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May 5, 2015

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Latest Posts from Economist's View


'Urbanization Passes the Pritchett Test'

Posted: 05 May 2015 12:15 AM PDT

Paul Romer:

Urbanization Passes the Pritchett Test: The data presented here convinces me that policy-induced changes in the urban share of the population could have big effects on GDP per capita and could operate on a scale that affects the quality of life for billions of people. So in research on development policy, I am not persuaded that economists should narrow their focus to the analysis of such easily evaluated micro-initiatives as funding women's self-help groups. Neither is Lant Pritchett.
In a characteristically incisive blog post, Lant expresses skepticism about the value of micro-initiatives that are being tried as strategies for encouraging economic development because they are easy to evaluate rather than because experience suggests that they have worked at a scale that is comparable to the problem that policy should address.
He recalls his experience as a member of a team with members from many developed countries that was evaluating a program in India that financed women's self-help groups. A woman from West Bengal who had answered their questions said to the team, "You all are from countries that are much richer and doing much better than our country so your country's women's self-help groups must also be much better, tell us how women's self-help groups work in your country." Quoting now from Lant's account:
We all looked at each other blankly as none of us had any idea whether there even were at any time in our countries' history such a thing as "women's self-help groups" … (much less government program for promoting them). We also had no idea how to explain that, yes, all of our countries are now developed but no, all of our countries did this without a major role from women's self-help groups at any time (or if there were a role we development experts were collectively ignorant of it), but yes, women's self-help groups promote development.
Pritchett proposes a basic, four part test that economists could consider when someone claims that governments or donors should experiment with policies designed to promote variable X because more X is good for development:
1. In a contemporary cross section, do countries that are more developed have more X?
2. When we look at the few countries for which we have long historical records, do the ones that become much more developed also acquire much more X?
3. In a more recent cross-sectional comparison of growth rates, do countries that have rapid growth in X also tend to experience a rapid increase in standards of living?
4. If we look for countries that switch from a regime of slow economic development to a regime of rapid development, do we see a parallel shift in the rate of growth of change in X?
The historical question, #2, deserves a separate treatment. Here I'll show that when we consider the urban share of the population as our candidate variable (without any attempt at correcting for the quality of urbanization) the data from many countries in the years from 1955 to 2010 give us confidence that the answer to questions 1, 3, and 4 is yes, more urbanization is associated with income per capita. ...

[There's quite a bit more at the original post.]

Links for 05-05-15

Posted: 05 May 2015 12:06 AM PDT

'Okun’s Equality and Efficiency'

Posted: 04 May 2015 11:53 AM PDT

An excerpt from Larry Summers' prepared remarks delivered at the Brookings Institute on the 40th anniversary of Okun's "Equality and Efficiency: The Big Tradeoff":

Okun's Equality and Efficiency: ... For many years now, it has been the case that the income distribution has been growing much more unequal. ... Certainly because of what has happened in the economy, I would in thinking about tax policy put much more emphasis on distributional issues relative to efficiency issues than I would have during much of my career.  Similarly, I believe that concern with issues relating to the cost of capital and the adverse effects of taxes in increasing it has been very legitimate at points in the past. At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation.
The same basic idea that rising inequality tips the balance between fairness and efficiency applies in other areas of policy as well. ... I would judge that he benefit cost ratio seems tilted towards minimum wage increases and towards relaxation of the rules regarding the rights of private sector workers to bargain with management.
Another area where conditions have changed over the years is with respect to policy directed at the financial sector and corporate governance. The financial sector has shown itself to be less of a source of diversification and stability and more of a source of instability than most judged a generation ago.  At the same time compensation levels in the sector, and in firms engaged with the sector has gone up rapidly. The simultaneous emergence of high profits and low interest rates raises the question of whether monopoly power is on the increase. So the question of regulatory actions looms much larger than it has for many years. ...

