Larry Summers :
To end slump, United States must spend, MIT News: ... Summers also weighed in on economists’ performance in light of the largely unanticipated economic crisis. For the most part, Summers defended economists, arguing that the profession has made world leaders better informed in recent decades.
“I’ve had meetings with vice premiers, number-two people in China, who have asked me questions about NBER [National Bureau of Economic Research] working papers in macroeconomics,” Summers said. “That says the work has an enormously positive and important impact.”
However, Summers asserted, the dynamic stochastic general equilibrium models used by many economists, which often assume the economy will naturally return to a basic equilibrium with full employment, have been of little value in these complex times.
“In four years of reflection and rather intense involvement with this financial crisis, not a single aspect of dynamic stochastic general equilibrium has seemed worth even a passing thought,” Summers said, adding: “I think the profession is not entirely innocent.”
Still, Summers said, the complaint that economists should have seen the crisis coming represents “a confusion” on the part of critics. Identifying financial bubbles and knowing when they will burst, he claimed, “is to ask more of the profession than it can reasonably expect to discover.”
The Polarization of Job Opportunities in the U.S. Labor Market, by David Autor: ... Conclusion Although the U.S. labor market will almost surely rebound from the Great Recession, this article presents a somewhat disheartening picture of its longer-term evolution. Rising demand for highly educated workers, combined with lagging supply, is contributing to higher levels of earnings inequality. Demand for middle-skill jobs is declining, and consequently, workers that do not obtain postsecondary education face a contracting set of job opportunities.
Perhaps most alarmingly, males as a group have adapted comparatively poorly to the changing labor market. Male educational attainment has slowed and male labor force 16 Community Investments, Fall 2011 – Volume 23, Issue 2 participation has declined. For males without a four-year college degree, wages have stagnated or fallen over three decades. And as these males have moved out of middleskill blue-collar jobs, they have generally moved downward in the occupational skill and earnings distribution.
The obvious question, as Scrooge asks the Ghost of Christmas Yet to Come is: “[A]nswer me one question. Are these the shadows of the things that Will be, or are they shadows of things that May be, only?” Is the labor market history of the last three decades inevitably our destiny—or is it just that it could end up being our destiny if we do not implement forward-looking policy responses?
While this article is intended as a spur to policy discussion rather than a source of policy recommendations, I will note a few policy responses that seem especially worthy of discussion.
First, encouraging more young adults to obtain higher education would have multiple benefits. Many jobs are being created that demand college-educated workers, so this will boost incomes. Additionally, an increased supply of college graduates should eventually help to drive down the college wage premium and limit the rise in inequality.
Second, the United States should foster improvements in K-12 education so that more people will be prepared to go on to higher education. Indeed, one potential explanation for the lagging college attainment of males is that K-12 education is not adequately preparing enough men to see that as a realistic option.
Third, educators and policymakers should consider training programs to boost skill levels and earnings opportunities in historically low-skilled service jobs—and more broadly, to offer programs for supporting continual learning, retraining, and mobility for all workers.
Finally, another potential policy response is to consider R&D and infrastructure investments that will have broadly distributed benefits across the economy. Examples might include expanding job opportunities in energy, the environment, and health care. The return of the classic manufacturing job as a path to a middle-class life is unlikely. But it may be that various service jobs grow into attractive job opportunities, with the appropriate complementary investments in training, technology, and physical capital. Perhaps these could be the shadows of what is yet to come.
Beijing Forum 2011, by Dan Little: I'm attending the Beijing Forum 2011 this week, and it's a superb international conference. Much of the conference took place at Peking University. ... The focus is on academic perspectives and dialogues around the overarching theme of "The Harmony of Civilizations and Prosperity for All." This year's organizing theme is "Tradition and Modernity, Transition and Transformation." ...
My paper, "Justice Matters in Global Economic Development," was included in the Economic Growth theme. I argued five basic points: We generally agree about the basics of a just society. The current state of the world badly contradicts those values (poverty, inequality, abuse and coercion). Amartya Sen's writings provide a powerful basis for those commonsense ideas about justice. The greatest impediment to improving justice is the untrammeled power private and state interests have vis-a-vis the poor. And injustice matters because it causes serious social problems. So states need to strive to reduce injustice.
I didn't really have a good sense of how the argument was received by the participants, but there was a fairly clear split between "laissez-faire" growth advocates and economists who took inequalities of income and health very seriously. I assume the latter group was more receptive than the former.
The academic question I received during the formal discussion period came from an American economist. He pointed out that China's 10% annual growth since the 1990s has greatly improved the standard of living for a hundred million people in coastal China, and created job opportunities for tens of millions of migrant workers. He wanted to know if I was seriously advocating a slower rate of growth as the price of greater justice. The question reflects the assumptions of many of the economists in the session: state policies aimed at enhancing equality are highly destructive to economic growth. So, by inference, preferring economic justice is harmful for a society.
My response, in a nutshell, was "yes". Economic development involves choices. And it is possible that a strategy with a lower growth rate would do a better job of bringing all of China up together, rather than creating a broadening gap between rural poor and affluent urban people. I am indeed arguing that it would be best to choose the second strategy. (This might take the form of investing a larger percentage of China's formidable savings and reserves in substantially enhanced public goods for the rural poor -- education, healthcare, and retirement.)
What is equally important, is that the power differential between poor people and propertied interests in China today almost guarantees that the poor will lose out. Property confiscations by businesses and municipal development authorities are a good example. (Coincidentally, the Thai urban planning expert I talked with said this is precisely the case in and around Bangkok, and the Angola urban planner made similar comments about Angolan farmers and the residual white settlers.) So injustice is as much about power as it is about exploitation. And this means that legal and institutional reforms are needed if China's inequalities are to be reduced.
It was striking to me that the thrust of my talk seemed to be most resonant with the Peking University students in the room. A cluster of them came over to talk about the implications of these ideas for China during the break. These young people seemed genuinely concerned about how China might address some of the large issues of social inequality that have arisen since the economic reforms began in the 1980s. (In fact, even some officials I've talked with here in China believe that more serious attention to justice issues is needed in China's future -- for example, with regard to China's rural poor and to migrant workers and their families.)