Category Archives: Growth Causes and Consequences

Solution Disconnected from Problem

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From a WSJ profile of Raj Chetty.

High-mobility metro areas have a combination of greater economic and racial integration, better schools and a smaller fraction of single-parent families than lower-mobility areas. Integration is lagging in Atlanta, he said. “The strongest predictors of upward mobility are measures of family structure,” Mr. Chetty said.

His proposal: move poor children to high-mobility communities and remove the impediments to mobility in poor-performing neighborhoods. He now is working with the Obama administration on ways to encourage landlords in higher-opportunity neighborhoods to take in poor families by paying landlords more or guaranteeing rent payment.

Pointer from Tyler Cowen.

The problem is family structure. The solution is engineering the spatial/income distribution of households. The connection is not there for me.

And if the problem is a need to improve teacher quality, then the solution is not for economists to run regressions on test scores. The solution is to put the power in the hands of people who care about quality and are close to the situation (i.e., parents), not in the hands of teachers’ unions.

Paul Romer on Growth

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He writes,

It is not enough to say “_________ explains why Malthus was wrong,” and to fill in the blank with such words as “technological change” or “discovery” or “the Enlightenment” or “science” or “the industrial revolution.” To answer the question, we have to understand what those words mean. As I’ll argue, there is no way to understand those words without understanding the more fundamental words “nonrival” and “excludable.”

…The second question, about missed opportunities, asks what that other variable might be. Once again, it is not enough to say that “many poor countries fail to take advantage of rapid catch-up growth because they ____________” and then fill in the blank with such words as “have bad institutions” or “are corrupt” or “lack social capital” or “are held back by culture.”

Pointer from Mark Thoma. I plead guilty to the second.

Other Countries Matter

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Timothy Taylor writes,

the number of cars sold in China has exceeded the number sold in the U.S. market for several years now.

…in 2001 the US was about half of the global market for movies. Now the US/Canada share of the global market for movies is just over one-quarter, and falling.

…more and more, Americans are going to be seeing brands and titles and products where the US market is just one among several–and not necessarily the most important one.

Read the whole post.

Garett Jones is Endorsed

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‘Pseudoerasums’ writes,

Your “moral circle” is wider with intelligence and patience than without.

…To paraphrase Garett Jones…smart, patient people are more Coasian; they find a way to cooperate and build good institutions.

It is a very long essay, and all throughout I was thinking of Garett Jones, so it was nice to see him turn up at the end. Pointer from Tyler Cowen.

The substantive point is that you can expect good institutions when you have a population that is high in intelligence and patience. Although the author of the essay does not go this far, I would suggest a causal pyramid with population intelligence and patience at the bottom, institutions the layer on top of that, and economic outcomes and other indicators of human development on top of that.

See also the appendix to my recipe for good government piece.

Sanders, Warren, and Power

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Two pieces from the Washington Post. First David A. Farenthold writes,

The biggest pieces of Sanders’s domestic agenda — making college, health care and child care more affordable — seek to capture these industries and convert them to run chiefly on federal money.

Sanders obviously understands that health care and education are the New Commanding Heights.

Second, Dana Milbank writes,

It’s a sign of some clout that Warren has Litan’s hide, and Weiss’s, and Summers’s. But if her party answered to the people rather than its donors, she’d have many more.

If you combine Sanders and Warren, what you get is socialism combined with demonization and intimidation of anyone who does not support left-wing views. This is the country that the Democratic left wants to live in?

Deirdre McCloskey on Intangible Forces in the Economy

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She writes,

what mattered were two levels of ideas—the ideas in the heads of entrepreneurs for the betterments themselves (the electric motor, the airplane, the stock market); and the ideas in the society at large about the businesspeople and their betterments (in a word, that liberalism). What were not causal were the conventional factors of accumulated capital and institutional change. They happened, but they were largely dependent on betterment and liberalism.

Pointer from James Pethokoukis, via Don Boudreaux.

Nick Schulz and I call this the software layer of the economy. Innovations account for our prosperity. Bad institutions account for poverty. McCloskey’s thesis is that bad ideas about society account for bad institutions. In terms of the Book of Arnold, when too many people think of merchants and traders as defectors, you get bad institutions.

There is much more to McCloskey’s summary of her thinking. For example,

For reasons I do not entirely understand, the clerisy after 1848 turned toward nationalism and socialism, and against liberalism. It came also to delight in an ever-expanding list of pessimisms about the way we live now in our approximately liberal societies, from the lack of temperance among the poor to an excess of carbon dioxide in the atmosphere. Anti-liberal utopias believed to offset the pessimisms have been popular among the clerisy. Its pessimistic and utopian books have sold millions.

What’s Missing From Refugee Cities?

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Matthew Kahn writes,

Why can’t we increase the menu of cities for individuals to choose from? What are the fixed costs for creating a city? Are these fixed costs shrinking over time? How durable would the new capital have to be? Think for a moment. The new urbanites in Gatesland would need;

1. shelter
2. food
3. water
4. electricity
5. sewage disposal
6. garbage disposal
7. transport services for moving within the city and for trading across cities
8. The children would need schools
9. basic health care

Pointer from Mark Thoma.

What is missing here are social capital and patterns of sustainable specialization and trade. I doubt that you can throw a million people together absent those elements and have it work out well.

Richard V. Reeves on Inequality

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He writes,

Most journalists, scholars and policy wonks are members of the upper middle class. This undoubtedly influences their (OK, our) treatment of inequality. Those of us in the upper middle class typically find it more comfortable to examine the problems of inequality way up into the stratosphere of the super-rich, or towards the bottom of the pile among families in poverty or with low incomes. It is discomfiting to think that the inequality problem may be closer to home.

Pointer from Mark Thoma.

I recommend the entire Reeves piece. Readers of Robert Putnam, Charles Murray, and this blog will not be surprised that

the gaps by income in family structure are striking. There are more never-married than married adults (aged 35 to 40) in the bottom 40 percent of the income distribution (37 percent v. 33 percent). In the top quintile, the picture is reversed: a large majority of household heads (83 percent) are married, while just 11 percent have never been married

Reeves’ concern:

Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

He links to a piece from Reihan Salam several months ago.

Take away the mortgage interest deduction from a Koch brother and he’ll barely notice. Take it away from a two-earner couple living in an expensive suburb and you’ll have a fight on your hands. So the upper middle class often uses its political muscle to foil the fondest wishes of egalitarian liberals.

The latter, of course, coming largely from the upper middle class.

Brink Lindsey and Steve Teles like to point out that there are policies available that, contra an old book from Arthur Okun, could both reduce inequality and improve economic efficiency. However, these are the policies on which the upper middle class is dug in.

We Don’t Make Things Any More

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Justin Fox writes,

The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.

Pointer from Tyler Cowen.

This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.

One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.

Four Forces Watch

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Jon Birger writes,

according to separate research by University of Pennsylvania economist Jeremy Greenwood and by UCLA sociologists Christine Schwartz and Robert Mare, educational intermarriage is less common today than at any point over the past half century.

The drum he is beating (Tyler Cowen has a link to a different piece by Birger) is that within a demographic segment, ratios of females to males matter. If you define the segment as “young, college-educated,” the outlook for women looks bleak, because of the high ratio of females to males in that segment.

Would it be reasonable to infer that in the segment “young, not college-educated” that there are more men than women? Why aren’t women in that segment enjoying lots of marriage prospects?

Perhaps many males in that segment do not offer much in terms of income.