| 0:36 | Intro. How has the thinking of economists changed? Growth is central question. Adam Smith. Recent understanding, data. Economic historians, Angus Maddison and others doing painstaking work looking at growth series since the 1980s. Theory: what you put in is what you get out, growth depended on labor and capital. Solow model. Now better insight on how technological progress could snowball; and why human capital matters; endogenous growth. Feedback loops. Growth miracles, rare but dramatic. Using "L" as labor as an input is a crude measure of the input of people to growth. How reliable is the econometric work trying to measure the separate factors that contribute to growth? Crude estimates. Brad DeLong's paper on ways we construct GDP. TV show on life in 1900 and the reason that women in the family wanted to quit show was she couldn't get shampoo, which wasn't invented till the 1930s. Macroeconomic regressions are broad-brush, can't be used mechanically, but good theoretical understanding backed up by evidence. Need to think about the microeconomics, why do markets work, what kind of incentives do people face, what incentives do people face to get good education when there are no good jobs. |
| 8:00 | Challenge: Go back to Adam Smith, insights into the wealth of nations, argued in first 25 pages that crucial factors were specialization, trade, extent of the market, and interaction of those factors with technology. Have we really added much via the formal approaches? Endogenous growth theory of Paul Romer and Robert Lucas: is it Adam Smith in more formal clothing? Clarity of thought brought about via mathematics. All the great economists since Smith have been very adept at mathematics and formalism. What you should then do is throw away the formalism. Economists ought to be able to also explain in Smith's terms. Formalism also helps you with the econometrics, data, helps with public policy, modeling transportation systems, auctions; built on formalism. Given the quality of the data, which is disappointing, and given the obsession with econometric technique, couldn't you argue that the formalism has actually done more harm than good? Fads that have come out of that theory have done harm to the poor people of the world. What have we learned about growth, development policy, bringing people out of poverty? Fads have used crude regressions to justify pouring in money that hasn't been used well. But development economics has moved away from that to a more sophisticated debate. Jeff Sachs, Bill Easterly. More realism about the limits of our capacity to move an economy onto the path of growth. Humility. But did they say the same thing in 1975--now we know what doesn't work? Solow model, focus on K (capital) and L (labor), and we just need to add more investment and education. Context changes over time so conclusions will change over time. WTO, Japan, Korea, developed with a lot of protections of domestic industries; but goods people were making were much simpler in the 1960s. |
| 17:02 | Markets don't work as well in some countries as they do in the U.S., social norms, 1870 markets in the U.S. Nuanced understanding of institutional effects over time. Creative destruction tolerated and advocated by many in the U.S. because recovery is so fast. But what if the recovery were slow? Charles Dickens. Institutional context matters, depend on whole array. Property rights. Formalism isn't very good at handling those institutional details. Case studies, Hernando de Soto, bureaucratic barriers. Controlled experiments in development policy, education in different villages. Abhijit Banerjee, MIT. |
| 20:53 | Happiness. Victorian House (actually 1900s House): PBS show, strict enforcement of the time period. Extraordinarily harsh life. Frontier House, 1880 frontier. Pregnant woman who wanted to give birth on the show wasn't allowed on. Not clear that if you asked people in 1900 if they were happy and if you ask people today that they would say they are happier. Asking people how they are feeling they don't report that they are feeling happier. GDP per capita can grow without bounds over time; happiness is an emotion that you can't imagine growing without bounds over time. Upper bound on how high that variable can grow. Paul Ormerod. Evidence looking at cross-sections of people shows that happiness does go up with income; depends on other factors. What are the implications for policy and for the data we collect? GDP is the target of policy because it's easy to measure and we know what it is. Human development index, HDI. There are better indicators such as life expectancy, clean water, that can be targeted by policy, but correlated with GDP. Social stability, mental health. Money is not sufficient for happiness. Inequality: is that an area where government might play a role? Evidence that societies that are too unequal are not stable; but how much inequality is too much? China, cities vs. rural areas. Evolution literature. Sense of fairness is offended with too much inequality. |
| 28:49 | Class warfare, rhetorical device. Ask people what their income is. Most people know their annual salary but struggle to tell you what their benefits are worth. What percentile do you think you are in in the income distribution? Most people don't know. Have you moved up or down in the last 10 years? No idea in relative terms other than what you hear. People can tell if their real disposable incomes are going down, taxation. Envy if people are getting extremely rich. Tax policy in Britain, efforts to make incomes more equal, large redistributive effects but even so incomes have become unequal, superstar effects, people who can leverage their skills, movie stars, impact of technology and globalization have increased the effect. Sherwin Rosen and Ed Lazear. 19th century, skills in short supply were filled by education system. Trade unions. Global inequality swings can take a long time to go into reverse. Wages of high school graduates are flatter than returns to higher education in the U.S.; and in the U.K. as well. Complex to keep track of the individuals; harder globally, Bill Gates compared to someone impoverished from Benin; Brazil looks poorer than France based on averages. If you raise taxes on the wealthy and lower them on the poor, unintended consequences. Thomas Sowell, the essence of economics is to say "And then what?" |
