The following is a response from Martin Ravallion, director of the Development Research Group of the World Bank, on last week’s Aid Watch post, We must know how many are suffering, so let’s make up numbers.
Pull your head out of the sand Bill Easterly!
Faced with all these perceived “impossibilities,” Easterly and Freschi would apparently prefer to wait and see rather than take action when it is needed, based on the information available at the time. Forecasting is impossible in their eyes. What then is possible? The crisis will probably be over before we will no longer need to make forecasts or estimates to fill in for missing data. Counterfactual analysis of the impact of a crisis is also deemed to be “impossible,” even though the pre-crisis expectations for growth in developing countries are a matter of public record—hardly impossible to know! My Economix article last week defended forecasting against this type of analytic paralysis in the face of uncertainty.
Easterly and Freschi also suggest that the numbers coming from the international agencies are a muddle. Granted there are differences, but Easterly and Freschi have manufactured a good deal of the perceived muddle by mixing forecasts of different things made at different times (and hence with different information). As they could have readily verified, the 89 million figure quoted in the World Bank’s G20 paper is the estimated impact of the crisis on the number of people living below $1.25 a day by the end of 2010 based on our latest growth forecasts, as of mid 2009. “Impact” is assessed relative to the pre-crisis trajectories, as expected at the beginning of 2008.
The uncertainty about these numbers is, of course, acknowledged. But they appear to be the best estimates we can currently make given the information available.
5 Comments
This is quite interesting, and there are serious questions here that need deeper investigation. I am wondering about at least five questions. These are (1) Do the definitive numbers on poverty estimates cited by Ravallion truly exceed the limitations of the underlying data from which they were derived? (2) Is the best available data and estimate good enough for such serious policy decisions, (3) Is Ravallion truly honest about dismissing the influence of politics here? (4) Why is it necessary to create questionable statistics or to know the precise numbers of incremental poverty rate created by the economic crisis to take effective actions? (5) When such imperfect stats drive policy decisions, do they create unacceptable risk of misallocation of foreign aid? Especially during the crisis, financial resources are scare, which implies that there are more reasons to make policy decisions based on sound data and analysis.
I think Prof Easterly’s provocative blog entry is necessary for disciplining economic research, especially when it crosses over into political space. Overall I find Ravallion analytic paralysis argument not particularly convincing, and his response is reactive and simplistic.
“The crisis will probably be over before we will no longer need to make forecasts or estimates to fill in for missing data”
Is that supposed to argue for doing nothing? I doubt it, but it does anyway. If we don’t use the forecasts/estimates, the crisis will be over before we have the actual data. The crisis will be over? Yay!
What’s wrong with saying, “We don’t know”?
I agree, What’s wrong with saying we KNOW this and we need to find out more about that… Making up numbers and making plausible sense of them shouldn’t be the basis of spending large some of money unless it’s a case of get the money first and ask questions (like where to spend it) later. Would it be OK to ask for money in order to get usable data?
Forecasts, experts, …
Excellently discussed in Taleb’s “Fooled by randomness” & “The Black Swan”. A pity Martin hasn’t read those or didn’t understand them. Unlike Prof. Easterly.
I would compare Martin’s opinion on forecasting to getting into a bus driven by a blind man, ’cause it is the only bus around, it’s on schedule and people tell yesterday the bus ride went fine.