File this one under "wrong thing to read at 7:15 AM on a Sunday morning while taking 10 minute break from overdue grading".
At some level, it's actually an interesting question and an interesting illustration of questions of consumer and producer preferences, supply and demand for labor, even technology and productivity. My reaction may be predictable, but just to state the obvious: I think the logic in this article does not capture much about W&L.
I do suppose I could be persuaded to act in accordance with the assumptions in this article. I may cap my office hours and interactions with students outside of class at a maximum of 3 hours per week. (This includes during weeks when papers are due.) I will refrain from comment on how courses might differ under the preparation assumptions. Also, I am well aware there are indeed many ways to make my grading more efficient. Most of them would require less work of me and (I would argue) less learning for you. In other words: a win-win! Woohoo!
But then, isn't my reaction to be expected from laborers who seek protection, instinctively resist greater productivity, and object to the extraction of the value (if any) they create?
Sunday, March 25, 2012
Monday, March 19, 2012
What?
It's a simple question ,What. But it is not always easy to know "what" something is. And I don't mean just non-descript lunch meat. For example, some of the basics of modern economics depend upon measures, indicators, and measurements that are not always "correct" in terms of measuring what we wish to measure. An example is Ben's discussion of Stiglitz's book on rethinking whether GDP is the best indicator of performance and development. What is the actual production of an economy? This definitional question can be surprisingly difficult to answer. (I would thus note that definitional questions are sometimes good ones, notwithstanding my "mainstream social scientist's" view that the most appropriate questions for our purposes are causal in nature.)
On a previous occasion, I noted being struck by the folks at the IMF who said they felt like the institution had got things precisely backward in the Asian crisis. That was an error - understood in hindsight - based on an understanding of economic dynamics. But even more fundamental is if economists don't know what's actually going on in an economy. What is the actual amount of activity? What is the amount of output? What is the amount of production? What are the prices? What is being imported, and what is produced domestically? What? What? What?
These may seem relatively simple to answer, but examples abound that show we don't even know what the current indicators are. A common example is the need to revise various economic estimates - such as GDP or job gains and losses - a couple of months after initial estimates are sent out. At some level, this is not to be too much lamented, perhaps: we know we rely on estimates, and accept their veracity at our peril.
But sometimes a presumed measurement becomes conventional wisdom, and then affects policy assumptions. Which can be dangerous if the underlying measures are wrong. Take this article from the Washington Post. It says that US manufacturing has done much worse in the last decade than was feared. Conventional wisdom of late (no doubt fueled in part by economists for whichever party holds the White House, as the article notes) had become that manufacturing is actually on the upswing in the U.S., on the back of much greater labor productivity. But this article holds that such claims were based on wrong estimates of what is actually being produced in the U.S. In short: our top economists have been giving us the wrong numbers for what we actually produce in this country. D'oh!
Take this new finding with a grain of salt as well, and note that it does not eradicate all of the growth in labor productivity. On the other hand, if you have become convinced that the U.S. will do fine in manufacturing going forward, and are inclined to suggest policies accordingly, you will want to make sure you know "What" you are talking about. The implication of this article being, in part: Not that most economists actually do.
On a previous occasion, I noted being struck by the folks at the IMF who said they felt like the institution had got things precisely backward in the Asian crisis. That was an error - understood in hindsight - based on an understanding of economic dynamics. But even more fundamental is if economists don't know what's actually going on in an economy. What is the actual amount of activity? What is the amount of output? What is the amount of production? What are the prices? What is being imported, and what is produced domestically? What? What? What?
These may seem relatively simple to answer, but examples abound that show we don't even know what the current indicators are. A common example is the need to revise various economic estimates - such as GDP or job gains and losses - a couple of months after initial estimates are sent out. At some level, this is not to be too much lamented, perhaps: we know we rely on estimates, and accept their veracity at our peril.
But sometimes a presumed measurement becomes conventional wisdom, and then affects policy assumptions. Which can be dangerous if the underlying measures are wrong. Take this article from the Washington Post. It says that US manufacturing has done much worse in the last decade than was feared. Conventional wisdom of late (no doubt fueled in part by economists for whichever party holds the White House, as the article notes) had become that manufacturing is actually on the upswing in the U.S., on the back of much greater labor productivity. But this article holds that such claims were based on wrong estimates of what is actually being produced in the U.S. In short: our top economists have been giving us the wrong numbers for what we actually produce in this country. D'oh!
Take this new finding with a grain of salt as well, and note that it does not eradicate all of the growth in labor productivity. On the other hand, if you have become convinced that the U.S. will do fine in manufacturing going forward, and are inclined to suggest policies accordingly, you will want to make sure you know "What" you are talking about. The implication of this article being, in part: Not that most economists actually do.
