Do economic ideas shape government policy? The answer seems obvious. After all, many people complain that economists have a strong influence on governments (for example, see here). But if there is a shift in prevailing economic ideas, does that flow through to government policy? It is an interesting question that is difficult to answer, so I was intrigued to read this job market paper by Eric Robertson (University of Virginia).
Robertson looks at the effect of the death of Thomas Malthus in 1834 on the decisions of British bureaucrats in colonial India. Specifically, he exploits:
...a unique historical experiment in a nineteenth-century British bureaucracy, focusing on an argument that Malthusian population theory and its associated ideas discouraged policymakers from intervening in response to agricultural distress and famine... Central to my approach is a bureaucrat training college, Haileybury, where civil servants studied prior to their careers in British India... Thomas Malthus taught economics at Haileybury for nearly three decades, from 1805 until his abrupt death in 1834, after which he was replaced by a contemporary critic, Richard Jones. I examine how the relative differences in exposure of bureaucrats to economic ideas under each instructor at Haileybury influenced their subsequent policy decisions, as well as their alignment with government directives...
Malthus and Jones had quite different views on the causes of poverty and famine, and their ideas suggested quite different policy responses. Malthus believed that it was diminishing productivity of agriculture as a result of overpopulation that caused poverty and famine, while Jones believed that capital investment and technological growth could offset diminishing agricultural productivity. So, in response to famine, bureaucrats trained by Jones would be more likely to respond with measures to supplement incomes than those trained by Malthus, with the latter believing that assistance was unnecessary in response to a natural mechanism that would ultimately lead to better living standards (because there would be fewer people after the famine).
Robertson constructs a dataset of bureaucrats ('district collectors') in colonial India and their policy decisions in response to droughts ('rainfall shortages'). Bureaucrats who wanted to actively respond to a drought had many means to do so, including:
...writing off taxes on agricultural land, opening public works to provide employment opportunities and raise wage income, distributing cash or food aid, importing food for subsidized sale, and providing loans or advances to the agricultural class...
Robertson looks separately at each of those policy responses. This 'natural experiment' is a useful way of establishing the causal impact of economics ideas on policy decisions, because the exact timing of Malthus's death was unrelated to the traits of the bureaucrats being trained. That means the bureaucrats trained just before Malthus's death, and those trained just after Malthus's death, are unlikely to be systematically different in ways related to policy decisions (other than through the way they were trained).
Robertson finds that:
...compared to their Jones-trained (Jonesian) counterparts, Malthus-trained (Malthusian) bureaucrats were less likely to provide relief across all of these common government interventions. I show that tax write-offs during drought were roughly thirty percent lower under Malthusian collectors than under Jonesians and I find evidence that expenditures on public works may have been up to twenty percent lower...
...a back-of-the-envelope calculation suggests that, if Malthusian collectors had implemented policies comparable to Jonesians, the increased aid would have translated into enough calories to support two million more person-days of subsistence during each episode of drought.
Robertson concludes that:
This research offers evidence that the exposure of bureaucrats to different types of economic ideas alters the types of policies they choose to implement.
So, the good news is that economic ideas do shape government policy (or, at the least, they did in the 19th Century). The bad news is also that economic ideas do shape government policy. Because not all economists agree. In this example, Malthus and Jones disagreed on the appropriate policy response to droughts. The Indian people were far better off (in terms of poverty relief, and probably welfare) during a drought when the bureaucrats were trained by Jones than when they were trained by Malthus. Millions of Indians died in famines in the 19th Century (see here). [*] Getting policy right has high stakes.
This research shows that what economics students are taught at university really does matter. That is both gratifying (to know that students will take on board what they learn and use it later) and a little scary (because what if they take on board the 'wrong' lessons, from the 'wrong' economics?). We could easily take a negative impression away from this, but there is a more hopeful lesson here. Economics classes, books, and arguments can make the world better, and sometimes dramatically so. That’s a pretty good reason to keep doing more of what we are doing, but also ensuring that students are equipped to take a critical view of what economics can really deliver through policy changes.
[HT: Marginal Revolution, both last year and this year]
*****
[*] Robertson reports no statistically significant impact of Malthusian training on famine or mortality, but those analyses lack the same extensive data available for the other analyses. It seems credible that the absence of assistance under Malthusian bureaucrats would have led to at least some negative impacts in the form of greater famine and/or mortality.
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