Tag: Growth

Best Business Books 2016: Economy

Posted on by Brad DeLong
Best Business Books 2016 Economy

Over at Strategy+Business: Best Business Books 2016: Economy: The Crisis Is Over: Welcome to the New Crisis:

  • Robert J. Gordon: The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton University Press, 2016) http://amzn.to/2eYBETT

  • Adair Turner: Between Debt and the Devil: Money, Credit, and Fixing Global Finance (Princeton University Press, 2015) http://amzn.to/2fahiHY

  • Jacob S. Hacker and Paul Pierson: American Amnesia: How the War on Government Led Us to Forget What Made America Prosper (Simon & Schuster, 2016) http://amzn.to/2ekuOdg

It’s been quite a decade for the global economy. The popping of the American housing bubble in 2006, the subprime mortgage financial crisis and its spread to Wall Street in 2007–08, the collapse of the world economy into the first global recession in decades in 2008–09, the knock-on eurozone financial crisis that began in 2010, and a slow, often faltering recovery — it’s been a tumultuous 10 years. And the period has produced a bumper crop of excellent economics books by academics, journalists, and practitioners who have attempted to grapple with the extraordinary macroeconomic disaster. They have examined why it happened, how to fix it, what it means, and how to avoid a recurrence of anything even remotely as hellish. Read MOAR at Strategy+Business

Must-read: Paul Krugman: “Globalization and Growth”

Posted on by Brad DeLong

Must-Read: Paul Krugman: Globalization and Growth: “Brad DeLong… arguing that the really big benefits of globalization come from technology diffusion…

…which make it a much more positive force than I suggest. I used to believe the same thing, and still find myself thinking along those lines now and then. But I’d argue that economists need to be, at the least, upfront about the argument’s limitations. First, it doesn’t come out of the models. As Brad says, the map is not the territory; but guesses about such things are, well, guesses. There was a time when everyone knew that import-substituting industrialization was the key to economic takeoff, based on loose historical reasoning (America and Germany did it!). Then developing countries tried it en masse, and the results weren’t great.

Furthermore, my sense is that nonstandard free-trade arguments tend to involve, often unintentionally, a kind of bait and switch. Economists love to talk about comparative advantage…. Somewhere Alan Blinder said that economists would almost all agree on the slogan ‘Yay free trade.’ But the seeming authority of the comparative-advantage case then ends up being carried over, illegitimately, to arguments for trade that have nothing to do with comparative advantage. Yes, there could be positive externalities associated with trade, but there could be positive externalities associated with lots of things, and Ricardian models don’t give us any special reason to think that the trade ones are more important.

So how would you test such arguments? Well, in a way we did carry out an experiment. In the early 1990s there was a widespread orthodoxy that ‘outward-looking’ development policies were much more favorable to growth than ‘inward-looking’ policies… the rapid growth of Asian economies, which had followed an export-oriented path rather than… import substitution… in the 50s and 60s. The question, however, was whether you would see dramatic acceleration of growth in other places, such as Latin America, when policy shifted away from inward focus. And the answer turned out to be, not so much. Look at Mexico, which did a radical trade liberalization in 1985-88, then joined NAFTA. It has seen a transformation of its economy in many ways; it has gone from an economy that didn’t export much besides oil and tourism to a major manufacturing export power. And the effect on development has been… underwhelming.

So Brad could be right; but the evidence is far from conclusive. I would still argue very strongly that it’s crucial to keep markets open for poor countries. But we should be cautious in our claims about the virtues of free trade.

Factoring inequality into economic growth

Posted on by Ed Paisley

The National Bureau of Economic Research released a working paper by Harvard University economist Nathaniel Hendren on August 4 that provides a new way of looking at the relationship between inequality and growth. His paper develops a new statistic, the inequality deflator, which allows researchers to adjust the value of an economic variable, such as average household income, for different levels of inequality. Because averages don’t tell us anything about distribution, the deflator lets us compare those averages by adjusting for the different distributions.

080814-Inequal-deflator

The accompanying graphic shows how much household income increased in the United States after adjusting for rising income inequality between 1979 and 2012. With more attention being paid to the relationship between inequality and growth, Hendren’s inequality deflator can become a powerful tool for understanding the linkages between the two.