*The Next Convergence*

by on May 13, 2011 at 1:01 am in Books, Economics | Permalink

The authors is Michael Spence (yes, the Michael Spence and he used to be “A. Michael Spence”) and the subtitle is The Future of Economic Growth in a Multispeed World.  The book’s home page is here.

I enjoyed reading this book.  It is an entirely sensible take on catch-up growth, a topic which is lacking a good popular treatment and yet deserves one.  I found each of the short chapters well-written and to the point.  Yet I came away from the work with a strange feeling: I don’t have a good sense of why Spence wrote the book.  It doesn’t flex his Nobel-quality analytic mental abilities (unlike this recent piece he wrote), nor is it a rank popularization.  It doesn’t promote a “big idea” that his name will be attached to, nor is Spence moving in the Stiglitz or Krugman directions, either politically or in terms of level of pitch.  I don’t understand what the book is supposed to be signaling.

I also was baffled when Spence agreed to take on a Deanship, at the peak of his economics research career.  Doesn’t one do well academically, in part, to say no to meetings, and to avoid becoming a Dean?  Apparently not in this case.

I have no good theory of A. Michael Spence, or for that matter of Michael Spence.

Since his seminal papers and book on signaling, there has been no more important idea in economics.

I see Michael Spence, and A. Michael Spence, as among the most interesting economists out there.  They remain ciphers to me, enjoyable ciphers but ciphers nonetheless.

RR May 13, 2011 at 2:45 am

Is “authors is ” a Freudian slip ?

DRE May 13, 2011 at 2:50 am

Well, he is 67. That’s a fine age to be a dean. Though given the shortage of effective brilliance in the universe, hopefully he still has some legs for playing the game.

mike May 13, 2011 at 3:41 am

Excluding China and countries that benefit from the rise in natural-resource prices how strong is convergence really? One could make an excellent case that convergence between the North and South in the EU has been a chimera. It’s not that difficult to achieve the level of say, Malaysia, but trouble is, once you are at this level it’s a whole ‘nother ballgame. Can anyone really see Indonesia, Ghana etc push past that level? I think what we’re seeing is convergence of individual income levels on a mass-scale rather than convergence of countries.

Baphomet May 13, 2011 at 5:14 am

Actually, that signaling business was the idea of Spence’s advisor, Thomas Schelling, as Spence freely admits. Schelling, however, had to wait a few more years to get his Nobel Prize.

Mulberry May 13, 2011 at 5:19 am

I also was baffled when Spence agreed to take on a Deanship, at the peak of his economics research career. It’s not that difficult to achieve the level of say

k May 13, 2011 at 7:27 am

What has Michael Spence done after his signaling paper? If it is true that he took the idea from Schelling, that’s not so cool, you know? It’s still a great model though…

Steve May 13, 2011 at 7:35 am

So, what’s “catch-up growth?”

E. Barandiaran May 13, 2011 at 9:06 am

As several other economists of the 1960s and early 1970s, Spence made great contributions to the extension of neoclassical economics. We should always thank them for such contributions and build on their ideas.
Having said that, and it has happened with some of those great economists, their contribution to understanding how the world economy works and has been changing it has been far from enlightening. I have yet to read Spence’s new book, but I hope it’s not focused on “catch up” growth. What has been happening in the world economy in the past 100 years is not about “catch up”; it’s about integrating all the world population into a global market economy, a process that has continued to be challenged and slowed down by the forces of evil –the forces of elites that want to run the world economy.

scott cunningham May 13, 2011 at 9:20 am

David Lewis goes into some level of detail on signaling in his dissertation, published at Harvard in 1969, which is 3 years before Spence graduated from Harvard. But Lewis signaling game was in philosophy, strangely enough. Anyone know the history of thought well enough to say whether Spence was influenced at all by Lewis? Spence does not mention Lewis at all in his Nobel acceptance speech, yet freely acknowledges his indebtedness to others (like Schelling). Yet given the timing, and the topic, and that they overlapped by one year, it made me wonder if signaling concepts were in the air at Harvard at this time? Would Schelling have been familiar with David Lewis’s work (who I am told is maybe one of the greatest metaphysical philosophers of the second half of the 20th century)?

Tyler Cowen May 13, 2011 at 9:25 am

Scott raises a good point, I do know that Schelling and Lewis spoke to each other a lot.

scott cunningham May 13, 2011 at 10:54 am

Interesting – I’m going to get my hands on Lewis’s published dissertation, Convention, and see how much Schelling he cites or acknowledges.

Alex’s point that something was in the air makes sense, too. When I teach signaling to my students, I will often give as an example the male peacock’s tail. I did not realize that this was first suggested by Zahavi. Zahavi graduates in 1970 from Tel Aviv University, so the time is right. He is interacting with John Maynard Smith, too, who is a game theorist in theoretical biology. So maybe that is the simple explanation – particularly since I can see in my mind a graph connecting authors, and Smith is connected to many, and not just in biology, but more broadly outside of it as well. Still, Zahavi’s article doesn’t seem to have much game theory in it. If I’m not mistaken, there is no mentioning of possible pooling and separating equilibria, or working out the conditions for either, yet I think Lewis does do that in his dissertation, as does Spence. I’m curious about this Schelling connection between Lewis and Spence as a result. It’d be interesting I think for the history of thought if Lewis’s dissertation insight, which focused on multiple worlds but used signaling models that he was advancing, jumped through Schelling to Spence where it was refined more carefully.

Baphomet May 13, 2011 at 12:51 pm

Lewis makes it entirely clear that Schelling’s ideas about equilibria in coordination games is what prompted him to work on rehabilitating the theory of language as convention. Another interesting thing about Lewis’s dissertation, which is simply full of novel ideas, is that it defines the notion of common knowledge that later became very important in game theory. It was only in 1976, however, when Robert Aumann independently (meaning he did not cite Lewis) defined the concept, that game theorists started paying attention to it. Imagine! Aumann independently comes up with the concept—and gives it the same name! The coincidence becomes even more startling when you realize they were both at the same university!

Alex Tabarrok May 13, 2011 at 10:05 am

The idea was in the air. In biology, Zahavi published the idea (although not the model) in 1975. Zahavi called it the handicap principle which is actually a better name than signaling since it explains the essential idea that makes the signaling credible.

http://en.wikipedia.org/wiki/Handicap_principle

Tom Grey May 13, 2011 at 8:09 pm

From the book page: Is the management and governance of the global economy that was in place for the last quarter century going to work in the future, or is it going to need fundamental change?

The world is better off with less “management and governance” … of elites, for elites. Simple Free Trade, clear bankruptcy laws, better enforcement of clearer contracts will allow peaceful trading people to increase their own wealth most efficiently.

Catch-up growth should be more efficient — since “best practices” exist and can be copied, to allow those behind to catch up with the leaders. The Stagnation is really only a relative slow growth period for the leaders.
Since there was over-investment in US housing starting around 1998? 2002?, massive over investment will repress later growth.

Eric Rasmusen May 15, 2011 at 11:08 pm

Do note that Spence had more than one big idea. I see on Google Scholar that he has 11 non-signalling papers with over 300 cites published between 1970 and 1981, and I know that a number of those were pathbreaking, if not on the same level as signalling (over 5000 cites for the biggest signalling paper).

I too have wondered why Spence abandoned research for administration 30 or so years ago. Has he published the answer anywhere? I’m sure he’s been asked repeatedly by friends, tho I would be too shy to if I met him.

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