Results for “solow” 90 found
Why are Swedish meatballs so much smaller than their American counterparts?
This topic has been knocking around the blogosphere as of late:
I am a longtime reader of MR and there is a question I have been wondering about for a long time. I was hoping you could share your thoughts on meatball heterogeneity. My girlfriend made dinner for me and the entree was Swedish meatballs. I never knew how small their meatballs are. It seems inefficient to roll all that meat into such tiny balls. Wouldn’t it make more sense to roll them into big balls like we do in the US?
First, history + hysteresis play a role. According to Mathistorisk Uppslagsbok by Jan-Ojvind Swahn, the Swedish concept of meatball first appeared in Cajsa Warg's 1754 cookbook. Yet as late as the early 20th century, beef was still a luxury in Swedish culture, whereas meat was plentiful in the United States. America had greater access to game in the more moderate climate and also greater grass resources for supporting cows. The Swedes were also late in benefiting from the refrigerated transport revolution, which started elsewhere in the 1920s and brought more meat to many households. (This tardiness was due to the concentration of population in a small number of cities, combined with rail isolation from Europe.) The end result was smaller meatballs, a tradition which has persisted to this day.
On the plane of pure theory, standing behind the lock-in effect is the Ricardian (or should I say Solowian? Solow is the modern Ricardian when you think through the underlying asymmetries in his model, which ultimately make "capital" non-productive at some margin) fixed factor explanation. A Swedish meatball recipe usually involves much more dairy than a non-Swedish meatball recipe. Constant returns to scale do not in general hold for recipes, much less for loosely packed spherical items involving fluids.
Oddly, the extant literature does not seem to have considered these factors.
From the comments: Lennart writes: "Swedish meatballs, having loads of surface that are fried crispy, are much better than other forms of meatballs for that reason alone. Norwegians and Danish have big meatballs, but that's because they are boiled, so there is no crispy-fried surface to maximize (and hence nowhere near as good)."
How our macro book differs
Alex already has suggested some points related to economic growth; I'll add to that:
1. We make macroeconomics as intuitive as microeconomics. Our macro is based on the idea of incentives, consistently applied.
2. We cover the current financial crisis.
3. We show a simple — yes truly simple — way of teaching the Solow Growth model. I call it Really Simple Solow. But if that's not simple enough for you, you can skip it and just call it Long-Run Aggregate Supply.
4. We offer equal and balanced coverage of neo Keynesian and real business cycle models. Most other texts emphasize one or the other.
5. We offer an intuitive way of teaching real business cycle theory. No intertemporal optimization representative agent models. Can you explain to your grandmother why swine flu has been bad for the Mexican economy? If so, you also think that real business cycle theory can be taught simply and intuitively.
6. Our version of the AD-AS model actually makes sense. We don't mash together real and nominal interest rates into the same diagram, we don't treat the Taylor rule as an assumption for deriving an AD curve, and we do the analysis consistently in terms of dynamic rates of change. (On the latter point for instance it is the rate of inflation which influences economic behavior, not the absolute level of prices per se, yet so often "p" rather than "pdot" goes on the vertical axis.)
The AD-AS analysis covers both neo Keynesian and RBC models and can be done with three simple curves in one simple graph. There is only one (consistent) model which needs to be taught for presenting the major macro ideas.
Alex and I vowed we would not stop working on this book until macro ceased to be the "ugly sister" of the micro/macro pair. Modern Principles: Macroeconomics is the result of that Auseinandersetzung.
We are heartened by the response to our previous posts on the book. Again, please do contact us if you are interested in a review copy for teaching purposes. Here is the book's home page.
Assorted links
2. There is no map of the Alps.
3. Ben Casnocha's humor tag.
Famous economists’ famous errors
Bob T., a loyal MR reader, asks the following:
10 (or more) most famous mistakes in economics.
Viner on costs and Feldstein on Social Security come to mind. Malthus? Not
talking about old vs. new economics, but simple analytical errors and bad
predictions.
That’s a good start. What else might be listed? Just to circumvent various hobby horses in the comments section, let’s avoid Marx and Marxists, Keynes, and the last twenty years.
1. Kenneth Arrow confusing risk subdivision and risk multiplication, in arguing that government should use a riskless rate of discount.
2. The Cambridge, Mass. economists having to admit, finally, that capital reswitching could be quite a general phenomenon (though is it, really?)
3. Ricardo’s prediction that most of national output would end up going to the landlords.
4. Paul Samuelson praising the economic performance of Soviet central planning in his Principles text.
5. 93 percent of all proclamations made about the demand for money in macroeconomics.
6. The more exaggerated claims about the Laffer Curve.
7. Various claims that the Fed should have let the money supply fall during the Great Depression.
8. Jevons’s claim that England (or was it the world?) would soon run out of coal.
9. Welfare analysis done in overlapping generations models (the standard welfare theorems do not generally hold in such models).
