New Economist

New book online: Daron Acemoglu's 'Introduction to Modern Economic Growth'

When Dani Rodrik recently asked his many readers which economist they most wanted to see start a blog, MIT's Daron Acemoglu came second only to Joseph Stiglitz. Rodrik asked him if he would start a blog:

Daron Acemoglu responds by saying blogging "seems like a lot of work." He adds "I am already overcommitted, so it's a bit scary to take something else on."

Busy? And how! Acemoglu has somehow found the time to write a new magnum opus. His Introduction to Modern Economic Growth is a whopping 1,169 pages. It covers the whol gamut, from the Solow growth model to the role of political regimes and institutions. Acemoglu explains the background to this textbook in his introduction:

This book grew out of the first graduate-level introduction to macroeconomics course I have taught at MIT. Parts of the book have also been taught as part of a second-year graduate macroeconomics.

In the preface, Acemoglu writes that the book is intended to serve two purposes:

First and foremost, this is a book about economic growth and long-run economic development. The process of economic growth and the sources of differences in economic performance across nations are some of the most interesting, important and challenging areas in modern social science. The primary purpose of this book is to introduce graduate students to these major questions and to the theoretical tools necessary for studying them. The book therefore strives to provide students with a strong background in dynamic economic analysis, since only such a background will enable a serious study of economic growth and economic development. It also tries to provide a clear discussion of the broad empirical patterns and historical processes underlying the current state of the world economy. This is motivated by my belief that to understand why some countries grow and some fail to do so, economists have to move beyond the mechanics of models and pose questions about the fundamental causes of economic growth.

In a somewhat different capacity, this book is also a graduate-level introduction to modern macroeconomics and dynamic economic analysis. It is sometimes commented that, unlike basic microeconomic theory, there is no core of current macroeconomic theory that is shared by all economists. This is not entirely true. While there is disagreement among macroeconomists about how to approach short-run macroeconomic phenomena and what the boundaries of macroeconomics should be, there is broad agreement about the workhorse models of dynamic macroeconomic analysis. These include the Solow growth model, the neoclassical growth model, the overlapping-generations model and models of technological change and technology adoption. Since these are all models of economic growth, a thorough treatment of modern economic growth can also provide (and perhaps should provide) an introduction to this core material of modern macroeconomics. Although there are several good graduate-level macroeconomic textbooks, they typically spend relatively little time on the basic core material and do not develop the links between modern macroeconomic analysis and economic dynamics on the one hand and general equilibrium theory on the other. In contrast, the current book does not cover any of the shortrun topics in macroeconomics, but provides a thorough and rigorous introduction to what I view to be the core of macroeconomics. Therefore, the second purpose of the book is to provide a first graduate-level course in modern macroeconomics.

A considerable achivement. Acemoglu asks readers to note that "this is a preliminary draft of the book manuscript. The draft certainly contains mistakes. Comments and suggestions for corrections are welcome."

New econometric textbook online

'Marshall Jevons' of the weblog The Bayesian Heresy alerts us to a new graduate-level econometrics textbook, available free online, by Professor Bruce E. Hansen from the University of Wisconsin. Here is a direct link to the PDF (1.2Mb).

Out with the new, in with the old...

Who needs new (or neo) Keynesian economics when you can have the old? UCLA's Roger Farmer is writing a book on Old-Keynesian Economics, and you can read the draft chapters online. The book - still a work in progress - junks the 'natural rate' and sticky price assumptions in favour of Keynes' "animal spirits". Here is his explanation:

This book is concerned with the question: Why do capitalist economies sometimes go very badly wrong? For several decades after the publication of Keynes' General Theory economists thought that they had an answer. But with the resurgence of classical ideas in the 1970's, the key premise of the General Theory, that market economies are not inherently self-stabilizing, has been called into question. Although there has been a recent resurgence of Keynesian ideas under the rubric of "new-Keynesian economics", the models studied by the new-Keynesians are hybrids that incorporate a classical core. New-Keynesian models allow for temporary deviations of unemployment from its "natural rate" as a consequence of sticky prices but they contain a stabilizing mechanism that causes a return to the natural rate over time.

In his 1966 book, Axel Leijonhufvud made the distinction between Keynesian economics and the economics of Keynes. By Keynesian economics, he meant the interpretations of Keynes that became incorporated into the IS/LM model and ultimately, into the new-Keynesian paradigm. Leijonhufvud pointed out that the assumption that the General Theory is about sticky prices is central to Keynesian economics but it is not a central argument of the text of the General Theory.