'Rumors Have It'

Posted: 04 May 2015 10:28 AM PDT

Trying to debunk political rumors can make them stronger:

Rumors have it: Bad news, fans of rational political discourse: A study by an MIT researcher shows that attempts to debunk political rumors may only reinforce their strength.
"Rumors are sticky," says Adam Berinsky, a professor of political science at MIT, and author of a paper detailing the study. "Corrections are difficult, and in some cases can even make the problem worse."
More specifically, Berinsky found in an experiment concerning the Affordable Care Act (ACA) that rebuttals of political rumors about the supposed existence of "death panels" sometimes increased belief in the myth among the public.
"Pure repetition, we know from psychology, makes information more powerful," Berinsky says.
In the case of the "death panels," Berinsky's research indicates that the best way to counteract these rumors is to find a political figure who could credibly debunk the rumor based on their broader political stand -- a Republican senator, for instance. ...

Yes, that's going to happen. Anyway:

Berinsky's experiment also produced new data about the attachment of the electorate to myths in general. He asked respondents whether they believed in any or all of seven different myths, six of which concerned politics -- such as the myth that President Barack Obama is a Muslim, or the rumor that vote fraud in Ohio swung the 2004 presidential election to then-President George W. Bush. Only 5 percent of the population believed four or more of the seven rumors, but on average, people believed 1.8 of the rumors.
As Berinsky sees it, that means belief in seemingly outlandish ideas is not the province of a relatively small portion of uninformed, conspiracy-minded voters.
"It's not that there are some people who believe a lot of crazy things," Berinsky says. "There are a lot of people who believe some crazy things." ...

Paul Krugman: Race, Class and Neglect

Posted: 04 May 2015 09:18 AM PDT

Inequality and lack of opportunity are destructive:

Race, Class and Neglect, by Paul Krugman, Commentary, NY Times: ...the riots in Baltimore, destructive as they are, have served at least one useful purpose: drawing attention to the grotesque inequalities that poison the lives of too many Americans.
Yet I do worry that the centrality of race and racism to this particular story may convey the false impression that debilitating poverty and alienation from society are uniquely black experiences. In fact, much though by no means all of the horror one sees in Baltimore and many other places is really about class, about the devastating effects of extreme and rising inequality.
Take, for example, issues of health and mortality. Many people have pointed out that there are ... black neighborhoods in Baltimore where life expectancy compares unfavorably with impoverished Third World nations. But what's really striking on a national basis is the way class disparities in death rates have been soaring even among whites.
Most notably,... life expectancy among less educated whites has been falling at rates reminiscent of the collapse of life expectancy in post-Communist Russia. And yes, these excess deaths are the result of inequality and lack of opportunity...
It has been disheartening to see some commentators still writing as if poverty were simply a matter of values, as if the poor just mysteriously make bad choices and all would be well if they adopted middle-class values. ...
The great sociologist William Julius Wilson argued long ago that widely-decried social changes among blacks, like the decline of traditional families, were actually caused by the disappearance of well-paying jobs in inner cities. His argument contained an implicit prediction: if other racial groups were to face a similar loss of job opportunity, their behavior would change in similar ways.
And so it has proved. Lagging wages — actually declining in real terms for half of working men — and work instability have been followed by sharp declines in marriage, rising births out of wedlock, and more. ...
The point is that there is no excuse for fatalism as we contemplate the evils of poverty in America. Shrugging your shoulders as you attribute it all to values is an act of malign neglect. The poor don't need lectures on morality, they need more resources — which we can afford to provide — and better economic opportunities, which we can also afford to provide through everything from training and subsidies to higher minimum wages. Baltimore, and America, don't have to be as unjust as they are.

Ben Bernanke's Bad Example

Posted: 04 May 2015 09:08 AM PDT

At MoneyWatch:

Ben Bernanke's bad example, by Mark Thoma: The recent announcements that former Federal Reserve Chairman Ben Bernanke has accepted a position as a senior adviser at Pimco and a similar position at hedge fund Citadel have raised questions about whether the "revolving door" between government and private sector jobs ought to be restricted.
Perhaps, for example, Federal Reserve officials should be subject to a five-year waiting period before they can take jobs in the financial sector. The idea would be to reduce the chance that bank regulators could be influenced through formal and informal ties to previous Fed officials.
My concern is somewhat different: The incentive for Federal Reserve Board members to step down before their terms are up and accept lucrative private sector positions has the potential to damage the Fed as an independent institution...

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