And dare I offer up a controversial pick:?
10. Those who think that the difference between "capital" and "ideas" in a Solow growth model is actually well-defined.
What else can you think of?
Assorted links
1. Deep Glamour, a new Virginia Postrel blog, linked to a forthcoming Virginia Postrel book
2. Videos of Nobel Laureates, recent talks
3. Beware what ye do not know, namely peanut butter
4. Robert Solow takes down Kevin Phillips
From the comments: “America the Beautiful”?
I’m always one for airing grievances:
Tyler, Common among economists and some among the autisitic spectrum is the tenedency to belive the map is more real than the landscape, the model complete and accurate and that everything you were taught in econ seminars came donw on tablets. The Candide, America love it or leave it attitude is a tad tiresome. There are problems out there big guy and the Solow model or the Romer Model don’t mean shit.
Here is a compendium of my anti-American attitudes:
1. The number of Americans in prison remains an underreported scandal, as well as the conditions they face.
2. Problems of race relations are underestimated, to this very day.
3. For whatever reasons, smart American women seem to be more insecure than are Western European women. Yes that’s a vulnerable overgeneralization and I will take some lumps for it in the comments but I still think it’s basically true.
4. I could not live in rural America and be happy.
5. America faces a massive current and future problem resulting from the apparent uneducability of a large chunk of its citizens. While I do favor school choice, it’s not just government education which is at fault; many better school systems around the world are government-run.
6. Gun owners may well be happy, but it is not a culture I relate to.
7. The American culture of individual freedom is closely linked to the prevalence of mental illness and gun-based violence in this country. We can’t seem to get only the brighter side of non-conformity.
8. America is the worst offender when it comes to factory farming and the treatment of animals.
On the brighter side, America has a decent economic track record, the Solow model does matter (try living and earning in countries with poor Solow indicators), America remains the world’s leading innovator, and most Americans — at least those not in prison or on drugs — can expect a bright future. It’s not as if I’m pushing the future economic prospects of Suriname.
I also believe (contra the blogging progressives) that America is fated (for better or worse, but in my view not worse) to remain predominantly captured by corporate interests and that America does a better job absorbing and elevating immigrants than perhaps any other country.
Many Europeans fear deep down that America will have a permanently higher growth rate and that the European way of life will, sooner or later, be forced to disappear. Right now I would bet against this proposition, as I see a new Europe revitalized by intra-EU immigration. But there is still, say, a 30 percent chance it is true and polemics against Uncle Sam are in part a reflection of that deep insecurity.
What will happen with commodity prices?
Megan McArdle gives one bottom line, referring to Paul Krugman’s somewhat pessimistic column. I would say that China has been massively productive but not so much in producing commodities. That means the demand for commodities has gone up much more rapidly than the supply. You could imagine an alternative universe in which China grew by figuring out ways to produce oil, copper, and rice much more cheaply. Of course that’s not what happened and it is relatively easy to see why not. Following some good policy changes, Chinese growth has been driven by a massive rural to urban migration and yes we are talking about hundreds of millions of people. It’s plastic basketballs that have become cheaper, not the products of farms.
The mere addition of labor inputs to urban areas doesn’t, in the short run, help you produce commodities more cheaply. Think of the Solow model where K and L have gone up lots but the rate of generating new ideas is only slightly higher.
When all those new Chinese engineers and scientists are at the peak of their creative powers, this relationship will reverse itself and commodities prices will plunge. But it’s quicker to produce another toy than to bring about a new Green Revolution, so in the meantime commodity prices are very high. I give the current price trend another ten or fifteen years or so to run. Eventually high commodity prices will seem permanent and then the bottom will drop out.
We’ve never had a rapid and successful migration of hundreds of millions before, ever.
Bad Money
That’s the new book by Kevin Phillips. He concludes:
The thirty- to forty-year tumble from national preeminence that made life more glum for most folk in seventeenth-century Spain, and eighteenth-century Holland, and the Britain from the 1910s to the 1950s may be somewhat moderated for the United States because of a position as a North American continental economic power with a large resource and population base…
Boo hoo, I say; I’ll be crying all the way to Rio. Overall this book is a catalog of the usual arguments about the financial problems of the United States, peak oil, the potential weakness of the dollar, and related worries. Phillips doesn’t seem to think that finance is much of a productive economic sector. He is keen on the "inflation is larger than we realize" line, citing high growth rates for M3 (he doesn’t realize how much the different aggregates can move around and differ from each other) and then the Fed’s discontinuation of that statistic. But who has been tricked? Either the current market estimate of inflation is the best estimate available, or you know that it is wrong and you will be a very rich man. I find the former scenario more plausible.
If there’s anything wrong with gdp statistics, it’s either environmental problems or that we don’t have good measures of the productivity of government itself. Those problems are built into how the number is calculated and there is no conspiracy to make America look much richer than it really is.
