Economic development is a journey that has no final destination, at least not this side of utopia. But it can still be useful to take a road stop along the journey, see where we’ve been, and contemplate what comes next. Nancy H. Chau and Ravi Kanbur offer such an overview in their essay "The Past, Present, and Future of Economic Development," which appears in a collection of essays calledTowards a New Enlightenment? A Transcendent Decade (2018, pp. 311-325). It was published by Open Mind, which in turn is a nonprofit run by the Spanish bank BBVA (although it does have a US presence, mainly in the south and west).(In the shade of this parenthesis, I’ll add that if even or especially if your interests run beyond economics, the book may be worth checking out. It includes essays on the statusRead More »
Articles by Timothy Taylor
There was a time when football was king at the University of Chicago. Their famous coach, Amos Alonzo Stagg, ran the program from 1892 to 1932. His teams were (unofficial, but widely recognized) national champions in 1905 and 1913. His teams won 314 games, which means that even after all these years he ranks 10th for most wins among college football coaches. Stagg is credited with fundamental innovations to the way we think about football: the "tackling dummy, the huddle, the reverse and man in motion plays, the lateral pass, uniform numbers."But in 1939, in a step that seems to me almost inconceivable for any current university with a big-time football program, the President of the University of Chicago, Robert Maynard Hutchins, shut down the University of Chicago football team.For aRead More »
It’s of course possible both to teach and to learn via a video or a book. But there’s an implicit vision many of us share about what happens in a college classroom between a professor and students. It involves how a classroom comes together as a shared experience, as the participants develop both a closeness and an openness with each other. There is an underlying belief that the process of learning through an interwoven reaction and counterreaction, sustained in this shared atmosphere, is part of what matters for an education, not just a a score on a test of pre-specified learning objectives.
There’s a strong case to be made for the gains from using various forms of information technology to learn (more on that in a moment). But the tradeoff of IT-enabled learning is that this visionRead More »
Consider a time period of several decades when there is a high level of technological progress, but typical wage levels remain stagnant while profits soar, driving a sharp rise in inequality. In broad-brush terms, this description fits the US economy for the last few decades. But it also fits the economy of the United Kingdom during the first wave of the Industrial Revolution in the first half of the 19th century.Economic historian Robert C. Allen calls this the "Engels’ pause," because Friedrich Engels, writing in books like The Condition of the Working Class in England in 1844, described this confluence of economic patterns. Allen laid out the argument about 10 years ago in "Engels’ pause: Technical change, capital accumulation, and inequality
in the British industrial revolution,"
The economies of Latin America have gone through a series of different periods in the half-century or so. There was an "import substitution" period back in the 1960s and 1970s, where the idea was that government would direct industrial development in a way that would remove the need for imports from high-income countries. This was followed by the "lost decade" of the 1980s, a period of very high inflation, slow growth, and defaults on government debt. The 1990s was sometimes labeled as at time of economic liberalization or the so-called "Washington consensus." Starting around 2000, there was a "commodity supercycle" when first a global rise in commodity prices led to faster growth across much of Latin America, but then more recently a drop in commodity prices slowed down that growth.ManyRead More »
The idea of a "universal basic income" has some immediate attraction. If we can land an astronaut on the moon, etc., etc. But along with other slogans like a guaranteed government job or single payer health insurance, the devil is in the details.Three recent essays offer a useful overview of the choices and tradeoffs. Melissa S. Kearney and Magne Mogstad have written "Universal Basic Income (UBI) as a Policy Response to Current Challenges" for the Aspen Institute Economic Strategy Group (August 23, 2019). Also, the most recent issue of the Annual Review of Economics, published in August 2019, has a three-paper symposium on the universal basic income."Universal Basic Income: Some Theoretical Aspects," by Maitreesh Ghatak and François Maniquet
"Universal Basic Income in the United States
One of the key questions in the escalating US trade disputes with China and other countries is how much the economy of other countries depends on trade. The answer helps to determine how much leverage the US has in trade disputes. Thus, it’s interesting to note that starting about a decade ago, both India and China started reducing their dependence on exports as a source of growth, while doing more to build internal supply chains and relying more on domestic products.A group of authors from McKinsey Global Institute published "Asia’s futureis now" in July 2019, including Oliver Tonby, Jonathan Woetzel, Wonsik Choi, Jeongmin Seong, and Patti Wang. Here’a a figure showing how the reliance of China and India on exports has been falling.
