The Elusive Quest for Best Practice

(foreword: I am actually thinking of moving to medium.com. Their comment in line function is quite appealing. I really hope to get more critisisms or comments. so I also published this on medium)

People love to find a best practice. Who can blame them? After all, we are confronted with so many problems, and they give us a headache. Wouldn't it be great if we can follow some best practice and solve all these problems, or at least mostly solve the problems?

Problems

In public policy, we see the problem of corruption and bad policy. Wouldn't it be nice if there is a system that could guarantee the public policy serves the people?

In banking, we see reckless moral hazard. Wouldn't it be nice if we bind all fund managers to some best practice and manage money soundly?

In research, we see the problem of careless or even fraudulent statistical analysis, and the ensuing non-credible results. Wouldn't it be great if we can whip researchers all into some best methodology, and take the 'con' out of everything?

Fake Solutions

In public policy, we were sold ideologies like democracy and Washington Censuns. We point to successful cases and ignore failed attempts, and say democracy can cure every country except those who cannot be cured. (borrowing from doctors before the start of Randomized control trials) Or we say, ahh, those are not real democracies, these and that. But face it, democracy is not a pancea. The Dupont story and Flint Water Scandal should give us pause: in a well-run society, discovering and exposing such deeds should not be so difficult. Or consider this, Ohio regulators rubberstamped the merger between Aetna and Humana (two of the biggest US health insurance company) and kept the decision secret for more than a month.

In banking, we are sold all kinds of ideas: capital requirements, Bessel II, Bessel II, triple A....The 2007 financial crisis speaks to their limits (or absurdity)

In research, we were sold ideas like instrumental variable, natural experiment, propensity score matching. These made us feel like we are in the land of Asymptopia (see Leamer's paper), where we churn out more non-sense, just in more complicated forms.

Problems with Best Practice

I used to think that looking for best practice is a fool's errand.  Now, it feel it results more from laziness than stupidity. Intellectual laziness. It is the kind of wishful thinking that one can rest sound and tight, and never need to do anything, if one can find the best practice. But you never will.

Sometimes the best practice does not exist. Though people or countries may have similar symptoms, the underlying disease differ. What jump-started western economies (free market) could leave late-comers in a resource curse, while the opposite (industrial policy) actually enable Japan, South Korea, and others to leap ahead. Just as Dani Rodrik pointed out: Diagnostics before prescription.

More fundamentally, the problem with best practice is that it is a static concept: there is something set in stone. It might work well for handling physical objects, like atoms, or chemicals, but it won't work for people. People find work-arounds and adapt to new circumstances (this idea is at least as old as Lucas critique, but deplorably, economists (including Lucas himself) address this critique with a best practice: rational expectation framework).

Starting with some best practice is great. The problem is most people stop there. It is only a starting point, and is no substitute for real work, like constantly monitoring and continuous problem solving. It is not enough to let people vote, it is paramount to stay vigilant against any forces that stealthily swap the democratic spirit for democratic form. 

"Yes, there are all sorts of problems with best practice, but, what is the alternative?" people ask, "Doesn't is prevent the worse from happening?" Maybe, but at a cost. It gives us a false sense of security, complacency or even over-confidence; it encourages us to join a wild party celebrating "the Great Moderation" without realizing the boat is sinking. We might improve a little bit, but also swept the remaining mess under the rug of best practice. 

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so. 

The lesser evil paves the way for the greater evil.

Running for Life

When I see all those researchers thoughtlessly implementing Inverse Probability Weighting (IPW) or carrying out a structural estimate, and present their results as credible. I cannot help thinking to myself it is another triple-A rated Credit Default Swap being sold. I should scramble for life.

What kind of research I want to do?

For me there are two criterion: 1) theoretically founded, 2)empirically relevant.

There are many jokes about research trends in economics and statistics. For econ, research in macro is adding a price rigidity, and run the log-linearization of DSGE model; for micro, it is looking for some exotic instrumental variable. For statistics, it is about having a big (and fast!) computer, or on the other hand side, bringing some exotic measure-theoretic results.

I am not that interested in these.

I am not interested in doing research for the sake of research, or publishing for the sake of publishing.  I will find an area (or areas) that interest me, and I will try to ask  important questions in those fields. Once I have those questions, I will try my best to answer them. If I do not have those questions, I will stop and think. Think. I am not an idealists. I know myself--unless I can convince myself what I am doing is interesting, I will not do well. (The recent poetry class is a strong piece of evidence). Since working on trivial questions is a losing deal, then why should I bother?

I have a dream. One day, when one asks me about every piece of research I do, I will be truly passionate about every single piece of them. I will be able to tell him why I do research on them, and why I care at all.

More fundamental

When I go to places like Subway or convenience store in US, I am more than shocked by how inefficient the employees are. If they worked than in a private company in China, they will be laid off almost immediately or inundated by the shouts of furious customers (I admit, the Chinese customers are not polite). This is a just anecdotal evidence, but I have other reasons to believe that the US labor productivity is very low (I think partly due to the social welfare). In contrast, the labor productivity in China is much higher:
http://itechnow.com/why-apple-chose-china-to-produce-its-products/
what is described is almost unthinkable (no punch for some sports "scientist's" comments on Ye) in US. That is the difference between the US labor productivity and that of China. Not surprisingly, lots of factories decided to outsource. What is America's solution to this? For politicians, it is easy--exchange rate is the culprit. While moving exchange rate might have help balance the trade (there is no conclusive theoretical models or empirical evidence), the more fundamental solution is to improve labor productivity via enhancing education and building better incentive system (like welfare system or the power to layoff). That US never does. It likes to take superficial measures like "buy American" mandate, or appreciate RMB threat. Unless they keep "buy American" mandate forever binding, and keep depreciating USD against RMB, they will find the same imbalance coming back to haunt them. I think amid all the talks about exchange rate, this more fundamental concern on productivity is missing.

Thoughts go back to Ye again. The western response to Ye's success is just a reflection of their unhealthy psychology--passively cursing others' rise without getting their a** off and catch up. They heyday for Great Britain was long gone. America is still the top giant, but its edge has shrunk. While China still has a long long way to go (and it is not at all obvious whether it will get close to today's US), it has risen significantly. This is not taken amicably. Despite rhetoric, we dislike changes. We like things to stay where they are, what we are used to. When the balance breaks, we get uneasy. When someone who had been so frail, so weak and so despicable is catching up, there is a tinge of discomfort. Maybe it is jealousy--why am I not going up as fast? Maybe it is insecurity, will that guy threaten my place? Whatever the motive, we want to suppress that change, instead of changing with it, and improving with it. However, there will always be people who catches up, if we only think of suppressing that change, and one day, we will inevitably find we are no longer able to suppress it--then we lose our place for good, and by the way, the dignity is long lost.