Tuesday, March 13, 2012
Monetarists and Keynesians
Kane asked a question yesterday in class about what Milton Friedman would have done about the 2008-2009 economic crisis. My expectation is that Friedman would have argued for monetary expansion and that it would have been interesting to hear his thoughts about fiscal stimulus.
Since we have Krugman and Stiglitz as major advocates of fiscal stimulus (along with Wolf, actually), here is a piece by someone (Ramesh Ponnuru) working more in the monetarist tradition. You may be interested in the first part - on whether or not stimulus worked - but for the moment I am particularly interested in the latter part of the paper where the Fed is brought into the equation. From a monetarist's perspective, significant expansion of the money supply could have provided economic stimulus without additional accumulation of debt.
Needless to say, a Keynesian could return with questions about this analysis. One is the conflation of the deficit and national debt with the stimulus, when in fact stimulus is only a fraction of the deficit. Another is the implication that monetary expansion worked from 1932 onward to come out of the Great Depression, while overlooking the fact that simultaneous fiscal stimulus (which the author opposes now) interacted with any monetary expansion then; also, there is some good evidence that fiscal stimulus was ultimately necessary in that case, having been removed in the mid-late 30s (with a resulting depressionary echo in 1937) and ultimately taking the form of massive government spending for World War II (which marks the definitive end of the Depression).
Anyway, the debate could go on, but the main point is that here is an argument that I think can safely be categorized as monetarist in the Milton Friedman tradition. The debate seems one that would be of interest to many of you.
Since we have Krugman and Stiglitz as major advocates of fiscal stimulus (along with Wolf, actually), here is a piece by someone (Ramesh Ponnuru) working more in the monetarist tradition. You may be interested in the first part - on whether or not stimulus worked - but for the moment I am particularly interested in the latter part of the paper where the Fed is brought into the equation. From a monetarist's perspective, significant expansion of the money supply could have provided economic stimulus without additional accumulation of debt.
Needless to say, a Keynesian could return with questions about this analysis. One is the conflation of the deficit and national debt with the stimulus, when in fact stimulus is only a fraction of the deficit. Another is the implication that monetary expansion worked from 1932 onward to come out of the Great Depression, while overlooking the fact that simultaneous fiscal stimulus (which the author opposes now) interacted with any monetary expansion then; also, there is some good evidence that fiscal stimulus was ultimately necessary in that case, having been removed in the mid-late 30s (with a resulting depressionary echo in 1937) and ultimately taking the form of massive government spending for World War II (which marks the definitive end of the Depression).
Anyway, the debate could go on, but the main point is that here is an argument that I think can safely be categorized as monetarist in the Milton Friedman tradition. The debate seems one that would be of interest to many of you.
Monday, March 12, 2012
The Economist (and a political scientist) on China
As noted in class on occasion and in a previous blog post, The Economist has really ramped up its regular coverage of China. The magazine very much straddles a line on its expectations about China's future, and in a way that I find compelling.
We have had a discussion in class on occasion about the prospects for Chinese growth and economic power into the coming decades. I take a relatively bullish view on China over the medium to long term (though perhaps somewhat less than, say, Morten).
In my role as Devil's Advocate, my own perspective is that there are a number of uncertainties that make projections about Chinese economic superpowerdom risky. In brief, these are: 1) demography and aging; 2) the challenge of shifting to a more consumption-based and domestically-oriented economy; 3) the question of whether very high rates of growth are sustainable beyond about the 30 year time frame that Japan and South Korea experienced; 4) possibilities of a property bubble (which was a major trigger of Japan's economic troubles leading into its lost decade, and the trigger of the American crisis in recent years); 5) related questions about the banking system; and 6) the more political issue of whether the Chinese Communist Party faces instability as the middle class consolidates. (Focusing on GDP growth rather than quality of life here, I am less persuaded that the environmental sustainability question will affect China's economy in the short term, though if we expanded the view a bit, that is certainly a non-trivial issue.)
That may sound like a big list, and a list from someone who is bearish on China. I'm actually not pessimistic. For one thing, the list could be shortened, depending on how one prefers to break things down. The first 3 items on the list are really closely related, and relate to how China's growth and economy will change as it shifts from drawing on "surplus labor" and moves towards higher productivity, higher wages, higher capital investment, more production directed at increasingly wealthy domestic consumers, and growth that is less less export-driven. I am moderately confident China's economic decisionmakers will handle this effectively (and the trillion+ in reserves doesn't hurt as a rainy day fund), though I also think that item 6 (and whether there is a push for greater political opening) is a wild card here. Items 4 and 5 are really interrelated as well, and again there is a good chance that China can successfully manage to deflate any bubbles without a hard landing.
