Lawrence Economics Blog

Keynes, Cowen, Brynjolfsson, McAfee & Capitalism

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.

Manufacturing Matters or Does It? Two Democratic Former CEA Chairs Battle it Out

In his State of the Union Address, President Obama highlighted the importance of providing special treatment for U.S. manufacturing through tax breaks and other forms of direct support. In a February 4^th op-ed piece in the New York Times, Christina Romer, the first Chair of President Obama’s Council of Economic Advisors (CEA) finds the arguments for such special treatment less than compelling. In response, in a February 10^th New York Times Economix blogposting, Laura D’Andrea Tyson, the Chair of President Clinton’s CEA, makes the case for why manufacturing deserves such support. This blog posting summarizes their arguments. Read the full articles for yourselves and respond by indicating which argument you find more compelling.

Professor Romer makes the following points in arguing that special treatment for manufacturing is unnecessary.

No market failure specific to manufacturing exists.
Innovation takes time to commercialize, thus special treatment makes sense; however, innovation is far from limited to manufacturing.
National defense needs must be met but such needs do not map easily onto manufacturing. The problem, of course, becomes identifying in some objective way which industries (firms?) are essential to the national defense.
Manufacturing industries have not been great job creators, as the share of employment tied to manufacturing has declined markedly in the past 30 years. Technology and rapid productivity growth have led to not only a reduced need for workers but an increased need for more high skilled workers.
Improved income distribution is not well served by a specific focus on job creation in manufacturing. It is better served by direct attention to policies that will raise the skill levels of the population in a way that matches the needed capabilities.

Professor Tyson begs to differ. She highlights the recent increase in manufacturing jobs as well as the need to strengthen U.S. competitiveness in manufacturing. Specifically, she makes the following points:

The U.S. economy needs to be rebalanced towards export production, and manufacturing goods make up 60% of the exports of goods and services.
Manufacturing jobs are highly productive and provide relatively high compensation to workers; thus, we should encourage such job creation as a way to raise the average level of worker compensation.
Manufacturing companies play a key role in innovation. They employ the majority of scientists and engineers in the U.S. and cover 68% of business R & D (research and development) dollars.
Increased manufacturing activity will assist in keeping R & D in the U.S. rather than see it outsourced along with lower skilled employment.

Both Romer and Tyson support extension of the R & D tax credit and efforts to improve the skills of the American workforce. Clearly, they disagree, especially given current and prospective budgetary pressures, how narrowly focused these policies should be. With whom to you agree?

Keynes, Cowen & Capitalism Meets in Steitz 230

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.

Can’t Beet these Profit Margins

This past week in 100 we tackled the unusual welfare economics and the effects of price controls. For introductory economics courses, rent control and minimum wage policies generally serve as the dominant examples of controls that mean well, yet have perverse impacts. But I’ve always had a soft spot for the U.S. sugar program, which continues to surprise and astonish.

As you probably don’t know, but might suspect, the average U.S. citizen consumes about 140 lbs of sweeteners per year, about half coming in the form of sugar and the other half in the form of some sweet corn goodness.

Because of import restrictions, however, U.S. consumers pay a rather steep markup over world price. In class I cited a 2010 article where U.S. prices were about $0.35 per pound compared with $0.20 on the world market. If you take $0.15 per lb. times 70 lbs. times 300 million people, you’re starting to talk about real money.

But on a trip over to Mark Perry’s blog, I see that sugar prices have gone absolutely bonkers in the past two years. Perry has a nice figure that shows the markup is now more like $0.25 per pound, meaning that sugar producers are now really going to the bank. Perry estimates that with the markup, U.S. consumers pay about $3.5 billion more for sugar than they would absent the quota. Although that is certainly a tall number, on a per capita basis it only comes to about $10-$12 per person.

On the other hand, the U.S. sugar producers pocket a healthy chunk of that $3.5 billion.

In one of the all-time great sound bites, Judy Sanchez from U.S. Sugar Corp. said sugar policy has “zero cost” to taxpayers and offered up this line:

Face it: Sugar is given away for free in restaurants, where they charge you for water, they charge you for an extra slice of cheese on your hamburger. The sugar is so affordable that it’s given away for free. That’s because American sugar policy works.

