Results for “solow” 86 found
What I’ve been reading
1. Ian McEwan. The Children Act. The main story line pretends to revolve around a Jehovah’s Witness who won’t take a blood transfusion, but I think it was meant as a book about Islam and he was afraid to say so. The resulting mix doesn’t quite work.
2. Arundhati Roy and John Cusack, Things That Can and Cannot Be Said, Daniel Ellsberg and Edward Snowden are part of the book too. The two main authors conversing with Snowden is in fact the strongest argument against Snowden I’ve seen. Maybe he is just being polite, but it’s the only time I’ve heard him sound like an idiot.
3. Helen Hardacre, Shinto: A History. I’ve read only about a fifth of this 720 pp. book, but it seems to be a highly useful history on a topic hardly anyone knows anything about.
4. Daniel Ellsberg, Secrets: A Memoir of Vietnam and the Pentagon Papers. Compelling throughout, and worthwhile reading for anyone interested in media and media policy. Ellsberg, of course, was closely connected to Thomas Schelling and made significant contributions to the theory of choice under uncertainty.
There is also:
After Piketty: The Agenda for Economics and Inequality, edited by Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum, is a very useful collection of writings on Piketty-related themes, including Solow and Krugman.
Nathan B. Oman, The Dignity of Commerce: Markets and the Foundations of Contract Law. An interesting blend of “moral foundations of capitalism” and analysis of Shakespeare’s Merchant of Venice.
Shahab Ahmed, Before Orthodoxy: The Satanic Verses in Early Islam, “…the early Muslim community believed almost universally that the Satanic verses incident was a true historical fact.”
Why did the Stars Wars and Star Trek worlds turn out so differently?
That question came up briefly in my chat with Cass Sunstein, though we didn’t get much of a chance to address it. In the Star Trek world there is virtual reality, personal replicators, powerful weapons, and, it seems, a very high standard of living for most of humanity. The early portrayals of the planet Vulcan seem rather Spartan, but at least they might pass a basic needs test of sorts, plus there is always catch-up growth to hope for. The bad conditions seem largely reserved for those enslaved by the bad guys, originally the Klingons and Romulans, with those stories growing more complicated as the series proceeds.
In Star Wars, the early episodes show some very prosperous societies. Still, droids are abused, there is widespread slavery, lots of people seem to live at subsistence, and eventually much of the galaxy falls under the Jedi Reign of Terror.
Why the difference? Should we consult Acemoglu and Robinson? Or is it about economic geography? I can find think of a few factors differentiating the world of Star Wars from that of Star Trek:
1. The armed forces in Star Trek seem broadly representative of society. Compare Uhura, Chekhov, and Sulu to the Imperial Storm troopers.
2. Captains Kirk and Picard may be overly narcissistic, but they do not descend into true power madness, unlike various Sith leaders and corrupted Jedi Knights.
3. In Star Trek, any starship can lay waste to a planet, whereas in Star Wars there is a single, centralized Death Star and no way to oppose it, short of having the rebels try to blow it up. That seems to imply stronger checks and balances in the world of Star Trek. No single corrupt captain can easily take over the Federation, and so there are always opposing forces.
4. Star Trek embraces analytical egalitarianism, namely that all humans consider themselves part of the same broader species. There is no special group comparable to the Jedi or the Sith, with special powers or with special whatevers in their blood. There are various species of aliens, but they are identified as such, they are not in general going to win human elections, and furthermore humans are portrayed as a kind of galactic hegemon, a’ la the United States circa the postwar era.
5. The single individual is much more powerful in the world of Star Wars, due to Jedi and Sith powers, which seems to lower stability. In the Star Trek world, some of the biggest trouble comes from super-human Khan and his clan, but fortunately they are put down.
6. Star Trek replicators are sufficiently powerful it seems slavery is highly inefficient in that world. In Star Wars the underlying depreciation rate, as you would find it measured in a Solow model, seems to be higher. More forced labor is drafted into use to repair all of that wasting capital.
What else?
Addendum: Here is Cass on Star Wars vs. Star Trek.
Patents, Prizes and Subsidies
Thinking about the Solow model and the limits of capital accumulation as a force for growth leads naturally to thinking about ideas and the institutions that create incentives to produce and use new ideas. Here is Patents, Prizes and Subsidies, the latest video from our Principles of Macroeconomics course at MRU–based, of course, on our textbook, Modern Principles.
My favorite part of this video is Tyler doing a cameo as an armchair economist.
The Importance of Institutions
So far, in our Principles of Macroeconomics class at MRUniversity we’ve covered GDP (how it is calculated, nominal versus real, GDP as a measure of the standard of living etc.). We have also covered the basic facts about differences in income both across countries and over time, the importance of growth rates, and the presence of growth miracles and growth disasters, among other topics.
