As you may know, Lawrence is hosting a TEDx event this May, Re-imagining the Liberal Education. It looks like we are going to have to update our speaker list, as Bradley W. Bateman has been named President of Randolph College.
(Now) President Bateman was on campus last year as part of our Senior Experience, discussing his book Capitalist Revolutionary.
A big congratulations.
Harvard’s Ken Rogoff — of Reinhart and Rogoff fame — has a delicious Project Syndicate piece on the dueling theories of current global economic woes — “Innovation Crisis or Financial Crisis?”
As the title implies, once potential cause is that new innovation is simply not bringing the value added to world economic growth — advances such as the internet, iPhones, LED holiday lighting and the like are a lot more hat than they are cattle, so to speak. We have seen this stagnation argument from economists such as Tyler Cowen and Robert Gordon.
The other explanation is that the global economy is still feeling the effects of the financial meltdown from a few years back. Indeed, Rogoff argues that excessive leverage overhang (in other words, lots of debt) is a prime reason why western economies have failed to ramp growth back up. The purpose of the article is to weigh in on the stagnation thesis:
These are very interesting ideas, but the evidence still seems overwhelming that the drag on the global economy mainly reflects the aftermath of a deep systemic financial crisis, not a long-term secular innovation crisis.
Indeed, Rogoff is something of a technology optimist:
There are certainly those who believe that the wellsprings of science are running dry, and that, when one looks closely, the latest gadgets and ideas driving global commerce are essentially derivative. But the vast majority of my scientist colleagues at top universities seem awfully excited about their projects in nanotechnology, neuroscience, and energy, among other cutting-edge fields. They think they are changing the world at a pace as rapid as we have ever seen.
And the punchline:
Frankly, when I think of stagnating innovation as an economist, I worry about how overweening monopolies stifle ideas, and how recent changes extending the validity of patents have exacerbated this problem.
Overweening, an underused word if ever there was one. But the point is solid — the economics profession since at least Schumpeter has fretted about the tradeoffs between providing incentives and the deadweight losses of monopoly power. For some, that isn’t really the point anymore, as we learned reading Liebowitz and Margolis last year, as they focus on the serial monopoly phenomenon especially as it relates to high tech.
Nonetheless, it’s certainly the starting point and these are the types of questions that aren’t likely to go away.
I checked my RSS feeds today and saw two interesting items, spot on in terms of our class discussion. First up, an important technological breakthrough in medicine? Here’s Walter Russell Mead:
The medical world may be on the verge of a major breakthrough on par with the discovery of penicillin. As profiled in this NYT piece, a number of Silicon Valley companies and entrepreneurs are looking to lower the price of genome sequencing to the point that it will be within reach of the average consumer (below $1,000)—a development which could lead to the biggest revolution in drugs and medical treatments in years.
On par with penicillin? That’s a lot of value.
Now for something completely different, Derek Lowe suggests that maybe, just maybe, we don’t need more scientists after all. Hmm. I’m not sure I agree with that whole bit. Nonetheless, it’s thought provoking.
As a bonus, he cites a fantastically titled piece by Virginia Postrel, “How Art History Majors Power the U.S. Economy.” Postrel seems to agree with his point:
The argument that public policy should herd students into [Science, Technology, Engineering & Mathematics] is as wrong-headed as the notion that industrial policy should drive investment into manufacturing or “green” industries. It’s just the old technocratic central planning impulse in a new guise. It misses the complexity and diversity of occupations in a modern economy, forgets the dispersed knowledge of aptitudes, preferences and job requirements that makes labor markets work, and ignores the profound uncertainty about what skills will be valuable not just next year but decades in the future.
If you are interested in the average salaries and unemployment rates for different college major choices, Postrel cites this report out of Georgetown University that has some very illuminating figures.
And, so we wind down another term, and I wonder what exactly is on your mind. So, for starters, let’s start with Backhouse & Bateman’s characterization of Keynes. What does Keynes see as capitalism’s defect? What does it “Say” about how his thinking diverges from the status quo at the time?