Do you suppose sugar would still be “given away for free” if the U.S. price was cut in half tomorrow?

UPDATE: For some background, here’s a Congressional Research Service report — usually readable, often helpful.

Could tiny organisms carried by house cats be creeping into our brains?

Crazy, awesome, completely plausible:

Jaroslav Flegr is no kook. And yet, for years, he suspected his mind had been taken over by parasites that had invaded his brain. So the prolific biologist took his science-fiction hunch into the lab. What he’s now discovering will startle you. Could tiny organisms carried by house cats be creeping into our brains, causing everything from car wrecks to schizophrenia? A biologist’s science- fiction hunch is gaining credence and shaping the emerging science of mind- controlling parasites.

In other words, Reading Period continues…

Winners, Losers, and Microsoft Update

Our Senior Readers have forged through Liebowitz and Margolis’s Winners, Losers, and Microsoft, so terms like “increasing returns,” “network effects,” “serial monopoly,” and “lock in” are now rolling off their tongues. I am very impressed with how the group has embraced the book and how fluid the discussions have been. I will count this one as a winner.

So, as a follow up, we have an absolutely remarkable data point from Business Insider (via Mark Perry) that the iPhone is now bigger than Microsoft. (See here for background to the big pies).

The iPhone.

Bigger than Microsoft.

That is remarkable.

Econ Tea this Tuesday

Keynes, Cowen, & Capitalism Update

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.

GDP Growth vs. Employment Growth

At last, the level of real GDP has rebounded past its previous peak in the fourth quarter of 2007. Clearly, the trough for employment was both much deeper and trailed that for GDP. In contrast, the recovery for real GDP has been more rapid as well. Financial repression (extremely low interest rates) must be part of the story behind this chart. Clearly, an increased cost of labor relative to capital induced a capital intensive recovery.

Low Interest Rates: the Addictive Policy Drug of Choice

Satyajit Das, in today’s Financial Times, argues that low interest rates generate a variety of economic distortions that expand rather than address structural problems in economies (whether those of the U.S., Europe, or elsewhere.) These effects are especially pernicious when real interest rates (that is market interest rates minus the expected inflation rate) are negative. He provides a laundry list of “side effects” to this economic drug of choice.

1. Encourages the substitution of capital for labor. Is it any surprise that employment has been slow to respond eventhough GDP is now higher than it was at the beginning of the last recession?

2. Encourage the substitution of debt for equity funding

3. Discourage savings, especially when real rates are negative. Of course, if households have a particular wealth target, low rates could induce additional savings.

4. Create a funding gap for defined benefit pension plans (which means either reduced benefits or attempts to increase returns through more risky financing)

5. Feed asset price inflation through the purchase of risky assets (related to point 4)

6. Reduce the cost of holding money (which inhibits the flow of capital to worthwhile activities)

7. Allow banks to borrow cheaply (from depositors) and achieve their income targets through purchase of governmental securities rather than through lending to the private sector

8. Distort currency values as deviations in interest rates across countries is one of the drivers of short term capital flows

9. Induce a reliance on low interest rates to continuously fuel aggregate demand

For the most part, those who argue for extended periods of low interest rates believe that aggregate demand drives aggregate output. They tend to underplay the importance of structural change in the economy (such as labor market, regulatory, or tax policy reform); such change cannot be addressed by replacing depressed elements of aggregate demand with policy induced aggregate spending. The day of reckoning is just extended, not cancelled. Just ask the Europeans.

The Informant

Econ Movie Night — Seeds, Lysine, and Audiotape

The Economics Department proudly presents The Informant Tuesday night at 9:30 in the Warch Campus Center Cinema.

The movie “comically” recreates the character of Archer Daniels Midlands (ADM) employee, Mark Whitacre, the principal informant in the notorious lysine price fixing scandal. Lysine, as you probably know, is an essential amino acid used to fatten up hogs and broilers. If you mix it in with corn, you don’t have to spring for the relatively more expensive soymeal, or so I’m told.