This book provides an alternative microfoundation to Keynesian economics that does not rely on sticky-prices. In successive chapters I construct a series of models that build on a single idea. Each of them is constructed around a conventional dynamic general equilibrium model in which real resources must be used to move unemployed workers into jobs using a "search technology". Although this technology is convex, I assume that the planning optimum cannot be decentralized as a competitive equilibrium because moral hazard prevents the creation of markets for the search inputs.

As an alternative, I introduce an equilibrium concept called demand constrained equilibrium, in which the level of economic activity is determined by investor confidence or "animal spirits". I refer to the resulting model as "old-Keynesian" to differentiate it from new-Keynesian economics that incorporates the natural rate hypothesis of Edmund Phelps and Milton Friedman. In contrast to new-Keynesian models, those described in this book display multiple stationary perfect foresight equilibria, and there is a different stationary unemployment rate, for each possible level of beliefs.

Lant Pritchett: ' Let Their People Come'

World Bank guru Lant Pritchett becomes Professor of the Practice of Economic Development at Harvard's Kennedy School of Government next month. I haven't met him, but immediately warmed to him when I read this ending to his short bio:

...Lant has been married since 1981 to Diane Tueller Pritchett and together they have three children. And nothing else. Some bios list non-family and non-professional accomplishments like climbing Everest or playing the cello making it seem as if all of the rest was just tossed off.  I believe the only point of this is to make the rest of us, who collapse on the couch and watch Friends reruns at the end of the day, feel like slackers.  I think getting the above done while being a husband and father to three children is plenty. 

He is something of a controversialist in development circles, and his latest book is no exception. The tome, Let Their People Come: Breaking the Policy Deadlock on International Labor Mobility, is available to download in its entirety free from the CGD website. In a recent post, Dani Rodrik was fulsome in his praise:

Lant makes an excellent case for expanded immigration in rich countries, while he makes clear that he is fully aware of the social and distributional consequences. The book is especially good in showing how labor flows have historically played an important role in income convergence within the United States.

...Lant is a terrific economist--not just smart, but with incredible knowledge of the real world and common sense.  He is one of those rare people whose work appeals to everyone  who works on development, regardless of their methodological or ideological leanings. It doesn't matter if you are a micro person into randomized evaluation or a growth person; skeptical of globalization or in love with it; a hard-core economist or a management type. You simply love his work. No wonder the New York TImes Magazine is doing a profile on him and his work. Look for it.

The New York Times Magazine piece has now appeared. Jason DeParle asks: Should We Globalize Labor Too?

Lant Pritchett says he has a better idea. ...To those standard solutions, trade and aid, Pritchett would add a third: a big upset-the-applecart idea, equally offensive to the left and the right. He wants a giant guest-worker program that would put millions of the world’s poorest people to work in its richest economies. ...Pritchett’s nearly religious passion is reflected in the title of his migration manifesto: “Let Their People Come.” It was published last year to little acclaim — none at all, in fact — but that is Pritchett’s point. In a world in which rock stars fight for debt relief and students shun sweatshop apparel, he is vexed to find no placards raised for the cause of labor migration. If goods and money can travel, why can’t workers follow? What’s so special about borders?

When they are being polite, Pritchett’s friends say he is, ahem, ahead of his time. Less politely, critics say that an army of guest workers would erode Western sovereignty, depress domestic wages, abet terrorism, drain developing countries of talent, separate poor parents from their kids and destroy the West’s cultural cohesion. Pritchett has spent his career puncturing the panaceas of others. It says something about the intransigence of much of the world’s poverty that he may be in the grip of his own.

New book online: 'Trade and employment'

A recent ILO-WTO publication by Marion Jansen and Eddy Lee, Trade and employment: Challenges for policy research, is available free online. Here is a  brief table of contents:

A. Introduction
B. Trade flows and employment: the curent context
C. Trade and employment: theory and evidence
D. Trade and inequality
E. The role of policy-makers
F. Conclusions

Here is the blurb:

This study is the outcome of collaborative research between the World Trade Organization Secretariat and the International Labour Office. It addresses an issue that is of concern to both organizations: the relationship between trade and employment. On the basis of an overview of the existing academic literature, the study provides an impartial view of what can be said, and with what degree of confidence, on the relationship between trade and employment, an often contentious issue of public debate. Its focus is on the connections between trade policies, and labour and social policies and it will be of interest to all those who are involved in this debate: academics and policy makers, economists, workers and employers, trade and union specialists.

And here is the link to the PDF (0.7 Mb).