Now, once we have the defect, is that defect the same type of difficulties that Tyler Cowen and Erik Brynjolfsson and Andrew McAfee are talking about? Or, put this another way, do Cowen and Byrnjolfsson & McAfee identify the same fundamental defect in the capitalist system that Keynes did?
Once we establish that, let’s get at how Keynes proposed to deal with capitalism’s basic defect. What was his stance in The General Theory? (Digression: How did Keynes view of this change over time? What is the basic thesis proffered up by Bateman and Backhouse?). Next, is this way of addressing that defect likely to be of use in addressing the types of problems that worry these other authors?
On that note, if you haven’t done so already, I suggest that you read one of Paul Krugman’s greatest columns ever, “The Accidental Theorist.” I love this column and use it often. I wish I would have suggested it when we read Brynjolfsson and McAfee. What does this article imply about the troubles that Cowen and Byrnjolfsson talk about? What does it suggest about Keynesian economics?
This week seems to be innovation week for me, as I am reading two short books on the heels of The Great Stagnation. Reading these pieces, I can’t help but get the feeling that the economics profession is hurtling into a blog-soaked, pamphlet-era frenzy. First up for Econ 100 is Alex Tabarrok’s Launching the Innovation Renaissance (review here), where Tabarrok makes a case against patents, holds out promise for prizes, and makes a plea for broad educational reform in both primary and secondary education. For the Reading Group crowd we have Erik Brynjolfsson and Andrew McAfee’s Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, and with a subtitle like that, who needs a description?
So for those of you who have read one and need a primer on the other, here you go:
As a warm up to Renaissance, here is Tabarrok giving his TED lecture. Here’s a bit on education. (If you follow all the links at Marginal Revolution, you can pretty much read the whole book).
Here are Brynjolfsson and McAfee summarizing their argument in The Atlantic. See also Professor Finkler’s recent plug.
I’ve read both and recommend both. We’ll see what my Econ 100 students think. Thought provoking all around.
Here’s the update from the reading group.
On the subject of big, fat profits in the financial sector, you might consider visiting some of these pieces. On the subject of big, fat incomes in the financial world, Cowen offers up a simple theory on why so many smart young people go into finance, law, and consulting. Adding fuel to this fire, “Mr. D” sends me this helpful blog post from Ezra Klein, arguing that Ivy Leaguers head to the Street because that’s where they get their “real” education. Do you buy that? And, in a similar vein, “Mr. P” wants to know why Americans don’t elect scientists.
We left off yesterday with the open question of what the best-case scenario is for market economies moving forward. Where are the big productivity gains going to come from? What type of work is to be done? Is manufacturing dead or alive, or does it even matter? (See Professor Finkler’s previous post). Has John Stuart Mill’s concern about the inevitable decline in radical breakthrough inventions finally come home to roost?
And, this opens the door for next week’s book, Brynjolfsson and McAfee’s Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. There are a couple of secondary sources on this, as well, including pieces from The Economist and The Wall Street Journal.
By all rights, this term’s 391 DS reading group should be titled Keynes, Cowen, Brynjolfsson, Backhouse, Bateman, McAfee, and Capitalism, but that doesn’t quite roll of the tongue, does it?
Nor would it fit on your transcript.
We have found a home for Econ 391, and it is in Steitz 230. We will see you over there at 3:25 on Thursday.
We began with Tyler Cowen’s The Great Stagnation, and in our first meeting we took a first cut at these questions:
1. What is the thesis of the book?
2.What does “the great stagnation” mean? What is stagnating? “Great” compared to what? Is the title a play on another “Great” episode do you suppose?
3. How is “stagnation” measured? Do you buy this means of measurement?
4. What does Cowen suggest is the cause of the great stagnation? How does he support his case? Can you think of alternate explanations?
5. What is Cowen’s remedy for the great stagnation, if any? Does it suggest a pro-market, get-out-of-the-way response? A more muscular federal policy response? New institutions? What?
6. Make a list of Cowen’s arguments that you buy and arguments that you don’t buy.
This week, we take on the “companion piece” from The American Interest, “The Inequality that Matters.” It’s hard to think about the future of capitalism without thinking a bit about what inequality is and why it is (and isn’t) important.
