To: James K. Galbraith	Galbraith@mail.utexas.edu
RE: Politicians and statistics	

...if we start from the assumption that the Bank’s research department should have similar standards to those at a university, we find that it is lacking. ...
 
The omission of data on inflation means that we really have no idea what the results signify.    Or do we?    I can’t see any work which suggests that the differential for the inflation rate for grain (over or under the overall rate) has had any consistent mathematical relationship with income of the poor, or with growth, or trade.    
 
Can we assume there is no systematic relationship?    No.   If a country uses food fields for coffee, what happens to prices of food?    Can we just measure incomes of the poor and infer from the income the degree of economic gains or losses in comparisons between countries with more and less trade?     I can’t see how that is a sensible approach.    
 
If we look at the other independent variables in Dollar’s studies, we might think about why he should expect no systematic relationship between those and the inflation differential as well.      Basically, we have no idea how food prices changed with growth or trade or anything else.    Even if the overall variation in food prices between countries were small, there is no reason to think that the correlations aren’t there.    Now, those correlations might be in either direction.    But what Dollar and Kraay did was to assume a one-to-one relationship between incomes of the poor and economic gains to the poor  -  which include food price trends.     So that assumes a particular relationship between [growth] and [food price differentials (ie difference from the overall rate)].    
 
That hypothesis is, as far as I can see, a pure guess.   I see no reason whatsoever for thinking it, rather than another, should be preferred in these kinds of studies.    The question of whether growth raises incomes is absolutely inseparable from its effects on food prices   -   if we are talking about economic welfare of the poor.    
 
These studies only looked at part of the equation for wealth.    The other part -  the changing cost of living  -  is unexamined.     Now, I could hope or pray that the statistics fell out in the right way, so that income really does show economic gains.    But the world is big, and the circumstances widely varying.    So I can’t see the reason for any assumption whatsoever about price trends to poor people under particular conditions.    I certainly can’t see any reason to think that price differentials are always roughly zero, whatever the independent variable.    Dollar and Kraay’s conclusions needed two null hypotheses  -   one about income, the other about prices.    The fact that this has been swept under the carpet by many academics is not a reason against assessing the Bank’s research in terms of value for money.    Survival-rate data are far cheaper to process, and I argue that they provide a better option in terms of costs and benefits than income data without price data.     
 
It seems to me that contrary to what Ravi Kanbur and Kenneth Arrow have written to me, there are price data available.    Not necessarily good data, but surely if rice contributes to the CPI, then someone must have written down a price for it.    And there are many sources of information about whether rice became much more expensive or much cheaper in a year.    
 
Now, if the international organisation charged with the eradication of poverty, with a board composed of finance ministers, can’t find a way to obtain estimates of past grain prices, it is perhaps not providing competent research services to the taxpayer.   
 
Matt