Well, I’ll let deRoos (2006) characterize the market for us:

Lysine is an essential amino acid for the lean muscle development of hogs and poultry. Being a chemical compound, lysine is as close as we get to a homogeneous product. Farmers can obtain the required nutrients either through the use of soybeanmeal, or through the combination of corn and lysine… Industry experts suggest that there are no substantial costs involved in switching between these two nutrient sources. The shadow price of the alternative feed source (henceforth the “ceiling price”) can be approximated by a weighted average of corn and soybean meal prices. In the demand estimation results below, we will characterise demand as being relatively inelastic… Firms face capacity constraints. There is a great deal of heterogeneity in firm capacities, locations, and costs.

Through 1990 the market lysine market was dominated by three firms with prices (as you can see) somewhere north of $1 / lb. However, in 1991 ADM opened a massive production facility in Decatur, Illinois, doubling world capacity and pushing the price below $1 toward its (probable) marginal cost of $0.66 / lb.

Whitacre subsequently orchestrated a coordinated effort to fix prices among the four dominant producers (a CR4 of 95-97%), though there is some dispute as to what exactly happened. Nonetheless, price fixing is a per se violation of federal antitrust laws, so ADM was in pretty serious hot water as soon as Whitacre turned informant.

On the other hand, Whitacre was absolutely crazy himself. And the movie does a good job portraying the frustration and insanity of everyone involved in the situation as the events unfolded. It seems the best defense for ADM was to simply let Whitacre unravel and leave the prosecutors to deal with him.

Meanwhile, the economics of the case spawned a rather, well, let’s call it a rather spirited debate in the academic literature over the length of the conspiracy and the damages done. These are well documented in the sources below, particularly John Connor and Lawrence White, who trade body blows over the appropriate theoretical model, the appropriate choice of the conspiracy period, and the proverbial “but for” price (that is, the price that would have prevailed “but for” the conspiracy).

A truly remarkable episode all around.

Pop some corn and mix in three parts lysine. We’ll see you there.

For further reading:

John M .Connor (1997) “The Global Lysine Price-Fixing Conspiracy of 1992-1995,” Review of Agricultural Economics, 19 (Fall/Winter), 412-427.

Nicholas deRoos (2006) “Examining models of collusion: The market for lysine,” International Journal of Industrial Organization, 24(6): 1083-1107

Lawrence White (2001) “Lysine and Price Fixing: How Long? How Severe? Review of Industrial Organization,18 (1):23-31

U.S. Exports. Where is U.S. Comparative Advantage?

Some of you might answer industrial machines. Not a bad answer. That’s #3 at $37B for the first 11 months of 2011. Others might answer civilian aircraft. Again, this has been a traditionally strong export industry. Guess what, it comes in at #10 with $27B for the first 11 months on 2011. How about engines for civilian aircraft? #15 on the list at $21.6B. The correct answer, believe it or not is petroleum products at $87.5B, more than twice the amount for #2, pharmaceutical preparations.

As the Bureau of Economic Analysis puts it:

Fuel exports, worth an estimated $88 billion in 2011, have surged for two reasons:

1. Crude oil, the raw material from which gasoline and other refined products are made, is a lot more expensive. Oil prices averaged $95 a barrel in 2011, while gasoline averaged $3.52 a gallon — a record. A decade ago oil averaged $26 a barrel, while gasoline averaged $1.44 a gallon.

2. The volume of fuel exports is rising. The U.S. is using less fuel because of a weak economy and more efficient cars and trucks. That allows refiners to sell more fuel to rapidly growing economies in Latin America, for example. In 2011, U.S. refiners exported 117 million gallons per day of gasoline, diesel, jet fuel and other petroleum products, up from 40 million gallons per day a decade earlier.”

The United States has become a net exporter of fuel for the first time since 1949.