New book: 'Data Analysis Using Regression and Multilevel/Hierarchical Models'

Anyone familiar with Andrew Gelman's excellent blog, Statistical Modeling, Causal Inference, and Social Science, would be keen to see his new book, aco-authored with Jennifer Hill. The book is titled Data Analysis Using Regression and Multilevel/Hierarchical Models, and has just been published by Cambridge University Press.

Judging by its table of contents it covers plenty of ground, including several that have been neglected by other authors:

1. Why?; 2. Concepts and methods from basic probability and statistics;

Part IA. Single-level Regression: 3. Linear regression: the basics; 4. Linear regression: before and after fitting the model; 5. Logistic regression; 6. Generalized linear models;

Part IB. Working with Regression Inferences: 7. Simulation of probability models and statistical inferences; 8. Simulation for checking statistical procedures and model fits; 9. Causal inference using regression on the treatment variable; 10. Causal inference using more advanced models;

Part IIA. Multilevel Regression: 11. Multilevel structures; 12. Multilevel linear models: the basics; 13. Multilevel linear models: varying slopes, non-nested models and other complexities; 14. Multilevel logistic regression; 15. Multilevel generalized linear models;

Part IIB. Fitting Multilevel Models: 16. Multilevel modeling in bugs and R: the basics; 17. Fitting multilevel linear and generalized linear models in bugs and R; 18. Likelihood and Bayesian inference and computation; 19. Debugging and speeding convergence;

Part III. From Data Collection to Model Understanding to Model Checking: 20. Sample size and power calculations; 21. Understanding and summarizing the fitted models; 22. Analysis of variance; 23. Causal inference using multilevel models; 24. Model checking and comparison; 25. Missing data imputation;

Appendixes: A. Six quick tips to improve your regression modeling; B. Statistical graphics for research and presentation; C. Software; References.

Caveat: I've ordered it but have not yet seen a copy. Comments welcome from those who have.

New book: China crisis?

Observer columnist, author and think tanker Will Hutton knows that controversy sells. So he's done his best to highlight the dark side of China's political economy in his a book to be published January 18: The Writing on the Wall: China and the West in the 21st Century (Little, Brown UK). The book is being serialised, with three excerpts published so far:

1. New China. New crisis: The Observer, Sunday January 7 - "In the last decade China has emerged as a powerful, resurgent economic force with the muscle to challenge America as the global superpower. But, in his controversial new book, Will Hutton argues that China's explosive economic reforms will create seismic tensions within the one-party authoritarian state and asks: can the centre hold?"

2. Power, corruption and lies: The Guardian, Monday January 8 - "To the west, China is a waking economic giant, poised to dominate the world. But, argues Will Hutton in this extract from his new book, we have consistently exaggerated and misunderstood the threat - and the consequences could be grave."

3. Low wage competition isn't to blame for western job losses and inequality: The Guardian, Tuesday January 9 - "US and British business culture is creating our widening pay gap, not the impact of sub-contractor economies like China."

His central thesis is neatly summarised in the second piece:

The west is unforgivably ignorant about China's shortcomings and weaknesses, which leads it vastly to exaggerate the extent of the Chinese "threat". China is certainly emerging as a leading exporter, but essentially it is a sub-contractor to the west. It has not bucked the way globalisation is heavily skewed in favour of the rich developed nations.

Its productivity is poor; it lacks international champions; its innovation record is lamentable; it relies far too much on exports and investment to propel its economy. To characterise China as an unstoppable force whose economic model is unbeatable and set to swamp us - the stuff of almost every ministerial and business lobby speech - is to make a first-order mistake.

Gripping stuff, which I'm sure will go down particularly well in America. Hutton overstates his case, of course. And he's no China expert. But he's a well known commentator and author and he writes better than 99% of those who do know better - so I'm sure it will sell well.

UPDATE: Torcuil Crichton of the Sunday Herald interviews Will Hutton about his book, and British politics: Great Will of China

Hutton's handling of the complex Chinese economic puzzle is refreshingly straightforward. China, as we all vaguely know, will be very important very soon. The economics of the 21st century will belong to China, much as the 19th came under British influence and the 20th closed under US dominance.

He details the fantasy that is communist doctrine, the endemic corruption of the state and the unsustainability of China's exponential growth. Within a decade it will be the world's second largest economy. The country is the single most important financier of the enormous US trade deficit. It competes for oil, water and military muscle. But though it looks like an unstoppable engine, it is not a market economy that we would recognise and it is on the verge of collapse.

