Results for “solow”

86 found

Paul Krugman, Brad DeLong, Justin Wolfers and others are not sure what is Robert Barro’s argument or model in his recent Op-Ed.  I am puzzled by these responses, because, while I do not pretend to speak for Barro, I see at least one simple answer to these puzzlements.

Consider the following model.  Sometimes growth slows down and afterwards it speeds up again.  Temporary losses tend to be undone in future periods.  For one thing the Solow model implies catch-up growth, furthermore cyclical losses may exhibit mean-reversion.  There is in the meantime some depreciation of labor skills, from unemployment, but long-run output and welfare really does for the most part depend on the forces which govern economic growth.  (Increases in the variance of consumption are not enough to overturn that emphasis.)  That implies lower government spending in most areas of the economy, and it also implies lower taxation of capital, as supported by many empirical papers on growth including some by Barro himself.

That view may not be true (in my TGS book you will find some dissent from it but from another direction), but it’s hardly bizarre or economically illiterate.  If some writers aren’t totally explicit, it could be they don’t have enough words and feel that a large enough part of their audience takes the emphasis on growth and its preconditions for granted.

We are once again witnessing the renaissance of old Keynesian economics as a theory of the long run not just the short run.  The “New Old Keynesians” are of course entitled to their opinions, but given their minority status, it is strange when they find others difficult to comprehend.

Brad DeLong asks:

When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?

The immediate question is whether Ireland had a choice in the first place.  When it comes to total external debt, private plus public, Ireland is in one of the most desperate situations.  (Be careful, though, some published figures include financial institutions to which the Irish government has no real liability and thus overstate Irish external debt by quite a bit).  Ireland doesn't have the same flexibility as do Germany and the United States, nothing close to that.  Read this article for an estimate of the change in primary fiscal balance required for Ireland; it's scary and doesn't indicate a lot of flexibility, which supports the conventional wisdom on Ireland, from the OECD, the European Commission, from Ireland itself, and arguably you add the IMF to that list as well. 

Furthermore, Ireland as a small, open economy experiences a relatively high degree of fiscal leakage.

By the way, you shouldn't simply assume that the initial fifteen plunge in gdp was due to fiscal caution; Ireland was after Iceland perhaps the most overextended country in the crisis.

Here's a Morgan Stanley analysis of Ireland, which basically suggests "it's complicated."  It also suggests a reasonable chance the current strategy will work out OK.  It is complicated, and the mere fact that spending is a component of national income accounts doesn't mean that more spending is always a good thing. 

Ireland in fact has done a negative fiscal stimulus.  Earlier, Ireland made the mistake of joining the Eurozone.  See also this study of Ireland, 1987-89, an earlier decisive and successful fiscal adjustment, in the days of the Irish Punt.  The Euro today makes matters harder for Ireland, yet that doesn't imply they have greater license to spend today, in fact it can imply the contrary.

Paul Krugman pointed out that the fiscally tighter Ireland did not have a better CDS price than the more wishy-washy Spain.  Yet Ireland has a bigger external debt problem, may be less protected by "too big to fail," is a smaller nation, and has less control over its destiny; the (roughly) equal price may reflect what is a superior Irish effort.  In any case, Spain is hardly a walking advertisement for not going the Irish route.

The Irish also hope that whatever output they "leave on the table" today, they can make up with Solow catch-up growth.

If you would like to read a brief on behalf of Irish stimulus, try this.  The author admits that Ireland would have to significantly raise corporate taxes, a former linchpin of its growth (whether you think that efficiency-enhancing or international rent-seeking, it is still true).  Is it worth it?  How much would such a policy damage Irish growth and credibility?

Kevin O'Rourke also has good but scattered writings on the topic of Irish stimulus.  His first preference is greater fiscal federalism within the EU.  Last month he also wrote that, lacking such a reform, Ireland had no choice.

This June, Irish consumer confidence hit a three-year high.  Here's one estimate that wages have been falling four to five percent a year, and will continue to fall, plus the Euro has been falling.  You could argue there has already been an adjustment in the twenty-five percent range.  None of that is proof of recovery, but there are some green shoots.  Here is the very latest report, indicating that economic growth may be resuming; admittedly it's just a forecast from the government.  Exports are showing growth and retail sales are rising slightly.

The Irish Times reports today: "For the first time in three years, there are now more reasons for hope than for despair.  This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place."

Do interpret that with extreme caution.  For various debates, follow The Irish Economy blog, including in the comments.

On these critical questions, in the pro-stimulus for Ireland posts, I don't see a level of detail which would rebut these quite mainstream, not-emanating-from-the-gamma-quadrant opinions — that the Irish did more or less the right thing in a very unpleasant situation. 

The Irish experiment remains an open book.  In the meantime, it's simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice.  Three years out from now, let's compare Ireland to the other PIIGS.

The link is here, the table of contents is described as follows: 

Economic enlightenment is not correlated with going to college, at least among the 4835 Americans who completed a Zogby International online survey. Economic enlightenment is highest among those self-identifying “conservative” and “libertarian,” and descends through “moderate,” “liberal,” and “progressive.” Other variables include party affiliation, religious participation, union membership, NASCAR fandom, and Wal-Mart patronage. Zogby researcher Zeljka Buturovic and Daniel Klein report.

When the White House changes party, do economists change their tune on budget deficits? Brett Barkley does a systematic investigation. Six economists are found to change their tune – Paul Krugman in a significant way, Alan Blinder in a moderate way, and Martin Feldstein, Murray Weidenbaum, Paul Samuelson, and Robert Solow in a minor way – while eleven are found to be fairly consistent.

44 economists answer the questionnaire about a market-failure rationale for pre-market approval of drugs and devices:

The questionnaire posed reform questions and tested responses. The 44 interviews provide a rich set of discourse that help one decide: Is there a sensible market-failure rationale?

Supporters of pre-market approval include Kenneth Arrow, John E. Brazier, William Comanor, Randall P. Ellis, John Hutton, Naoki Ikegami, Jonathan Karnon, Gérard de Pouvourville, F.M. Scherer, and 14 others.

The supporters of liberalization are James F. Burgess, Jr., Noel Campbell, J. Jaime Caro, Thomas DeLeire, David Dranove, Dale Gieringer, Paul Grootendorst, David Henderson, Randall Holcombe, Charles Hooper, Sam Peltzman, Paul Rubin, Shirley Svorny, Robert Tollison, and Michael R. Ward.

The Euro symposium response: Lars Jonung and Eoin Drea respond to commentators on their study of what US economists were saying about the prospect of the euro, and comment on recent events and debates.

Econometric errors in an Applied Economics article. Dimitris Hatzinikolaou reports on the article and his efforts to get his critique heard.

A 1903 letter against protectionism in Britain endorsed by 16 economists including Bastable, Bowley, Cannan, Edgeworth, Marshall, Pigou, Scott, and Smart.

The first one is sure to cause some controversy and I view it in part as an attempt to revise the portrait of the elites put forward by Bryan Caplan; I await his response.  My own view is that "who in the general public understands economics best" is very sensitive to which questions we ask.  Libertarian-leaning voters have a better understanding of government failure, but left-leaning voters are more likely to understand adverse selection or aggregate demand management.  Which is a more important topic?  That may depend on the researcher's own point of view.  What's the closest we can come to a value-neutral test of whether elites or the "common man" understand economic reasoning better?  In the meantime, Bram Cohen understands economics pretty well.