Our latest podcast, “Why America’s Economic Growth May Be (Shh!) Over,” is based on a much-discussed paper (abstract, PDF) by the Northwestern economist Robert J. Gordon. It is a fascinating paper that is well worth a read, and its provocative argument has certainly gleaned a lot of attention.
Over the past month I have taken a close look at Gordon’s paper, the data he relies on and the papers that he cites. My conclusions are that Gordon’s analysis is deeply flawed and tells us essentially nothing about the potential for future economic growth. It does help to reveal a big gap in the discipline of economics, and that is the utter lack of an explicit theory of growth and the mechanisms by which it actually takes place. What Gordon has provided, in his own words, is a “a provocative fantasy” one that tells us much about the discipline of economics but little about the state of the world.
I am not much for making predictions, but I wouldn’t be shocked if Gordon’s paper soon inspires a public forum or two on the topic and that Pielke is invited to rebut.
People in the very upper tail of earnings distribution have seen their incomes rise far more rapidly than even the well-off folks in the top decile. That makes it hard to argue against President Obama’s proposed tax on millionaires, which just restores some progressivity to the tax structure. Nonetheless, we’ve seen arguments against it on grounds that it will reduce job creation (presumably because the rich have a higher marginal propensity to save than others). I’m always amazed at how concerned rich people and their apologists are about job creation (although their concerns are loudest at times when proposals are made to raise their taxes). It reminds me of arguments that got the short-lived tax on yachts in the 1990s repealed.
I don’t believe most macroeconomic arguments; but if one wants to argue on macro grounds, at a time of sluggish demand, if you want to balance budgets surely taxes should be raised on those with high propensities to save (arguably the well-to-do) and reduced on the rest of society, so as to stimulate consumer demand. You can’t have macro arguments both ways!
I’m a bit late in posting this, but thought it worth posting a recent interview which I did with the brilliant and engaging Chrystia Freeland.
The main point is one I’ve explored here before: the fact that we are halfway to a lost decade. We also explore our longer-run malaise, and my concerns that long-term unemployment may impair our economic recovery. Read More »
This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.
National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news. Read More »
The Brookings Panel on Economic Activity is pretty much my favorite conference each year. (It better be! I took over running the Panel with David Romer in early ’09.) I’ve found that the best way to keep growing as an economist is to embrace any opportunity to be the dopiest guy in a very smart room, and this latest meeting was no disappointment. I’ve been meaning to write about it for a couple of weeks, but time kept getting away from me. So I decided to try something different-I popped into the video studio to chat about some of the new findings presented at the Panel. Here are the highlights. Read More »
There are a few who consult to the Fed. I’m not aware of any significant engagement of these folks with the IMF or World Bank. Perhaps, with time, this generation (my generation!) will become directly involved in the policy debate. But until this happens, Narayana’s optimism about the state of academic macro won’t translate into equal optimism about the state of macro policy debates. Read More »
And so the debate about the state of modern macroeconomics continues. As the rhetoric escalates, perhaps it’s worth digging through the archives for real insight, instead. Here’s Robert Lucas in his 2003 keynote address to the History of Political Economy conference: Read More »
In a reasonably interesting Guardian article Larry Elliott argues that the macroeconomists of yesteryear were superstars, but the current crop have lost sight of what macroeconomics is supposed to be about: describing the macroeconomy, not writing down fancy mathematical models. Read More »