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Garicano’s conversations with economists

Summary:
Luis Garicano has just posted a very interesting free e-book, "Capitalism after covid: Conversations with 21 economists." I was honored to be one of his interviewees, video here. Luis has a VoxEU column summarizing conversations, and twitter thread if you like reading such things. Luis is a great interviewer. This is not an endorsement of all ...

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Garicano's conversations with economists

Luis Garicano has just posted a very interesting free e-book, "Capitalism after covid: Conversations with 21 economists." I was honored to be one of his interviewees, video here. Luis has a VoxEU column summarizing conversations, and twitter thread if you like reading such things. Luis is a great interviewer. 

This is not an endorsement of all the ideas! Luis found a wide spectrum of ideas, and I think that is the strong thing about the project. You can see how really smart people, on top of the latest academic research, come to still widely different conclusions about the current state of affairs and directions we should go. Though Luis is a pretty free-market Chicago guy, he did not impose that view which I find admirable. 

In particular, referring to the VoxEU column, I would take issue with 

The bulk of the shock was absorbed by the public sector budget. 

That the world could produce such a massive, coherent, and rapid economic response to the pandemic had a lot to do with the consensus that quickly emerged among economists on how best to respond to the unprecedented shock...

Unlike during the Great Financial Crisis, when there was an often-acrimonious debate between economists arguing for austerity and those arguing for stimulus, the priorities were clear: 

Central banks should be concerned with maintaining financial stability and providing limitless liquidity to debt markets. 

Governments should prioritise the maintenance of household incomes through generous support for workers’ incomes, albeit with different approaches in the US and Europe: significant expansions of unemployment insurance in the US and the general deployment of ‘Kurzarbeit’ in Europe.  

Governments should provide ample liquidity facilities to firms, making it possible for them to emerge as undamaged as possible by the lockdowns. 

Finally, large, debt-financed public investments would be needed to support the recovery. 

I  disagree loudly with just about all of this, and thereby especially enshrining these expedients as "consensus" ready to be deployed at even larger scale in the next pandemic. 

If there is consensus on anything it is that our governments completely bungled the public health aspect of this crisis, with the exception of a few countries like South Korea and Taiwan. The FDA and CDC are particularly at fault for blocking testing and vaccines. 

Why did covid produce an unprecedented economic collapse, while the 1958 and 1918 flus produced nary a blip of GDP? Because of the completely overdone business lockdowns. The economic shock was caused by the government not by the virus. What good did it do to run up government debts by trillions in order to send checks to retirees and people who were happily working? I'm sure everyone likes more money, but that has nothing to do with covid. Apparently half of expanded unemployment was stolen (I even got notice someone trying to file in my name). " large, debt-financed public investments would be needed to support the recovery." Consensus on that please? Not from here. The recovery is doing fine on its own, and adding more to the abstract sculpture taking place in the Central Valley under the auspices of a high speed train from Bakersfield to Modesto is not going to help. And why is nobody even thinking moral hazard? We now have enshrined a system in which nobody may lose money in a recession, asset prices will be propped up by central banks. Why not lever to the hilt? Why keep some cash around, as there will be no more buying opportunities? 

But that Luis interviews such good and prominent economists and finds support for this sort of boondoggle policy is interesting. 

Tackling inequality. Over the last few decades, inequality in household income and wealth has increased dramatically in the West.  

This is simply not a fact. (See Grumpy coverage of Austen and Spinter here.) Inequality in pre-tax pre-transfer income has increased. Who cares about that? Inequality of mark-to-market wealth has increased as founders stock values have risen. Who cares about that? 

Several interviewees explain the progress economists are making in tackling these problems. Atif Mian argues that to reduce inequality, policies must focus on achieving more equitable growth through a significant increase in public investment, and second, on addressing some of the legacies of the imbalances, particularly through an increase in the progressivity of taxation. 

Well, if you are a grumpy follower you will find there a well articulated points to disagree with. The US already has the most progressive tax system in the world BTW. And back to more high speed trains to nowhere.. 

Stefanie Stantcheva discusses how to design better taxes and how to improve people´s understanding of those issues. Oriana Bandiera highlights a significant shift in our understanding of poverty that implies that social assistance programmes, that traditionally were designed to subsidise consumption, should shift to being geared towards investment. Esteban Rossi-Hansberg discusses the concentration of talent and economic activity in cities and the extent to which the ‘Zoom revolution’ will upend this concentration and wonders whether that would be desirable, given the potential loss of positive externalities of physical proximity.

But here are some good-sounding innovative ideas, to give you a sense that economists don't just line up on typical left-right spectrum. I need to read those. 

Containing the new leviathan.  It is quite likely that, after the unprecedented policy response to the pandemic, governments will grow permanently larger, leading to an increase in interventionism and, potentially, crony capitalism, as Daron Acemoglu argues. Different countries will sharply diverge in their response to this “critical juncture”. The ones who better succeed will introduce stronger democratic institutions to keep governments in check, as both Acemoglu and Lucrezia Reichlin argue. We also need to improve the way public organisations are managed, a focus of the interviews with Raffaela Sadun and Carol Propper.  Wendy Carlin explains how balancing this larger role for the state requires building a stronger and more resilient civil society – strengthening the ‘third pole’.

This all sounds really interesting. Economics and economists are most interesting when out of the political boxes! 

Tackling climate change. ... Reducing carbon emissions, as Michael Greenstone explains in his interview, must be the only priority – not to be confused with delivering the goodies to voters. 

Voters and interest groups. Mother Gaia does not care if the electric car charging stations and solar panels are made in the US by union members or made in China at a tenth of the cost. 

Yet, after the pandemic, as Nick Stern argues, investing in tackling climate change is the best way to invest for the post-pandemic recovery. 

I will not pre-judge, but if this is more broken windows fallacies and create more jobs by using spoons not shovels, I will be skeptical. 

In sum, this looks interesting throughout and a good view into the spectrum of analysis that economists are bringing to contemporary issues. 

The list of interviewees is 

Debt sustainability

Markus Brunnermeier: Let’s compare the central bank to a race car
John Cochrane: Throwing money down ratholes
Jesús Fernández-Villaverde: Economists and the pandemic
Agnès Bénassy-Quéré: How to design a recovery plan

Tackling inequality

Oriana Bandiera: Overcoming poverty barriers
Stefanie Stantcheva: Taxes and social economics
Esteban Rossi-Hansberg: Will working from home kill cities?
Atif Mian: The savings glut of the rich

A more balanced globalisation

Dani Rodrik: Globalisation after the Washington Consensus
Pol Antràs: Is globalisation slowing down?
Michael Pettis: Trade wars are class wars

Containing the new leviathan

Daron Acemoglu: The Great Divergence
Wendy Carlin: The Third Pole
Lucrezia Reichlin: Democratising economic policy
Carol Propper: Targets and terror
Raffaella Sadun: Management for the recovery

Promoting innovation and curbing the power of digital giants

Philippe Aghion: Is ‘cutthroat’ capitalism more innovative?
John Van Reenen: The Lost Einsteins
Fiona Scott Morton: What should we do about big tech?

Combatting global warming

Nicholas Stern: Zero-emissions growth
Michael Greenstone: The real enemy here is carbon

John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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