The authors also note:
As consumption rises, more of
The Tax Cuts and Jobs Act of 2017 largely eliminated taxes on US multinational corporations when they bring profits earned in other countries back to the use. As a result, there has been a dramatic rise in the dividends that U.S. parent companies received from their their foreign affiliates. Sarah A. Atkinson and Jessica McCloskey of the US Census Bureau offer some striking illustrations of this change, alnog with other data on international flows of investment in and out of the US economy, in "Direct Investment Positions for 2018: Country and Industry Detail," published in the August 2019 Survey of Current Business. For example, here’s a look at "outward direct investment" of US multinationals abroad. In any given year, the amount of outward direct investment can change for severalRead More »
Many readers of this blog will have seen this versions of this satellite image many times, but it never fails to astonish me. The dark area outlined in red is North Korea. The rest of the peninsula below, illuminated, is South Korea.
I can quote you various statistics about how the economy of North Korea is estimated at something between $32 billion and $50 billion, with corresponding per capita income of either $1,238 or $1,700. Conversely, South Korea’s GDP is $1,619 billion, with a per capita GDP of $31,362. But at least for me, the contrast between darkness and light provides its own gut-level understanding of how people experience big differences in economic growth.Jiaxiong Yao provides this image and a discussion of the relationship between economic growth and night lights in
Here’s an economic puzzle about nonrenewable resources, including energy resources but also minerals. One might expect that the least expensive locations for these resources would be exploited first. Thus, one might expect production costs for such resources to rise over time. If demand for such resources is also rising over time, intuition suggests that this combination should tend to raise prices for nonrenewables.But this intuition is apparently wrong. Output of nonrenewable resources has risen substantially over the long-run, but prices have fallen. Sean Howard, Gregor Schwerhoff and Martin Stuermer of the Federal Reserve Bank of Dallas discuss possible reasons in "Solving a Puzzle: More Nonrenewable Resources Without Higher Prices" (August 27, 2019). To set the stage, here is aRead More »
I first published this essay back in August 2015. But it seemed worth revisiting on this Labor Day Holiday.
____________ As the unemployment rate has dropped to 5.5% and less in recent months, the arguments over jobs have shifted from the lack of available jobs to the qualities of the jobs that are available. It’s interesting to me how our social ideas of what constitutes a "good job" have a tendency to shift over time. Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth illuminate some of these issues in "The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?" which appears in the Summer 2015 issue of the Journal of Economic Perspectives. All articles from JEP going back to the first issue in 1987 are freely available on-line compliments of the
I sometimes struggle, when teaching about unemployment, to explain just why work matters. It’s straightforward enough to note that elevated unemployment leads to loss of economic output, lower tax payments, and greater need for government welfare benefits. I can refer to evidence on how unemployment is connected to social ills like bankruptcy, divorce, depression, and even suicide. But this listing of consequences, while a necessary part of teaching the economics of unemployment, doesn’t quite touch the human heart of the issue. The poet Marge Piercy, in her 1973 poem "To be of use," gives a more concise and powerful sense of why useful work matters so much."To be of use"The people I love the best
jump into work head first
without dallying in the shallows
and swim off with sure strokes
As a meditation for Labor Day, I offer the story of the Benedictine monks of the Monastery of Christ in the Desert in northern New Mexico. They had a booming dot-com start-up in the late 1990s as digital scribes–and then they shut it down because it was interfering with their main purpose in life.Jonathan Malesic tells the story in "Taming the Demon: How Desert Monks Put Work in Its Place" (Commonweal, February 2, 2019). Malesic starts the story this way:
In a remote canyon in northern New Mexico in the mid-1990s, Benedictine monks of the Monastery of Christ in the Desert spent their mornings at a dozen Gateway computers in a room with a dirt floor, creating the internet. A crucifix hung on the wall right above a whiteboard where they sketched out webpages. The monks were doing a
The first president of Johns Hopkins University, Daniel Coit Gilman, laid out 12 themes that should govern a university education in his inaugural address of February 22, 1876. Some of the themes are more profound than others, but it’s interesting to consider which of these points would be emphasized by a current college president.
Is, then, anything settled in respect to university education? Much, very much. Can we draw a statement of what is agreed upon? At any rate we can try. The schedule will include twelve points on which there seems to be a general agreement.All sciences are worthy of promotion; or in other words, it is useless to dispute whether literature or science should receive most attention, or whether there is any essential difference between the old and the new
This characteristically pungent comment is from H.L. Mencken’s 1956 collection, Minority Report: H.L. Mencken’s Notebooks (Johns Hopkins University Press edition, 1997, p. 264):
The chief difference between free capitalism and State socialism seems to be this: that under the former a man pursues his own advantage openly, frankly and honestly, whereas under the latter he does so hypocritically and under false pretenses.