| 37:35 | Happiness research and GDP. Human development index. Is there any comparable index for more developed economies? Take away from GDP, rather than adding to it, pollution. Constructed so that you cannot get any improvement. Don't add in new products, technological improvements, price declines. More sense to look at a whole array of indicators. Australian government, asked people what they cared about, can put your own weights on them. Resource depletion emphasized by environmentalists, extrapolate from today's conditions; economists instead look at how behavior adjusts. Population Bomb, Julian Simon bet, technology adjusted. Food prices, ten years right time period. Simon was a big fan of population growth, more people leads to higher per capita income. Can't think of any countries with declining populations where real per capita income has grown. With new technologies people have become more aware of what the rest of the world is like. Doesn't tell you anything about the trends or the causes of the trends. China's improvement carries a lot of weight in the world population. India; Africa; many other countries in Africa where there is hope. Mobile phones in African countries, explosion of business opportunities. Edges people from the informal into the formal economy. Business and banking over the mobile phone. Advertising, small business opportunities. Easterly, small scale. |
| 46:08 | Economics is not as narrow as the caricature. George Stigler quote: "There is only one social science and we are its practitioners." Max U, Deirdre McCloskey podcast. Economics is now much less about rational choice. Behavioral finance, influence of psychology, how people make choices about financial decisions that will affect them far into the future, risk aversion, loss aversion. Coyle was early 1980s Harvard graduate school; at Chicago looked down on other social sciences, similar at Harvard. Sociology of economics, few women do economics, 50-50 in high school, declines at higher levels. Departments have dropped economic history requirement. Is economics a male field? Workshop system at Chicago is aggressive. Intellectual arrogance, great if you are good at it. Gladiator aspect to academic life, more prevalent in economics, may not appeal to women on average. |
| 52:11 | Economics in England vs. the U.S. Big difference is between Anglo-Saxon world and continental Europeans. Partly subjects; and partly English language. More cohesive today. Schumpeter biography, McCraw podcast, different currents of intellectual life. In 1930s extremely different schools of thought in economics. |
| 54:38 | Optimism. Where has economics done well? Much better on macroeconomic policy, now much greater consensus than in the 1970s. Competition policy: use of economics to inform anti-trust decisions, mergers. Theory about how markets work, more competitive markets, benefits have been measured. Market design: licenses now sold by auction, excludes petty corruption, license goes to person who will use it most efficiently. Game theorists, focus on market imperfection; law and economics, market shares are misleading--not sure which side has won. In U.S. more tolerant of mergers than we were before but every ten years we take a large firm and beat it up. IBM, Microsoft, cereal industry. Competition Authority in the U.K., merger oversight, network industries, technology industry. In the U.S. antitrust policy is politicized, lobbying of senators and administration. Independent body in U.K., members appointed by the Minister, government department, 8-year nonrenewable term, 50 people, mixed expertise. In U.S. often has to be equally split between Republicans and Democrats; not same in U.K. Extended warranties for expensive items. |
READER COMMENTS
mauricio flores
Apr 14 2008 at 1:10pm
great podcast! i liked the “european” approach to certain aspects of the conversation. I liked the part where Russ and Diane talked about growth and what economics has found out about that. I will have to agree with Russ when he says that all that has been found out is pretty much what we shouldn’t be doing. i recently started reading the road to serfdom by Hayek, and i have to say that growth theory in a way appeals to that aspect of our human wisdom that Hayek talks about in that book. The fact that we have achieved so much in terms of technology, makes us think that we actually can “plan” or “engineer” the economy and economic growth. That is exactly what i don’t like with the way they teach us economics here in Norway. The whole engineering and planning thing is just the wrong approach to teach us economics i believe. The best example of that is the solow model we just have finished reviewing (and that Russ and Diane talked about) how can it be possible that we trivialize so much a thing that is so complicated as the economy…like it was a machine or something…i have to say that if i hadn’t found EconTalk,or read something else but my textbook in macro, i would probably just ended up with the same notion myself. The economy and its growth prosess is not a machine, and more people should be aware of that fact.
