by Tyler Cowen
on April 30, 2012 at 2:24 pm
1. The second blog post of Garett Jones.
2. Arnold Kling on the growth of government.
3. Acemoglu and Robinson respond to Fukuyama, and a response to me on venture capital.
4. Granny clouds for Indian schoolchildren.
5. USA Today reviews An Economist Gets Lunch.
> a response to me on venture capital.
It asks us to compare VC-returns-relative-to-stock-market in the 1980s to VC-returns-relative-to-stock-market in the 2000s. Both are flat. But do both periods have the same baseline stock-market performance…?
I have to don’t I?
There’s my response to Fukuyama’s response to Acemoglu and Robinson. I say they didn’t just over simplify. They got it wrong big time. I could say much more about impressive economists falling in stature when they encroach inexpertly and over-confidently in political science and sociology. But I won’t. I’ll just stop there. It’s hard, but I will.
Fukuyama is absolutely right in calling the dichotomy between inclusive and extractive way too simplistic. Acemoglu might protest that he argues there are “shades of gray” between these poles, but the whole point of Fukuyama’s critique is that those shades of gray are crucial, and just caling them shades of gray on a spectrum is a completely wrong and simplistic approach. We need a whole new way of looking at various “political” orders in society, and new names and concepts and comparisons to attempt to classify (and rate for success) the various orders that exist. It is not “useful to start with the black and white”. The two poles are wrong from the start.
It’s also funny to see Acemoglu accuse Fukuyama of arguing for “kitchen-sink-regressions”. Fukuyama is the master of the qualitative approach, not narrow-focused Acemoglu, initially scared of historical complexity but slowly branching out in it as he discovered it as a niche for prestigious professional economists.
Acemoglu says that if “China is able to reach levels of income per capita comparable to those of Spain or Portugal based on its extractive political institutions, then this would invalidate our theory,” although “it would not be inconsistent with it”. Which of the two is it? In any case, to talk about “China” on the same page as Botswana seems pretty ridiculous to me. China is an ancient provider-bureaucracy civilization with Confucian cultural care-for-the-flock mentality ingrained. Let’s just skim that part and focus on extractive vs. inclusive, throw in some random examples, and proclaim that in “our framework”, “growth will not be sustained”.
“Political rights” do not lead to growth per se, and the glorious revolution was not a “change” but a consolidation of property rights, and certainly not by “ordinary people”. A state that has little corruption, and tries to do what’s best for its people, can be a good place even if it’s not “growing”. Maybe “growth”-causing inventions impoverish a nation in the short-run. And so on.
I have to admit though, that it’s a good thing that even the prestigious mathematically-inclined mainstream is driven to think about historical complexity and “institutions”, however vaguely they define and understand them.
“Acemoglu says that if “China is able to reach levels of income per capita comparable to those of Spain or Portugal based on its extractive political institutions, then this would invalidate our theory,” although “it would not be inconsistent with it”. Which of the two is it?”
Wow, way to take a quote out of context.
The full quote:
“As a matter of fact, China is still much poorer relative to the United States than the Soviet Union was in 1970. If China is able to reach levels of income per capita comparable to those of Spain or Portugal based on its extractive political institutions, then this would invalidate our theory. But, as we explain in detail in the book growth under extractive institutions is part of our theory, so it is certainly not inconsistent with our framework. It is just that our theory suggests that such growth will not be sustained.”
I quoted the last part of their paragraph as well, and question its validity. Growth has been sustaining for a while now in Shanghai. Portugal only has 22K per capita GDP and Shanghai is already at 12K. They aren’t battling the great stagnation in China, they are just catching up, and for catching up you don’t need the broad political rights they are talking about.
Depends how far you want to catch up. Certainly you can get from North Korean levels to half of Mexican levels without them, but can you exceed Mexican PPP GDP per capita with today’s Chinese institutions/culture? Unlikely.
#1 Do you think he’s fixed on the right tone for a blog? Not too wonkish? I’m curious.
#1 Brad DeLong says: “Let me start off the last day of this debate by detailing things that would make me abandon my position, and rush to agree with Tyler Cowen that fiscal stimulus is just too dangerous a policy to risk using.” Did you (and him) really say that?!!
#3 I read the Acemoglu and Robinson book. I generally agree with the thesis but overall I wasn’t particularly impressed – and I have to say their writing format seems to follow a trend I see when I read any book written by an economist. VERY simplistic writing style – provide tonnes of little examples but never go into significant depth with any of them – almost as if going into depth would show weaknesses in their theory….
I don’t think these single explanation books stand up to all situations, Jared Diamonds thesis still looks pretty good to me to explain a lot of the difference between say Africa and Eurasia – and even A&R rely on it (although unmentioned and perhaps unwittingly) for a number of their stories.
The big problem is that most of the world’s population lives in Eurasia (especially if we include settler colonies) and Diamond can’t explain variation within Eurasia. Also, Michael H. Hart made some good points comparing Africa & the pre-Columbian Americas, both of which have a north-south rather than east-west gradient.
Thank God it’s Stagnation!
4) Whenever I google up phrases with the word ‘knowledge’, such as knowledge-based community, it seems India has already adopted such phrases and done things with them.
My claim was not that poor VC returns are *evidence* of technological stagnation. I was offering technological stagnation as one possible *explanation* of poor VC returns. There are many other reasons VC could be doing badly, the most obvious being that investors simply haven’t yet caught on to the fact that the business model doesn’t scale.
3. Aha!! Just as some of us suspected, the 1990s were the anomaly, not the 2000s.
But I do wonder if this is in real dollars:
Before 1995, US VC funds never raised more than $10 billion in a year (typically they raised in the low single figures of billions); since 1995, they’ve raised between $10 billion and $30 billion every year, even in the aftermath of the dot-com bubble.
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