There is remarkably little on future expected productivity growth or whether America will solve the problem of educating its non-upwardly-mobile, which are both (the?) major issues for our economic future. The author should spend a week locked in a room with the Solow model. There is also precious little recognition that America in twenty years’ time will almost certainly be a good bit wealthier than today. Given that no other country is about to take us over, does relative international status really matter so much for the happiness of Americans? I don’t think so. The richer the Chinese get, the more I feel good about living in the world’s first country to be a true product of The Enlightenment. If only Phillips could feel the same way.
A superb post on exchange rates
Here, by Menzie Chinn.
And here you can read Bob Solow on Greg Clark for $3. Here are Solow’s tips for time management, interesting but obviously not written by a member of the email generation.
After War
The subtitle is The Political Economy of Exporting Democracy, and the author is Chris Coyne, a former student of mine and now professor at West Virginia University, also blogger at The Austrian Economists. Excerpt:
What do the data indicate regarding the effectiveness of reconstruction as a means of achieving liberal democracy? In short, the historical record indicates that efforts to export liberal democracy at gunpoint are more likely to fail than succeed. Of the twenty-five reconstruction efforts, where five years have passed since the end of occupation, seven have achieved the stated benchmark, resulting in a 28 percent success rate. The rate of success stays the same for those cases where ten years have passed. For those efforts where at least fifteen years have passed, nine out of twenty-three have achieved the benchmark for success, resulting in a 39 percent success rate. Finally, of the twenty-two reconstruction efforts where twenty years have passed since the exit of occupiers eight have reached the benchmark, resulting in a 36 percent success rate.
You can buy Chris’s book here. I view the key analytical point as focusing on the power of on-the-ground expectations to make the reconstruction "game" either a cooperative or combative one. This is a difficult variable to control, but Chris offers a very good look at the best and worst attempts that the United States has made to manipulate these variables and thus export democracy. If you want to know why the Solow model doesn’t seem to hold for Bosnia, or a deeper more analytic sense of why Iraq has been a mess, this is the place to go.
Do unfree countries grow faster?
Right now they do, check out this chart. But fear not for the consilience of liberty and utility. Kevin Hassett is citing Arrow when he should be invoking Robert Solow. The poorer countries are playing "catch-up" by adopting Western technologies and business practices. In the classic Solow model catch-up will give them a higher rate of economic growth but of course they still have a lower level of per capita income. And why are those same poorer countries playing catch-up more today than they did thirty years ago?
Has NBA defense become less important?
Matt Yglesias has read Aristotle:
I concede that the new [NBA] rules have made it harder to play defense. I
fail to see, though, how that makes defense less important. Two factors
determine who wins a basketball game: how many points your team scores
and how many points the other team scores. Since you have the ball
roughly half the time and the other team has the ball roughly half the
time, it stands to reason that offense and defense should have exactly
the same importance. You could even argue that, in an era when it’s
easier to score than to defend, a guy who can stop the other team from
scoring is more valuable than someone who can put the ball in the
basket.
Amen, and try putting that last point into a Solow model-like framework. That all said, I don’t understand why there are so few good centers these days. Why is there no Bob Lanier? Is the pay too low? Surely people are not shorter than thirty years ago.
While we are on the topic, I’ll offer up my yearly predictions and opt for San Antonio. Their new 30-year-old big lug seems able to play center, they have the game’s best power forward, lots of title experience, and an excellent backcourt. Plus they can play defense.
Addendum: A reader sends in this excellent commentary.
Knowledge and the Wealth of Nations
[Bill] Gates…took Mike Spence’s famously difficult advanced microeconomics course — at the very dawn of the excitement about "bandwagon effects," monopolistic competition, and network economics. Enrolled in the course as well was Steve Ballmer, a fellow cardplayer with whom Gate had grown friendly. The two finished first and second in the course, but Gates didn’t wait for his grade.
That is from David Warsh’s Knowledge and the Wealth of Nations. Maybe this is the book of the year so far (I can no longer remember how much I liked Stumbling on Happiness).
While it pretends to focus on a single article — Paul Romer’s 1990 piece on endogenous growth — the book is a tour de force through growth theory, the economics profession, the world of public intellectuals, and how science works. Paul Krugman, Greg Mankiw, Bob Solow, and Bob Lucas play prominent roles, in addition of course to Romer. If you want to read one book on how the economics profession works, this is it.
I’ve never seen anyone write as well as Warsh about the social world of economic research, a world of brilliant, often eccentric people who bear no resemblance to the dreary suits you see discussing the economy of CNBC. It’s a world of informal manners yet intense status competition…
The book will please both specialists and neophytes. Warsh’s coverage is so thorough that even yours truly makes a few cameo appearances. I thank David for the coverage, and I recommend his book highly.