May So
Apr 14 2008 at 3:20pm
Inspiring podcast! Coyle was able to communicate verbally the intelligent, subtle and balanced arguments presented in her book. While pointing out the good of econometrics and conveying optimism for applying economics to public policy, she also calls for more humility in how economic data is constructed, how economics can be applied to social problems and what may or may not fall in the realm of economics. She covers comprehensively the work being done to study growth and is honest about its inconclusiveness in offering formulas for growth or solutions to poverty. Her book is a great overview of developments in the field of economics outside of the mainstream. The discussion on barriers for females practising economics was insightful. I’d like to hear more interviews with female economists.
jp
Apr 14 2008 at 9:19pm
I agreed with Coyle on humility and the critique of pride and arrogance etc.
Odd then when it was revealed in the last five minutes that Coyle has worked on Competition Bureau in the UK. She went on to say she’d shot down 4 out of 9 proposed mergers. Coyle also mentioned how she had proposed “remedies” to rid the insurance market of products that “were not good value” or part of “competitive markets”. It must take impressive insight and confidence in ones data to arrive at these conclusions.
If anything, the values Coyle brings to the table are those of the proud technocratic class, not those of humility. In that worldview people are incapable of thought and action and need technocrats to shape the world for them. Which is fine if you like that sort of world, but I’d rather have the chance to choose on my own if my insurance is “good value” or not.
Unit
Apr 14 2008 at 11:11pm
I also (not knowing anything) would tend to be optimistic about growth in poor countries and that we are not measuring the gains correctly. It’s the principle of comparative advantage that in effect says that measuring growth is inherently difficult. A single number, say GDP, may not be able to capture the symbiotic relationships that might arise. If anything, when some countries are growing at tremendous rates, not only this makes slower countries seem poorer than they really are, but also inevitably the gains in the rich countries end up spilling over to the poorer ones (e.g. cellphones, medicine, etc..)
Brian
Apr 15 2008 at 2:34pm
Is anyone else experiencing problems listening to this podcast?
James
Apr 16 2008 at 12:30pm
JP-
There are many valid roles for technocrats. Maybe you understand the world of insurance, but most people haven’t a clue and are not in a good position to make judgements about most of it. There are lots of other examples (monetary policy, international trade law, encryption/national security, internet regulation, food safety, etc). The fact is that people simply haven’t a clue how to make good decisions in these areas, and they could easily be taken advantage of by organizations with more knowledge. Extended warranties are a perfect example of this, I’m surprised you would use it as an example of an area that would benefit from more consumer choice. Rarely is it a good idea to pay for an extended warranty.
The need for technocrats will only grow as industries and activities become more complex and impenetrable to the everyday person.
It doesn’t mean people are incapable of thought and action, it just means that people have a limited amount of cognitive resources and would rather spend them thinking about more pleasent things than insurance.
