The growth v. inequality debate attracts such widespread participation because, at entry level, it makes such minimal demands on the human intellect. But the debate can be conducted at many levels, leading us into some intricate and indeed treacherous terrain. The newly-declared goals of the World Bank Group—to end extreme poverty in the world by 2030 and to promote shared prosperity in all societies—take the Bank into this disputed terrain and compel it to join in this important policy debate. I have just published a paper to elaborate on the meaning of these goals, examine their strengths and weaknesses, and to initiate a discussion of what kinds of policies these goals push us towards.
But the paper has a subtext. Over the years, economics has improved vastly in terms of the use of statistics and facts. The paper argues that where the economic policy debate has fallen short is in the use of reasoning. The ubiquity of unreason in contemporary discussions is worrying. What is often not realized is that in the dictum, "Policies should be evidence based", the word "based" is as important as "evidence". It is not good enough to make a hand-waving reference to some evidence and leap to ones preferred policy.
Here is one example that illustrates two mistakes.
Having prior unbending categories and convictions can be a stumbling block to good reasoning. I have heard ideologues remark how openness of the economy is desirable because there is no economy in the world that is totally closed and has grown. This comment illustrates two mistakes. First, it uses past evidence and induction improperly. In case no totally closed economy had grown because no totally closed economy has ever existed on earth, then that would demonstrate nothing about whether or not totally closed economies can grow. Proper inductive reasoning would require first showing that there are totally closed economies and then demonstrating that these had not grown.
The second problem arises from the fact that the ideologue’s argument is based on a glaring factual error. In reality, there is a stark example of an economy that is totally closed and has grown well. The example is the earth, which may well be the sole example in our universe of a totally closed economy, and it has grown phenomenally well over the centuries. This shows that the italicized observation in the previous sentence is fallacious.
There are some readers who will deduce from the above argument of mine that I am in favor of closed economies. As it happens, I believe that openness is, generally, better for economic development; and protectionism tends to hurt—not always but most of the time, both the protected economy and those beyond. Hence, to have deduced from the paragraphs that I was arguing against openness would be a third kind of mistake in reasoning.
Illustrating three kinds of errors in reasoning in such a short blog must suffice.