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Sunday, July 03, 2005

Michael Mandel Misses Fundamental Points

The title is in response to a post by Michael Mandel of BusinessWeek Online.  I had hoped this would fade away and thus far my response to Michael Mandel’s posts has been muted (he responded initially to this post about a Robert Samuelson column discussed yesterday in the NY Times and later to this post I wrote commenting on a BusinessWeek Online article).  I want to respond one last time to his latest post. This is similar to comments I wrote under PGL at Angry Bear’s post here.  It would be best to read what PGL has to say first.

The statement that economists ignore or dismiss technology is misinformed. Mandel is confusing stabilization of output around trend, which does not involve technology, and the determination of the trend itself which does. Until this distinction is clear to him, he will continue to think others miss points. The very latest macro models synthesize the RBC long-run model with short-run models of wage and price rigidities. In such models technology plays a role as do the other factors he cites such as tax rates and monetary policy. Monetary and fiscal policy as Mandel discusses them are stabilization tools. They should not be confused with policies designed to promote growth.

Economists who specialize in stabilization issues do not talk about technology as much as other economists, that’s true.  Economists who specialize in growth theory don’t talk very much about monetary policy, etc.  They examine factors such as technology, human and physical capital accumulation, growth in the labor force, and so on.  Does the focus on stabilization mean that some economists don’t care about growth? Of course not. This is simply specialization (Adam Smith would approve!). To use specialization as a means of saying some economists don’t care about growth misses how human capital, something Mandel is concerned with, builds over time. Specialization is essential in the accumulation of knowledge. Jack of all trades and master of none does not allow science to advance at the fastest possible rate.  Mandel's human capital assertions are also puzzling given the prominence of human capital in the new endogenous growth literature.

There are other issues to discuss surrounding Mandel's comments, and it has been provocative so far, but I see no need to carry this "debate" any further.  Let's move on to important issues such as Social Security, taxation, budget deficits, trade deficits, wages lagging productivity, growth, education, and so on and drop whimsical and confusing distinctions such as"hairshirts and growth advocates" in favor of distinctions that inform these important issues.

    Posted by on Sunday, July 3, 2005 at 01:17 PM in Economics, Macroeconomics, Press | Permalink  TrackBack (0)  Comments (5)

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