I do not project some collapse or waning of Chinese influence; I would just say there is real variance in possible future outcomes, and I would not share the confidence of any who make bold assertions about the extent of China's development another generation from now. There are sets of lingering questions that make me reticent about such predictions.. For one, I also remember the fading of the Japanese "threat" - from the perspective of American competitiveness, etc. - rather too vividly. I think China's economy likely has more staying power as one that will surpass the US economy in size and significance, but the Japanese experience does still haunt my thinking about this. One way to put it is what David Shambaugh mentioned in his session the other evening: that making straight-line projections about China base on its last 30 years is unwise.
In any event, The Economist hits on this set of issues to a large degree. They raise questions about the future of the Chinese economic model without assuming that it will collapse. They are wary without being alarmist. They have elevated China to the point where it has its own weekly section, yet are constantly inquiring about whether the country is pushing or reaching certain limits, and how it will and must adapt. In short, it is good coverage, and I recommend it.
We have had a discussion in class on occasion about the prospects for Chinese growth and economic power into the coming decades. I take a relatively bullish view on China over the medium to long term (though perhaps somewhat less than, say, Morten).
In my role as Devil's Advocate, my own perspective is that there are a number of uncertainties that make projections about Chinese economic superpowerdom risky. In brief, these are: 1) demography and aging; 2) the challenge of shifting to a more consumption-based and domestically-oriented economy; 3) the question of whether very high rates of growth are sustainable beyond about the 30 year time frame that Japan and South Korea experienced; 4) possibilities of a property bubble (which was a major trigger of Japan's economic troubles leading into its lost decade, and the trigger of the American crisis in recent years); 5) related questions about the banking system; and 6) the more political issue of whether the Chinese Communist Party faces instability as the middle class consolidates. (Focusing on GDP growth rather than quality of life here, I am less persuaded that the environmental sustainability question will affect China's economy in the short term, though if we expanded the view a bit, that is certainly a non-trivial issue.)
That may sound like a big list, and a list from someone who is bearish on China. I'm actually not pessimistic. For one thing, the list could be shortened, depending on how one prefers to break things down. The first 3 items on the list are really closely related, and relate to how China's growth and economy will change as it shifts from drawing on "surplus labor" and moves towards higher productivity, higher wages, higher capital investment, more production directed at increasingly wealthy domestic consumers, and growth that is less less export-driven. I am moderately confident China's economic decisionmakers will handle this effectively (and the trillion+ in reserves doesn't hurt as a rainy day fund), though I also think that item 6 (and whether there is a push for greater political opening) is a wild card here. Items 4 and 5 are really interrelated as well, and again there is a good chance that China can successfully manage to deflate any bubbles without a hard landing.
I do not project some collapse or waning of Chinese influence; I would just say there is real variance in possible future outcomes, and I would not share the confidence of any who make bold assertions about the extent of China's development another generation from now. There are sets of lingering questions that make me reticent about such predictions.. For one, I also remember the fading of the Japanese "threat" - from the perspective of American competitiveness, etc. - rather too vividly. I think China's economy likely has more staying power as one that will surpass the US economy in size and significance, but the Japanese experience does still haunt my thinking about this. One way to put it is what David Shambaugh mentioned in his session the other evening: that making straight-line projections about China base on its last 30 years is unwise.
In any event, The Economist hits on this set of issues to a large degree. They raise questions about the future of the Chinese economic model without assuming that it will collapse. They are wary without being alarmist. They have elevated China to the point where it has its own weekly section, yet are constantly inquiring about whether the country is pushing or reaching certain limits, and how it will and must adapt. In short, it is good coverage, and I recommend it.
Gold Man Sachs
Okay, so maybe he doesn't want to run the IMF, but Jeffrey Sachs really, really wants to be president of the World Bank. And this article from the Washington Post has a kind of funny take on it. Here is the actual op-ed. He even has put up on his own website his running list of prominent statespeople who support his candidacy.
I encourage each and every person to write their own essay - preferably on your blogs - for why you would be the best person to lead the World Bank. You can also post your list of those who support your candidacy, if you choose. You can consider this a voluntary addendum to your essay on the greatest global challenges of the 21st century.
I encourage each and every person to write their own essay - preferably on your blogs - for why you would be the best person to lead the World Bank. You can also post your list of those who support your candidacy, if you choose. You can consider this a voluntary addendum to your essay on the greatest global challenges of the 21st century.
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