The three winners of the Nobel Prize in economics in 2021 are naturalized US citizens. David Card from Berkley is originally Canadian, Guido Imbens was born in Holland and currently teaches at Stratford University, and lastly Joshua Angrist was born in the USA but acquired Israeli citizenship.
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David Card, who shared the prize, is the oldest among the three winners, and Guido Imbens was one of his doctoral students. According to the Nobel spokespeople, Card won the prize for his “empirical” contributions to labor economics.
Card, who continued to work with his student Imbens, an established econometrician, came to two important conclusions. The first is that the impact of low-skilled migrants to Miami did not cause a decrease in wage levels. The second conclusion was that the imposition of a minimum wage did not cause a decrease in the demand of laborers.
These two findings came as a surprise to many economists. Yet, socially inclined economists like Joseph Stiglitz, find the results to be true.
In order to study the cause and effect relationship between a policy and its effect on a large population poses a number of difficulties. The most important factor is that a policy might only affect a certain percentage of the targeted population, and if this is the case then how does one arrive at finding the average impact on the total population?
This statistical and mathematical challenge was the crux of the work undertaken by Guido Imbens and Joshua Angrist. Both worked to develop the method used, and they both shared the Nobel Prize. The Nobel spokesperson explained that both Imbens and Angrist won the prize for their methodological contributions to the analysis of causal relationships.
I really do not want to go into the technical details of what both Imbens and Rubin did, nor what Imbens and Kreuger as well as Angrist had worked on. Yet, what the three 2021 Nobel Prize winners accomplished is admirable.
They have given us a way to assess the success or failure of public polices.
We, in Jordan, are fully obsessed in counting our attempts, whether projects, policies, or measures in substantiating our roles. Yet, these are the inputs. What we actually should focus on is assessing the impact of our polices, projects, and measures on the targeted population.
This new method called, “LATE,” or the “Local Average Treatment Effect,” is something that should be taught to our researchers at the Central Bank, Ministry of Finance, Securities Commission, and the Economic and Social Council.
All of these departments have to know how their decisions to change deposit rates, tax rates, and wages affect the financial market, labor market, and investment in the economy or in the Amman Stock Exchange.
One more revelation is now in order. The “LATE” method could also be used to assess the impact of COVID-19 vaccinations on public health, economic activity, and economic growth.
Another aspect of economics that is extremely useful for public policy assessments is behavioral economics, which combines mathematical methodology, psychology, and economics to measure the impact of public polices.
Five Nobel Prize winners have been from this field. These were Herbert Simon (1976), Gary Becker (1992), Daniel Kahneman and Amos Tversky (2002), Robert Shiller (2013), and Richard Thaler (2017).
These theories and econometrical methodologies should be taught to our graduate students, and should be applied to make case study analyses of Jordan’s economic policies.
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