It can be useful to toss this distinction into discussions of socialism and capitalism. Is the argument for old-style, full-blooded state-based socialism a claim that a change in the economic and political system will lead to preferable outcomes, even though the nature of people remains essentially the same? Or is it an argument that by altering the economic and political
In his 1930 memoir A Roving Commission: My Early Life, Winston Churchill offers a vivid description of how a desire for learning washed over him like a tidal wave when he was 22 years old. The passage is vivid and memorable for a number of reasons. One is that it makes someone who has spent most of his life in a higher education environment, like me, ponder what proportion of students–then or now–have a similar desire for learning.Another is that in this chapter, following the passage quoted below, is the source of a common quotation, when Churchill writes: "It is a good thing for an uneducated man to read books of
quotations."The passage that follows is quoted from from Chapter IX: Education at Bangalore:
It was not until this winter of 1896, when I had almost completed myRead More »
Of course, this poem by Clive James isn’t about economics specifically. But in its over-the-top pettiness and ornate vindictiveness, surely it speaks to every academic who holds a grudge against those of opposing views.“The Book of my Enemy Has Been Remaindered”The book of my enemy has been remaindered
And I am pleased.
In vast quantities it has been remaindered
Like a van-load of counterfeit that has been seized
And sits in piles in a police warehouse,
My enemy’s much-prized effort sits in piles
In the kind of bookshop where remaindering occurs.
Great, square stacks of rejected books and, between them, aisles
One passes down reflecting on life’s vanities,
Pausing to remember all those thoughtful reviews
Lavished to no avail upon one’s enemy’s book —
For behold, here is that book
In his 1977 book, The Public Use of Private Interest, Charles L. Schultze described how American politics is shaped by what he called the "do no direct harm" rule. If you have a tendency to spend your summertime days thinking about why government often favors a regulatory approach, rather than a price-based approach (like pollution regulations rather than pollution taxes) to achieving policy goals, it offers food for thought.
Schultze pointed out that in our market-oriented society, we generally accept that markets will sometimes shift in ways that cause losses as well as gains. But in our political decisions, he argues, we don’t want to accept that direct harms might occur. Thus, when politicians become involved in a decision they prefer to operate through regulations, withRead More »
Thorstein Veblen: Economics “is a `Science’ of Complaisant Interpretations, Apologies, and Projected Remedies”23 days ago
I always enjoy reading Thorstein Veblen, partly because his writing strays back and forth across the line between "raising questions of real interest" to "just plain old dyspeptic and cantankerous." His 1918 essay "The Higher Learning In America:A Memorandum On the Conduct of Universities By Business Men" is full of comments from both categories, often closely overlapping.
It’s also the source of one of the liveliest insults to the field of economics, that economics is "a `science’ of complaisant interpretations, apologies, and projected remedies." Veblen also argues that this isn’t because economists and other academics have been paid off, but only because they have been selected and trained for their narrow intellectual horizons. Here’s Veblen (the direct critique of economics startsRead More »
One of the classic problems of economics involves how to make comparisons between the welfare of different people. As a common example, imagine taxing a high-income person and redistributing the money to a low-income person. In the utilitarian framework beloved of economists, a high-income person would receive less "utility" or happiness from that additional income than a low-income person would gain from receiving a transfer. Thus, it is argued, redistribution from high-income to low-income will increase the overall happiness or utility of society.At this point, economists often plunge into questions of incentives, and how taxes on the rich or transfers to the poor might potentially affect incentives to work, acquire skills, innovate, and so on. But some philosophers take a differentRead More »
Dorothy Sayers (1893-1957) is probably best-remembered as the author of the (fabulously good) Lord Peter Wimsey detective novels and stories. But she also received first-class honors modern languages and medieval literature from Oxford in 1915, before women were officially awarded degrees, and later in life also published books of poetry, theology, and a well-regarded translation of Dante’s Divine Comedy. In 1948, she wrote an essay titled "The Lost Tools of Learning" (available various places on the web). A quick taste:
"Has it ever struck you as odd, or unfortunate, that today, when the proportion of literacy throughout Western Europe is higher than it has ever been, people should have become susceptible to the influence of advertisement and mass propaganda to an extent hitherto
George Stigler once made the case for a market-based economy (in an entry about "Monopoly" in the Concise Encylopedia of Economics) just by arguing that it beats the alternatives.
A famous theorem in economics states that a competitive enterprise economy will produce the largest possible income from a given stock of resources. No real economy meets the exact conditions of the theorem, and all real economies will fall short of the ideal economy—a difference called "market failure." In my view, however, the degree of "market failure" for the American economy is much smaller than the "political failure" arising from the imperfections of economic policies found in real political systems. The merits of laissez-faire rest less upon its famous theoretical foundations than upon its advantagesRead More »
Herbert Simon and Allen Newell tell the story of how Adam Smith’s ideas directly led to the development of the digital computer in an address delivered to the Twelfth National Meeting of the Operations Research Society of America, Pittsburgh, Pennsylvania, November 14, 1957. The lecture was published in Operations Research, January-February 1958, under the title "Heuristic Problem Solving: The Next Advance Operations Research" (pp. 1-10). For those who like their stories with some credentials attached, Simon and Newell shared the Turing prize, sometimes referred to as the "Nobel prize in computing" in 1975, and Simon won the Nobel prize in economics in 1978.