I think those of us with interests in economics and libertarian leanings also sometimes forget that not everyone is such a brilliant consumer as we are…
Fabio Franco
Apr 18 2008 at 2:51pm
Although I too enjoyed the podcast, several observations by Dr. Coyle made me uneasy. Her faith in “computers” and “better data” and her admission to being on a government committe puts her on the same footing as those Hayek accused of “constructivist rationalism”. In short, these observations take the “soul” out of her message.
Government shouldn’t have to hire experts like Dr. Coyle to improve competition. Despite its “good intentions” it will get mired in political power plays and be subject to unseen pressure groups, notwithstanding Dr. Coyle’s assurance that her group is “completely independent”. Government will succumb, as all do, to hard incentives being worked secretly into the decisions of bureaucrats.
Dr. Russell’s proding questions made us all notice how dangerous her arguments are. And he unmasks the presumptuous technocrat in such an elegant, gentle manner, that those unware will believe that there was nothing but courteous conversation going on. In reality, he was waging the same war as Hayek did all his life: against that fatal conceit of those who have blind faith on explicit knowledge and who refuse to admit the undeniable truth of our unfathomable ignorance.
LowcountryJoe
Apr 18 2008 at 6:09pm
Professor Roberts, you should have stuck with the term ‘bullying’ instead of veering off into using the word ‘aggressive’. Indeed, there are some professors today that seem to be more interested in keeping up pretenses and intimidating their students rather than hooking them into the topic through enthusiasm of their course material. There’s a difference between academic rigor and game-playing.
In my own circumstance, I was simultaneously annoyed yet highly entertained by the professors I had had who tried to intimidate their students. I was a non-traditional student (a thirty something) with previous active-duty time in the Marine Corps. Needless to say, I saw right through the BS. Drill Instructor versus Pompous Professor…gee, that’s not too tough a call.
Jon
Apr 25 2008 at 11:12pm
Coyle says:
“I can’t think of any examples of economies with shrinking populations where real incomes per capita have grown.”
Here’s one: Japan, 2005-2007
From The Economist, March 13, 2008, in an article entitled Grossly Distorted Picture:
“GDP growth figures flatter America’s relative performance, because its population is rising much faster, by 1% a year, thanks to immigration and a higher birth rate. In contrast, the number of Japanese citizens has been shrinking since 2005. Once you take account of this, Japan’s GDP per head increased at an annual rate of 2.1% in the five years to 2007, slightly faster than America’s 1.9% and much better than Germany’s 1.4%. In other words, contrary to the popular pessimism about Japan’s economy, it has actually enjoyed the biggest gain in average income among the big three rich economies. Among all the G7 economies it ranks second only to Britain.”
It will be interesting to see what happens to economic growth in western liberal democracies as some others of them begin their expected population declines. I wonder to what extent ‘the market’ is limited to the area within country borders, rather than the world. Perhaps very little…
Paul Bailey
Apr 25 2008 at 11:15pm
I thought the 1900 house example was very interesting, but I couldn’t help but notice that the “deflator”, if you will, that was applied was not chain weighted. Chain weighting is about the fact that when one set of situations change (usually prices, here the availability of shampoo), people don’t just keep doing what they were doing; they change their behavior to make their lives better given current circumstances. Before shampoo, people were better equipped to not use shampoo than we are now.
If you live in an area where showers are rare or expensive of can only be had with cold water, it takes quite a while to adjust to not taking them nearly so frequently, and there are many adjustments that have to be made. Some of the adjustments are biological–when you don’t soap as often you produce less oil. Other of these adjustments are a technology of sorts, but they make living in situations different than our usual ones easier. For example, a tight braid or bun will keep long hair from getting dirty for a week or more. There are surely other cases where things that everyone at the time would have known would have made life much simpler when the 1900 tools were applied with largely 2000 knowledge. This isn’t to say that things were peaches and cream in 1900, surely they were not. The show presumably also did not simulate the prevalence of some awful diseases that many would have been stricken with in 1900 (see some of Fogel’s recent work described in the Chicago alumni magazine, http://magazine.uchicago.edu/0726/features/human-print.shtml).
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