In our latest video, Tyler covers the Importance of Institutions. Next up geography and growth and shortly after that on to the Solow model!
As always, these videos are freely available for non-commercial use. They can be used with any textbook but why would you want any but the best?
How much did World War II boost post-war growth?
Petros Milionis and Tamas Vonyo have a new paper on this question (click through to the first pdf here), the effect was a major and long-lasting one, here is part of the abstract:
…this reconstruction process was an important driver of growth during the post-war decades, not only in Europe but globally, and its impact on growth rates lasted until the mid 1970s. Moreover, a counterfactual analysis suggests that in the absence of the reconstruction effect global growth rates from 1950 to 1975 would have been on average 40% lower and only slightly higher than those observed during the years from 1975 to 2000.
Here is Alex’s MRU video on the Solow growth model, part two here.
Friday assorted links
1. Here is an interactive name calculator. Here is the history of Tyler, there are few Tylers my age.
2. The Growth Economics Blog has written a children’s book, mostly 3rd-7th graders, no knowledge of the Solow model required.
4. Wasabi-based fire alarms for the deaf.
5. How strong is the demand for eugenics?
6. Scott Sumner and his wife on China. And is there low-hanging fruit in the fight against inequality? If so, how many people are urging us to grab it?
7. Is it possible that within-firm wage inequality has not gone up (pdf)?
Assorted links
Facts about MIT economics
1. It is believed that MIT graduating Ph.d. students are more likely to stay in academia than those from any other school or field.
2. Across 1977-2011, MIT economists made up 34 percent of the members of the CEA, and Robert Solow supervised one-third of that group.
3. Even in the early days of MIT, Paul Samuelson was not a major thesis advisor, and his students were not so likely to return to MIT as faculty.
4. Out of 35 J.B. Clark medalists until 2012, 47% of them have some affiliation with MIT, either a degree from there or teaching there.
5. As of a few years ago (I am not sure of the exact date), there were 1316 holders of an MIT Ph.d. in economics.
6. In the 2000s, Daron Acemoglu was the most active thesis advisor at MIT.
That is all from “MIT’s Rise to Prominence: Outline of a Collective Biography,” by Andrej Svorenčík. There are various versions of that article here, the jstor version here, and it is reprinted in MIT and the Transformation of American Economics, edited by E. Roy Weintraub.
Top Ten MR Posts of 2014
Here is my annual rundown of the top MR posts of 2014 as measured by page views, tweets and shares.
1. Ferguson and the Debtor’s Prison–I’d been tracking the issue of predatory fining since my post on debtor’s prisons in 2012 so when the larger background of Ferguson came to light I was able to provide a new take on a timely topic, the blogging sweet spot.
2. Tyler’s post on Tirole’s win of the Nobel prize offered an authoritative overview of Tirole’s work just when people wanted it. Tyler’s summary, “many of his papers show “it’s complicated,” became the consensus.
3. Why I am not Persuaded by Thomas Piketty’s Argument, Tyler’s post which links to his longer review of the most talked about economics book of the year. Other Piketty posts were also highly linked including Tyler’s discussion of Rognlie and Piketty and my two posts, Piketty v. Solow and The Piketty Bubble?. Less linked but one of my personal favorites was Two Surefire Solutions to Inequality.
4. Tesla versus the Rent Seekers–a review of franchise theory applied to the timely issue of regulatory restrictions on Tesla, plus good guys and bad guys!
5. How much have whites benefited from slavery and its legacy–an excellent post from Tyler full of meaty economics and its consequences. Much to think about in this post. Read it (again).
6. Tyler’s post Keynes is slowly losing (winning?) drew attention as did my post The Austerity Flip Flop, Krugman critiques often do.
7. The SAT, Test Prep, Income and Race–some facts about SAT Test Prep that run contrary to conventional wisdom.
8. Average Stock Returns Aren’t Average–“Lady luck is a bitch, she takes from the many and gives to the few. Here is the histogram of payoffs.”
9. Tyler’s picks for Best non fiction books of 2014.
10. A simple rule for making every restaurant meal better. Tyler’s post. Disputed but clearly correct.
Some other 2014 posts worth revisiting; Tyler on Modeling Vladimir Putin, What should a Bayesian infer from the Antikythera Mechanism?, and network neutrality and me on Inequality and Masters of Money.
Many posts from previous years continue to attract attention including my post from 2012, Firefighters don’t fight fires, which some newspapers covered again this year and Tyler’s 2013 post How and why Bitcoin will plummet in price which certainly hasn’t been falsified!