 

Sitting in his office at the Work Foundation, the left-of-centre think tank he now heads, Hutton insists that "collapse" is too strong a word; convulsion might be better. "The question is, how will they make the transition from what they've got to where they need to be without very substantial convulsions?" says Hutton. "In the best case the Communist Party see the light and build plural institutions, which will mean losing monopoly control of the state. The next generation of leaders enact this or fight like tigers to resist it. If so we will see civil war in China or they may rally the country in a foreign adventure." 

The great disconnect over the US economy

Do economists and policymakers speak a different language from US citizens? A new Economic Policy Institute report claim there is "a widening gap between the ways that everyday Americans and influential elites talk about the economy."

The report is Talking Past Each Other: What Everyday Americans Really Think (and Elites Don’t Get) About the Economy (full text available online) by David Kusnet, Lawrence Mishel and Ruy Teixeira. the authors argue there is a 'great disconnect' between elite opinion and the American middle class:

This disconnect is of profound importance. The elites are making and discussing economic policies in an environment in which—though they may not realize it—they are poorly informed about the views of the very people who will be affected by those policies.

This is of particular importance now that a relatively optimistic elite discourse about strong growth in the gross domestic product and other positive macroeconomic indicators coexists with a sharply negative assessment of economic conditions among the public. ...when they talk about economics, everyday Americans and influential elites seem to be describing two very different worlds and speaking two very different dialects.

This report is an effort to begin bridging the gap between everyday Americans’ understandings of economic issues and the official economic discourse. The issues that the people and the policy makers are trying to discuss are too important for them to be talking past each other.

Their conclusion?

If these findings point to a new synthesis about how policy makers should talk about and act upon the economy, it is this: The nation should provide greater economic security to hard working families so that they can make the most of expanded economic opportunity. Now, as in the eras of the Homestead Act and the G.I. Bill, Americans need to stand on a solid foundation so that they can reach for their futures. Policy makers who listen to the people will best be able lead in the years ahead.

The report includes a special section that offers 12 suggestions for how to 'speak American' when talking about economics. An interesting read.

See also a related report, The economic disconnect: How both the Left and the Right get it wrong (PDF) posted online. This is a pre-election report prepared for the EPI by Lake Research Partners based on a survey of 1,044 adults in March 2006 and six focus groups conducted with swing voters in Minneapolis, Columbus and Jacksonville in January. Among the key findings:

• While Americans are dissatisfied with the current state of the economy, neither conservative nor liberal elites speak for them. Conservative elites tout economic growth in the face of rising costs while liberal elites portray the middle class as helpless victims, causing average Americans to see both groups as out of touch.

• Over two thirds of the country view the economy negatively. At the same time, without any coherent, compelling narrative from the Right or the Left, many Americans are short on their own solutions to the economic problems facing the country. The public’s central perspective is of a middle class in decline, badly squeezed between rising costs, reduced benefits, and stagnant earnings. The public holds out little hope for the economy improving any time soon, suggesting that these current problems may reflect a structural change.

• While Americans have not quite discovered the solutions to the country’s economic challenges, they approach this debate with definite bad actors in mind. Americans see a close relationship between corporations and politicians that has created, or at least stoked, a culture of greed in America, threatening our national economy and eroding the middle class. These are the main, though not the only, culprits in explaining the current economy.

• Even while acknowledging the obstacles created by this environment of rising costs and stagnant incomes, the public is optimistic about their own chances for achieving economic stability in the future and see the American dream as a reachable goal.

• Those without a college degree are much less positive about how they are doing and hold much greater resentment toward elites and especially corporations.

• Americans see themselves as largely on their own in the current economy, but they are eager for the government to take on a more active role to help ease their financial burden in areas such as health care, energy and education and support greater regulation of the corporate interests that are seen as contributing to these rising costs.

That seems like ground for economic populism and, alas, protectionism.

Hat tip: Daniel Drezner.

New book: 'Inside the Economist's Mind'

Published earlier this week, Inside the Economist's Mind: Conversations with Eminent Economists has all the hallmarks of an economic bestseller. The book is published by Blackwell and edited by Paul Samuelson and William Barnett. There is even a book weblog, maintained by Barnett.

Interviews were conducted with (in alphabetical order) Robert Aumann, David Cass, Jacques Drèze, Martin Feldstein, Stanley Fischer, Milton Friedman, János Kornai, Wassily Leontief, Robert E. Lucas, Jr., Franco Modigliani, Paul A. Samuelson, Robert J. Shiller, Christopher A. Sims, Paul A. Volcker, Thomas J. Sargent and James Tobin. That's quite a cast!