Top 15 U.S. Exports, January-November 2011

Rank	Export Category	Jan.-Nov. 2011 (millions)
1	Petroleum products	$87,543
2	Pharmaceutical preparations	$37,547
3	Industrial machines, other	$37,456
4	Semiconductors	$36,898
5	Chemicals-organic	$32,514
6	Plastic materials	$30,219
7	Telecommunications equipment	$29,885
8	Electric apparatus	$29,147
9	Nonmonetary gold	$27,821
10	Civilian aircraft	$27,179
11	Medicinal equipment	$26,591
12	Computer accessories	$26,520
13	Chemicals-other	$24,150
14	Industrial engines	$23,246
15	Engines-civilian aircraft	$21,648

Even Some Keynesian Economists Appreciate Milton Friedman

Brad DeLong, UC Berkeley economist and ardent Keynesian, wrote an obituary for Milton Friedman when he died in 2006. DeLong requires that his introductory economics students read Free to Choose, authored by Friedman and his wife Rose. Why does ardent Keynesian DeLong impose this burden on this students? Here’s his answer based on a statement made by John Stuart Mill:

“Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength.”

For every left-of-center American economist in the second half of the twentieth century, Milton Friedman (1912-2006) was the incarnate answer to John Stuart Mill’s prayer. His wits were smart, his perceptions acute, his arguments strong, his reasoning powers clear, coherent, and terrifyingly quick. You tangled with him at your peril. And you left not necessarily convinced, but well aware of the weak points in your own argument.

He concludes his piece with the following point.

For right-of-center American libertarian economists, Milton Friedman was a powerful leader. For left-of-center American liberal economists, Milton Friedman was an enlightened adversary. We are all the stronger for his work. We will miss him.

I encourage you to read the entire obituary. It’s worth your time.

“Made in China.” What Does It Mean?

The U.S. has been running large trade deficits with China. Many view this result as arising from the excessive purchase of goods that carry the “Made in China” label. Hale and Hobijn, in a recent Federal Reserve Bank of San Francisco Economic Letter, provide evidence to the contrary. They use data from several U.S. governmental sources to answer three questions:

What portion of U.S. consumer spending comes from goods labeled “Made in China” and what portion from goods “Made in the U.S.”?
What part of the cost of goods labeled “Made in China” comes from valued added in China in contrast with what portion arises from valued added by U.S. economic activity?
What part of U.S. consumer spending comes from direct purchases of goods imported from China or from intermediate inputs that came from China?

Their answers are as follows:

2.7% of U.S. personal consumption expenditures come from goods labeled “Made in China” and 88.5% come from goods “Made in the U.S.”
Of the 2.7% noted above, approximately 1.2% reflects the direct cost of imported goods. in other words, 55.6% of goods labeled “Made in China” can be attributed to services added in the U.S.
The total imported content of personal consumption expenditures that comes from goods and services imported from China equals 1.9% of which 0.7% can be attributed to intermediate inputs from China.

Given these results, why is it the common perception that a much larger portion of goods consumed in the U.S. come from China. The answer can be inferred from Table 1 in the report, which indicates that 35.6% of clothing and shoe expenditures bear the label “Made in China” and 20.0% of furniture and household equipment bear the same level. These two categories, however, only account for 3.4% and 4.7%, respectively, of U.S. personal consumption expenditures.

These data suggest that our concern with the purchase of imports from China is overblown and that a tariff on Chinese goods will have modest, if any, effect on aggregate U.S. personal consumption.

Our Macroeconomic Future: A Chaos Theory for Investors.

Neel Kashkari, managing director and head of global equities for PIMCO, has recently posited an array of possible scenarios for America and Europe and employs a simplified version of chaos theory to sort through the results. Kashkari was Secretary of Treasury Hank Paulson’s assistant; he worked directly with implementing the Troubled Asset Relief Program (TARP.) He plays a significant role in Andrew Ross Sorkin’s book Too Big to Fail. The movie, starring William Hurt, does a nice job reflecting the book.

Western economies (mostly governments and households) have loaded themselves with debt that under most scenarios is not sustainable. Kashkari indicates the following five options policy makers have as well as the potential consequences for investors. Check out his analysis.
1. Austerity and deflation
2. Explicit default
3. Mild inflation
4. Runaway inflation
5. Miraculous growth

Which scenario do you think is most plausible? Least plausible? Do your answers differ for the U.S., Europe, and Japan? Why or why not?