Simon delivered the lecture, and said:
I should like to tell you a true story, culled from [Charles] Babbage’s writings, about
W.H. Auden wrote a poem delivered to Phi Beta Kappa graduates at Harvard University in 1946 called "Under Which Lyre." It contains a line often clipped and quoted, without context: "Thou shalt not sit/ With statisticians nor commit / A social science." The full poem is at the link, but here are the stanzas surrounding the line about committing a social science, which also speak to rebellious academics:
Thou shalt not do as the dean pleases,
Thou shalt not write thy doctor’s thesis
Thou shalt not worship projects nor
Shalt thou or thine bow down before
Thou shalt not answer questionnaires
Or quizzes upon World-Affairs,
Nor with compliance
Take any test. Thou shalt not sit
With statisticians nor commit
A social science.Thou shalt not be on friendly terms
Those of us who edit for a living, and especially those of us whose working-place value-added comes about by subtracting from the length of early drafts, will appreciate the comments of best-selling writer Stephen King in his On Writing: A Memoir of the Craft (quoting here from the third edition in 2000).On the value of having a good editor (p. 13):
One rule of the road not directly stated elsewhere in this book: `The editor is always right.’ The corollary is that no writer will take all of his or her editor’s advice; for all have sinned and fallen short of editorial perfection. Put another way, to write is human, to edit is divine.
On the value of making an effort to hold down the length of your work (pp. 222-223):
In the spring of my senior year at Lisbon High—1966, this would’ve
The next time you read about a "bridge to nowhere" or a giant infrastructure project that started and then stalled, you may wish to mutter to yourself teh "Iron Law of Megaprojects: Over budget, over time, over and over again." It’s a coinage of Bent Flyvbjerg. For an overview of his arguments, you can check this Cato Policy Report (January 2017), which in turn is based on this article from the Project Management Journal (April/May 2014). In the Cato report, Flyvbjerg writes:
Megaprojects are large-scale, complex ventures that typically cost a billion dollars or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people. Examples of megaprojects are high-speed rail lines, airports, seaports, motorways,
In the last few years, I have evolved a habit for that time in August when I head off for vacation and other end-of-summer plans. I leave behind a series of scheduled daily posts about topics in economics, academia, and writing or editing that are usually based on historical essays and writings which caught my eye at some point. This year, I’ll start with some thoughts about the 1885 address given by Alfred Marshall, " The present position of economics. An inaugural lecture given in the Senate House at Cambridge, 24 February, 1885."The occasion for the lecture was that Henry Fawcett, the previous Professor of Political Economy at Cambridge University, had died, and Marshall was his successor in the position. The lecture is notable for many lovely turns of phase. As one example, it’s theRead More »
All goods and service have both a cost of production and a price paid by the consumer. If government wishes to do so, it can raise revenues through taxing or borrowing to pay for the cost of production for certain goods and services, and thus allow the consumer to receive the good or service for "free." Many high-income countries around the world subsidize part or most of the cost of higher education in this way.
A choice to make a good or service "free" to consumers has various tradeoffs. It makes the good or service easier to consume for those who could not otherwise afford it. It creates a need for higher government taxes or borrowing. Perhaps more subtle effects are that changing the nature of who pays will also tend to change the quality of the service. In the case of higherRead More »
A couple of weeks ago, US Treasury Secretary Steven Mnuchin announced his finding that China was manipulating its currency to keep it unfairly low, and further announced that he would be taking the issue up with the International Monetary Fund. I offered some of my own views on this announcement when it happened. But what’s interesting here is not what I think, or even what Mnuchin thinks, but what the IMF thinks.Fortuitously, the IMF just published its 2019 External Sector Report: The Dynamics of External Adjustment (July 2019). As the title implies, it’s about trade surpluses and deficits all over the world, not just the US and China. But it has some content that gives a sense of how it is likely to respond to Mnuchin’s importuning. Here’s an overall comment:
The IMF’s multilateral
Jurisdictions around the world have been implementing taxes on sugar-sweetened beverages. Here’s a map.
Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky focus on studies of the eight US jurisdictions that have adopted such a tax, along with the broader literature on causes and costs of obesity, in "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence" in the just-released Summer 2019 Journal of Economic Perspectives. (Full disclosure: I’m the managing editor of JEP, and thus predisposed to believe that the articles are of high quality and widespread interest.) Here’s their table of the US jurisdictions that have imposed a tax on sugar-sweetened beverages.
Making the case for (or against) a tax on sugar-sweetened beverage requires addressing aRead More »