In his introduction, Samuelson bemoans the near disappearance of economic history in graduate economics:

When a discipline—economics, chemistry, or acupuncture—is in a dynamic stage of rapid growth, its up-front cyclists care little whether it was Newton or Leibniz who “invented” the calculus. The economics profession is in such a dynamic stage of rapid growth, as made clear by the interviews in this book. The book permits us to step back and view the whole of the field in a revealing context that otherwise is easily missed in the narrow focus of individual expert researchers.

...This helps explain the historical fact that the role in the graduate curriculum once played by “History of Economic Thought” has eroded down to a narrow cadre of learned experts. An unearned snobbery ensues, as is well illustrated by Bernard Shaw’s canard: “Those who can, do. Those who can’t, teach.” Good history of science deserves a non-zero weight in the university curriculum. The dynamic growth in individual subfields of the economics profession needs to be supplemented by overviews of the whole, not just as the sum of its normally separated parts. This book provides such a view of the whole of the modern field of economics and the connection of that whole with the life experiences of famous economists whose work was seminal to the field.

This book won’t fill that gap. But it's a good place to start.

UPDATE: This post has sparked a lively debate in the comments below. William Barnet himself offers these intriguing comments:

This exchange is productive and very interesting.  But I'd like to point out to those who may not yet have seen Inside the Economist's Mind that what it contains is much more than history of thought.  From the time that I began this project about 10 years ago, what I did was to arrange with the two publishers involved (Cambridge U. Press and Blackwell) that interviews be viewed as quotations and thereby not subject to any kinds of copy editing or refereeing by referees, editors, or publishers.  In usual peer reviewed publications, even the most famous Nobel Laureates do not have the freedom to say whatever they want without required revisions (i.e., censorship). 

This book's conversations, from their first publication in the CUP journal that I edit, to their current appearance in this Blackwell book, have permitted eminent economists to "let loose."  It became difficult to maintain that degree of freedom, when one of the participants (David Cass at the U. of Penn.) used the four letter f--- word to refer to a former dean by name.  But I stuck to my original commitment and made that commitment known to all participants, including the great Paul Samuelson.  As a result, in this book you will find revelations that will astonish you about such topics as economics, politics, governments, religion, oppression, assassinations, discrimination, wars, kings, presidents, the stock market, communism, fascism, and globalization, and often from first hand sources. 

I was myself amazed by what came out in these conversations, when the participants recognized that they could say anything.  Although the book can be ordered from Blackwell, the book will not be widely available in bookstores until December.  You will find statements in that book that could motivate astonished bloggers for months.

So order the book, and be prepared to be astonished.

Climate change: "the greatest market failure the world has seen"

The Stern Review, the most comprehensive review ever on the economics of climate change, was published today (as I previewed yesterday). The report is nothing if not thorough. All 27 chapters are now available on the Treasury website to download - or I guess you can wait until January and pay Cambridge University Press £29.99 for the book (CUP obviously don't believe in print on demand!). Also available is today's Press notice, along with Sir Nicholas Stern´s presentation (PDF), and speaking notes (PDF).

Sir Nicholas said in his presentation that "we have to muster all the economics we can bring to bear" on climate change - a sentiment few readers would disagree with. Here is a short excerpt from his presentation:

The science tells us that GHG emissions are an externality; in other words, our emissions affect the lives of others. When people do not pay for the consequences of their actions we have market failure. This is the greatest market failure the world has seen. It is an externality that goes beyond those of ordinary congestion or pollution, although many of the same economic principles apply for its analysis.

This externality is different in 4 key ways that shape the whole policy story of a rational response. It is: global; long term; involves risks and uncertainties; and potentially involves major and irreversible change.

Although the press have highlighted some of the doomsday warnings in the report, these are based on the 2100 'business as usual' scenarios - not on likely developments anytime soon. As Sir Nicholas said today, the Review's conclusion are "essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. He spelled out three strands to policy:

First, we must establish a carbon price via tax, trade and regulation – without this price there is no incentive to decarbonise. Second, we must promote technology: through research and development. Further, private sector investors need confidence that there will be markets for their products: that is why deployment policy also makes sense. And third we must deal with market failure; for example problems in property and capital markets inhibit investments for energyefficiency.

The usual suspects have rushed to condemn the report - some even before it was published. Like Sunday Times journalists and blogger David Smith, I won't comment on it in detail until I've had a chance to read it. But I certainly agree with David's comment that:

..the broad thrust of his report, that money spent now will save much bigger costs later, makes sense, as does his emphasis on carbon trading.