Fischer Black as macroeconomist
Black’s economic thought is centered around the view that all profit opportunities will be exploited. So what happens if the central bank decides to add zeros to the accounts held at the Fed?
Here is the standard account. In Black’s view banks were already holding all the dollars they wished to. One reaction is for banks to borrow less money at the discount window, or perhaps borrow less from each other. Money will leave the system as quickly as it entered. Another reaction is simply for banks to sit on the new money. Prices will not go up. Alternatively, it could be argued that an indifference relation holds, and whatever people expect to happen will happen. Multiple equilibria obtain. Prices might go up, fall, or stay constant. Monetarism is then true only if people expect it to be true.
Can this be for real? Won’t banks make more loans, thereby increasing the money supply? Black was fond of an arbitrage argument. If banks wanted to make more loans, such loans must be profitable. Ex ante, banks already would have attracted more reserve dollars to make these profitable loans. Black once told me that in such a world, banks would be willing to bid more than a dollar (in expected value terms, using future dollars) for a (current) dollar. Since that would violate the no-arbitrage condition, banks must not want to make more loans.
How do interest rates enter the picture? Perhaps banks didn’t want to make more loans at old interest rates, but now they would make some more loans at the new, lower interest rates. But as I understand Black’s sometimes-murky writings and comments, it is begging the question to suppose that interest rates will change. Why should they? The Fed sopped up some pieces of paper — T-Bills — and replaced them with other pieces of paper (well, zeros in account books, in both cases). Why should this have much if any influence on real interest rates?
My best shot is to postulate that banks have a downward-sloping demand curve to hold reserves, which they treat as differently from T-Bills (is this begging the question?). Give them more reserves, and they — acting in conjunction with their borrowing agents — will push those reserves into other markets. The effect on real rates of return will be small, but nominal variables will rise. The MU curve of bank reserves slopes down ever so slightly, but the resulting adjustments make the Fed a mighty power indeed.
Can that be true? Common sense — not to mention fear of embarrassment — forbids me from siding with Black. But that doesn’t mean I am convinced he is wrong.
Soon we will look at his business cycle hypothesis.
Mexico’s lost century?
Mexico is slated to grow at somewhat over four percent this year (this popped up in the Mexican edition of the Miami Herald last week, no link handy). It has responded to the Chinese challenge by retooling its export base toward higher quality and quicker response times; the maquiladoras are once again growing. Higher oil prices do not hurt either. Of course four percent is a rate that most countries in the world would envy.
In the twentieth century Mexico grew at a rate above what the U.S. did (sorry, my exact figures are at home!). Mexican performance would be even better if we take out the disastrous 1980s. And in early colonial times, at least once Mexico recovered from various plagues, Mexico was arguably richer than the British colonies to the north. As late as 1820, Mexican GDP per-capita was in the same ballpark as that of the United States ($1287 U.S., $893 Canada, $760 Mexico, in 1990 dollars as estimated by Angus Maddison). So what went wrong?
The nineteenth century was an absolute, complete disaster for Mexico. By 1870, US per-capita had just about doubled but Mexican per-capita GDP had fallen to $710. Crime was rampant and the so-called infrastructure was a disaster. Many goods were carried on foot across rocky paths, not fit to be called roads. At the same time North Americans were building railroads, canals, and factories. Only late in the nineteenth century, under the regime of Portfirio Diaz, did Mexico start constructing a usable transportation network.
I can think of a few ways of interpreting these facts:
1. Mexico had one very unlucky century. In reality Mexico is better suited to grow than is the U.S.. Mexican government is low in quality, but in many ways it is very small. And perhaps you need big government more in some centuries than others.
2. The superior Mexican performance of the twentieth century represents “catching up,” sometimes called “growth convergence.” This sounds the most intuitive, although it implies that one bad century has kept Mexico captive in poverty for a long, long time. How long did it take Germany and Japan to recover from Allied bombing and losing the War? You can claim that these countries had superior institutions, but Mexican institutions have allowed for rapid growth for a long time. Note also that the evidence in general does not favor growth convergence, although you can come up with something if you leave Africa out of the growth equation.
3. Something about the Mexican economy is not robust to very bad times. Mexico has a higher variance economy than does the U.S., and the distribution of these growth rates is not normal. The Mexicans (implicitly) accept this high variance to enjoy a higher mean growth rate. But every now and then they pay a very steep price for this tradeoff.
4. We do not understand something fundamental about growth. We like to think of growth rates and income levels as conceptually separate to a greater degree than they are. The Solow model in particular shows us how to decompose changes into “once-and-for-all” and “growth-affecting” perturbations in growth. Perhaps this distinction can mislead us into looking for separate “causes of growth,” as distinct from our analyses of levels.
Am I allowed to vote for all four hypotheses? Even if they contradict each other to some extent?