It seems an opportune time to point to the Financial Times’ recent in-depth debate, Capitalism in Crisis. There is some excellent material in there, and we will take a look at some of this when we get to the Backhouse and Bateman book.
The first session rolled along pretty well, I thought, with 14 students and four faculty participating. I was pleased that everyone had something to say, and I hope you will make an effort to talk about this outside of the group. Our next meeting is February 16 at 3:30, and I am still looking for a regular room to meet.
For next time we will continue our discussion of The Great Stagnation, and in particular we will talk about whether we believe the central thesis. One synopsis of the thesis is that there are three pieces of bad news: there are fewer innovations, the yield on innovations has declined, and innovations are not resulting in high-quality employment gains. We talked a little bit about this idea of raising the status of scientists and what that might look like. In that vein, we might take a look at one of Cowen’s recent blog posts: a simple theory of why so many smart young people end up in finance and law. I’m not sure how to square one with the other.
On this point, I might add, Schumpter was optimistic that norms could change:
the prestige motive, more than any other, can be molded by simple reconditioning: successful performers may conceivably be satisfied nearly as well with the privilege—if granted with judicious economy—of being allowed to stick a penny stamp on their trousers as they are by receiving a million a year (CS&D, p. 208).
The discussion of science inevitably got at the nature of American higher education, an area that moves at a glacial pace, but might be amidst a revolution (who are you going to believe?). On this topic, Larry Summers’ offers his take on the future of education. I have been thinking about this for a while in terms of how we can do better down here on Briggs 2nd, and am wondering what the take of our new president will be.
We will also forge ahead with Cowen’s “The Inequality that Matters,” from The American Interest. It’s hard to think about the future of capitalism without thinking a bit about what inequality is and why it is (and isn’t) important. We read this in Econ 275 last term and I think it went over quite well.
The Economics Department once again proudly announces its community read for the term. The formal title of the course is DS 391 – Keynes, Cowen & Capitalism, and sign up sheets are tacked to my bullitin board. You can get instructor approval from either Professor Galambos or me (or both!). We will see about arranging a time.
Here is the reading list:
Roger Backhouse and Brad Bateman’s Capitalist Revolutionary: John Maynard Keynes.
Tyler Cowen The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will(Eventually) Feel Better .
Tyler Cowen “The Inequality that Matters,” from The American Interest online.
Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.
The Backhouse and Bateman book is a quick read, and Professor Bateman is tentatively scheduled to visit as part of our Senior Experience. Backhouse and Bateman have promoted their work with pieces in the the New York Times and more recently in The Guardian.
Tyler Cowen’s little ebook also talks about some of the problems and prospects of American capitalism, and should be interesting to set side-by-side with the Keynesian worldview. As a bonus, the book has been heavily reviewed, and there is certainly no consensus view on whether he is right or wrong. There have been a couple of recent reviews juxtaposing Cowen with Brynjolfsson and McAfee. We should be able to do the same.
One of the key issues of capitalism moving forward seems to be the division of the proverbial pie, and Cowen’s piece in The American Interest is one of the more thoughtful pieces on inequality that I have come across. I especially like the “betting against the Wizards” example of picking up pennies in front of the steamroller.
Once we have our enrollment, I will coordinate a schedule.
Students (and faculty) are required to read and respond thoughtfully.
We have been sponsoring a reading group (DS-391) in the economics department over the past four terms, and we will continue that with two books during the winter term. If you have some spare time in the next five weeks, you might try getting a jump on these.
The first is Roger Backhouse and Brad Bateman’s Capitalist Revolutionary: John Maynard Keynes. The authors’ names might sound familiar from a couple of posts ago where I briefly discuss their op-ed in the New York Times about the need for economist as “worldly philosopher” rather than “dentists” (Keynes’ term) honing in on the intricacies of the little picture. Indeed, the book portrays Keynes both as a deep thinker and an accomplished technical theorist.
The second is Tyler Cowen’s brief yet epic e-book, The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. This is one of the most thoroughly reviewed pieces I have ever seen, with scholars and bloggers and otherwise lining up to weigh in. There is plenty to talk about with this one.
Both books should be accessible to economics students at any level.