Assorted links
Assorted links
1. Will it work for Norway to pay Liberia to stop deforestation? Does the Coase theorem hold?
2. New York City food menus from one hundred years ago.
3. What does this Singaporean road sign mean? Duh.
4. Those 538 guys missed what is actually the best taco (economies of scope).
5. How to best survive a black bear attack.
6. Videotape of Solow, DeLong, myself and Russ Roberts on Piketty.
The economics of cyclone disasters
It’s not quite the Solow model. Here is a new paper from Solomon M. Hsiang and Amir S. Jin, “The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones,” the abstract is this:
Does the environment have a causal effect on economic development? Using meteorological data, we reconstruct every country’s exposure to the universe of tropical cyclones during 1950-2008. We exploit random within-country year-to-year variation in cyclone strikes to identify the causal effect of environmental disasters on long-run growth. We compare each country’s growth rate to itself in the years immediately before and after exposure, accounting for the distribution of cyclones in preceding years. The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Linking these results to projections of future cyclone activity, we estimate that under conservative discounting assumptions the present discounted cost of “business as usual” climate change is roughly $9.7 trillion larger than previously thought.
That link has an NBER gate, I do not yet see an ungated version.
Depreciating Capital
Brad DeLong attacks Krusell and Smith for using in some of their thought experiments a depreciation rate of 10%, which is probably too high. Fair point but in my post I assumed a depreciation of just 5% and showed that Solow and Piketty give very different predictions about how the K/Y ratio will change with a change in g.
Furthermore, having read DeLong’s comment, I went to the BEA and compared gross and net domestic product which gives capital depreciation as a fraction of GDP of around 15% in recent decades. At a K/Y ratio of 4 that’s a depreciation rate of 3.75%. Similarly, Inklaar and Timmer in constructing capital stocks for the Penn World Tables estimate a depreciation rate for the U.S. of 4.1%. I reran my simple Excel chart with the lower number, 3.75%.
As you can see, the numbers are very similar to earlier and the key point is still that a decrease in g increases K/Y much more in the Piketty model than in the Solow model. 
Krusell responds to DeLong here making the additional point that their thought experiments show that Piketty’s assumption about savings is implausible at any depreciation rate (see also Hamilton on this point).
First: if the net rate of saving remains positive as the economy’s growth rate falls toward zero, as Piketty assumes in his second fundamental law of capitalism, the gross saving rate in the economy must approach 100%. This observation is a way of illustrating how unreasonable the behavioral assumptions underlying his theory of saving really are.
Second: according to standard, and much more reasonable, saving theory (based either on the standard textbook Solow growth model or on the permanent-income model), the net saving rate must fall with the rate of growth, and become zero when growth is zero.
…These points are key because Piketty’s predictions are all about what happens as growth falls during the 21st century, as he argues it will.
…both of these results hold no matter what the depreciation rate is (so long as it is positive).
The heart of Piketty’s theory is his expression for the capital share of income in the long run, α = r × s/g with the prediction that if g falls the capital share will rise tremendously. This is a good opportunity to summarize some of the recent points about the theory.
There are no contradictions but many a slip ‘twixt the cup and the lip. Namely, will g fall? If g does fall, will K/Y increase? If K/Y increases will capital’s share of income increase? My answers:
Will g fall? Uncertain. Piketty’s forecast is as good as anyone’s. My own view is that at the global level g has been increasing for several centuries and that this will continue, especially because in this century we will see a massive increase in the number of scientists and engineers as China and then India devote increased human capital to the research frontier.
If g does fall, will K/Y increase? Yes, but probably less than Piketty estimates and more in line with Solow.
If K/Y increases will capital’s share of income increase? Uncertain but more likely no than yes. It depends on the elasticity of substitution between K and L and as Rognlie and Summers argue, the elasticity that Piketty needs is higher than current estimates suggest is the case.
The Declining Fortunes of the Young Since 2000
That is a new piece in the May AER by Paul Beaudry, David A. Green, and Benjamin M. Sand, here is the clincher scary paragraph:
The data reveal a clear break in 2000. Between 1992 and 2000, each successive entry cohort has a higher share in cognitive occupations at the outset of their working lives, with the proportion increasing by 0.1 between the 1994 and 1998 cohorts. After 2000, with the exception of the difference between the 2004 and 2006 entry cohorts, each successive cohort has a lower share in these occupations, with the share at entry for the 2010 cohort being approximately the same as for the 1990 cohort. Given all the attention that has been paid to growing demand for cognitive skills, this complete reversal is striking.
Do you know of an ungated version? Here is a related Brookings piece of research (pdf). Here is a related piece by Acemoglu, Auor, Dorn, Hanson, and Price.
Further Gary Becker links
Russ Roberts on Gary Becker. And Steve Levitt on Gary Becker. And Heckman’s 181 pp. of notes on Becker (correct link here), many superb photos, large font and lots of space, I had not known Jacob Viner called Becker his best student ever, or how much Solow and Becker were rivals. And Justin Wolfers on Becker.
All are excellent and fascinating pieces.