Economics as Medicine

Over the past couple decades, the field of economics has grown enormously. It has invaded its neighboring fields (like political science, and psychology), taken over their journals, and converted their students. However, it's a pity that the transfer of knowledge has been mostly one way. Economics could stand to gain some insights from other disciplines.

I'm particularly struck by the similarity between economics and medicine. At first it seems like an odd connection, but after a minute it seems completely natural. After all, the economy, like individuals, has health. Turn on the TV at any point of the 24 hour news cycle these days and you'll see at least eight different people discussing it. Especially now that the economy is doing poorly, these commentators are like doctors huddled around a patient with a stubborn disease, debating the cause and various prescriptions. In the case of the economy, the names of the diseases are inflation, or high unemployment, and the prescriptions are called tax cuts, stimulus packages, or deficit reduction.

I got the idea to think of economics as medicine from Jeffrey Sachs. As Professor Sachs was making a career out of advising crisis-ridden developing countries, he noticed how many of the skills he needed in his work aligned with those that his wife Sonia needed in her medical practice. Based on these experiences, which he details in his book The End of Poverty, he calls for a new kind of economics, which he calls "clinical economics," that "underscores the similarities between good development economics and good clinical medicine." There are a number of ways, he says, that [development] economics can learn from medicine. Here's his list:

1. The economy is a complex system, and complex systems require differential diagnosis. Doctors don't treat all symptoms the same way; they try to find the underlying cause. Economists, says Sachs, should do the same.
2. All medicine is family medicine. A country's economic situation depends on its history, and its international context. As Sachs puts it, "it's not enough to tell Ghana to get its act together if Ghana faces trade barriers in international markets....if Ghana is burdened by an unpayable mountain of debt....if Ghana requires urgent investments in basic infrastructure as a precondition for attracting new investors...and if Ghana is burdened by refugee movements and disorders emanating from neighboring countries."
3. Monitoring and evaluation are essential. Here takes a stab at the (now outdated) IMF and World Bank practice of judging a country's progress by policy inputs and not outputs. If it's told to cut the deficit, then it's judged by whether it follows through, and not whether this results in any solutions to their problems.
4. Medicine is a profession, and as a profession requires strong norms, ethics, and codes of conduct. Development workers need to take their work as seriously as doctors take theirs.

Excited by the prospects of this idea, I wanted to see how far I could push the analogy. In addition to the parallels that Professor Sachs pointed out, I found these ones as well:

1. Both disciplines have to find a way to make decisions in the face of vast uncertainty and bewildering complexity. In the case of medicine, the root of uncertainty is that the scale of the action is too microscopic for doctors to directly observe; but in the case of economics, it's because the scale is too big. Hence the reason why doctors and economists rely heavily on (statistical) data to figure out what's going on; the sense data (seeing, hearing, etc.) are just not available.
   
2. Both disciplines are fundamentally concerned with the well-being of people. For people to be able to live their lives, they not only need to be physically healthy, but the economy which sustains them also has to be healthy.
   
3. Both disciplines carry high stakes. In medicine, the stakes are life and death. In economics as well, the stakes can be just as severe. Poor economic policy can result in severe depressions, mass poverty, famines (even when food is plenty), and political instability.
   

Sachs' conclusion, and mine as well, is that in all the important ways, the economist's job is essentially the society-level analogue to that of the doctor, or the medical researcher. That is, even though the content of the questions economists and doctors ask are different, and even though the techniques divergely widely, and despite the myriad other differences that mark the two professions as distinct, there's a fundamental common pursuit for well-being that binds them together.

To some extent, the transfer of knowledge from medicine to economics has already begun. Esther Duflo and Abhijit Banerjee have won a lot of fame for their work at using randomized control trials to assess the impact of various development policies. In talking about how they developed these techniques, Duflo and Banerjee cite medicine as their direct source of inspiration. The world of medicine before randomized trials gave us reliable information was dangerous. We hear tales of medieval doctors performing procedures (like leeching) or prescribing drugs without really knowing whether they worked; sometimes the patient's condition would improve, and sometimes not, and recovery seemed to depend more on random chance than anything else. This world seems so long past—but that's pretty much the state where we find modern economics. Economists prescribe policies based on their best guesses, but sometimes they work and sometimes they don't. Randomized field trials finally give us a chance of knowing what works.

But Duflo & Banjerjee's randomized control trials are just the tip of the economics-medicine-interaction iceberg. Just sitting in my chair right now I was able to come up with this intriguing list of research topics:

• The first dictum of medicine is "Do no harm." Should that not be the starting point for economic policy as well? (This seems particularly applicable to the IMF and the World Bank when they advise developing countries.)
• In medicine, a very related concept to randomized control trials is the placebo effect. What if something like that exists in economic policy—which is to say, what if some policies fix recessions, or solve prisoner's dilemmas, or promote cooperation (all classic economic problems) simply because enough people believe they will work. Will Wilkinson, my favorite blogger on the web, gives a scenario of how that's possible.
• Our health, and in particular our weight, depends not just on the amount of food we eat, but also the quality of the food. Two thousand calories of junk food is very different than two thousand calories of a balanced diet. In the same way, we can't measure the performance of the economies just in terms of quantities: it matters not just how much GDP grows, or how much investment increases, or how much consumption increases, but also the kind of GDP, investment, and consumption growth that we see. Knowing that GDP increased 3% tells us very little about whether people are actually better off. (What fraction of the U.S.'s GDP growth in 2002-2008 came from housing and easy credit?). Similarly, as I discussed in an earlier post, not all kinds of consumer confidence (which is generally considered a good thing) are made equal.

Thinking about this connection between economics and medicine is really exciting. Not only do I see society, politics, the other disciplines in the social sciences all in a new light, but I'm also reminded of why I got into economics in the first place.