CTL Workshops

Here it comes, our tri-annual message on CTL Workshops:

If you think a Cartesian coordinate is a what you wear to go with your favorite sweater, it might be time for you to bone up on your quantitative skills. And, right on cue, the CTL if offering a series of quantitative workshops — 90 minutes to a better, more quantitatively adept you. The topics are basic algebra, graphs, and word problems, and there are two chances for each.

Workshops are in Briggs 420 and run 90-ish minutes.

Graphing

5:30 PM on Wednesday, January 11^th
7:30 PM on Monday, January 16^th

The graphing workshop will cover the following topics:

Graphs of linear equations, quadratic equations, exponential functions, trigonometric functions and more…
Significance of slope in various applications
Displacement of graphs

Word Problem

5:30 PM on Thursday, January 12^th
7:30 PM on Tuesday, January 17^th

The word problem workshop will cover the following topics:

Problem solving strategies useful in working with quantitative concepts
How to extract useful information from a problem and how to relate similar problems
Hands-on experience working on interesting and challenging word problems

Algebra

5:30 PM on Friday, January 13^th
7:30 PM on Wednesday, January 18^th

The algebra workshop will cover the following topics:

Basic algebraic operations and the law of exponents
Binomial multiplication and factorization
Important algebraic identities
Techniques for solving quadratic and fractional systems of linear equations
Basic concepts and identities of trigonometry

DS 391 — Keynes, Cowen & Capitalism

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.

Economics Colloquium

Some Misconceptions about Preferences

Dan Hausman

Herbert A. Simon and Hilldale Professor
Department of Philosophy

University of Wisconsin – Madison

Monday, January 9, 4:30 pm

Steitz Hall 102

In this talk, which is drawn from my book, Preference, Value, Choice and Welfare (Cambridge University Press, 2011), I argue that preferences in economics are and ought to be understood as total comparative evaluations. They are consequently more like judgments than feelings, and they are not mere matters of taste. They cannot be defined by choices (as revealed preference theorists mistakenly maintain), and they cannot be defined in terms of self‐ interest or expected benefit. In addition, in contrast to what many economists believe, I shall argue that economics already contains an account of preference formation, and that it can and should say more about how agents form and modify their preferences.

This article gives you a preview:

In particular, I shall discuss three mistakes concerning preferences that are common among economists and other social scientists. There are others, but this article will be long enough as it is.

Preferences are matters of taste, concerning which rational criticism or discussion is inapplicable.

Preference rankings are rankings of alternatives in terms of expected (self-interested) benefits.

Preferences can be defined in terms of choices, as in revealed-preference theory.

And in a recent interview, this is what Professor Hausman has to say about his book:

The book is about preferences, mainly as they are and ought to be understood in economics, but I also have some things to say about preferences in everyday language and action, in psychology, and in philosophical reflection on action and morality. In this book I clarify the notion of preferences that economists rely on and to a considerable extent defend the way economists use the notion of preference. But I am also critical of misconceptions concerning preferences that many economists and other social scientists hold. Continue reading Economics Colloquium

Is Capitalism Sustainable?

During the winter term, we will focus on visions of the world economy and the role of economics. The Backhouse and Bateman book puts these topics in sharp relief. This discussion continues questions raised by Schumpeter, Hayek, Keynes and many others. In a recent Project Syndicate article, Kenneth Rogoff, co-author of This Time is Different, argues that some version of capitalism will continue to exist because there are few viable alternatives. Furthermore, he argues that European welfare state versions and the Chinese authoritarian version have yet to prove their sustainability. Of course, the contemporary version of capitalism will need to make some serious adjustments to be sustainable. Rogoff posits the following:

In principle, none of capitalism’s problems is insurmountable, and economists have offered a variety of market-based solutions. A high global price for carbon would induce firms and individuals to internalize the cost of their polluting activities. Tax systems can be designed to provide a greater measure of redistribution of income without necessarily involving crippling distortions, by minimizing non-transparent tax expenditures and keeping marginal rates low. Effective pricing of health care, including the pricing of waiting times, could encourage a better balance between equality and efficiency. Financial systems could be better regulated, with stricter attention to excessive accumulations of debt.

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