are so much more religious than men. In most countries, religious people report better health; they say they have more energy, that their health is better, and that they experience less pain. Their social lives and personal behaviors are also healthier; they are more likely to be married, to have supportive friends, they are more likely to report being treated with respect, they have greater confidence in the healthcare and medical system and they are less likely to smoke. But these effects do not all hold in all countries, and they tend to be stronger for men than for women.