Notes from Jackson Hole

The Wall Street Journal's Washington Wire reports from the annual Fed symposium at Jackson Hole:

Anecdotes on Education From Jackson Hole, by Greg Ip, Washington Wire: It’s long been accepted that emerging Asian economies owe much of their success to an emphasis on education, but a few anecdotes aired at Jackson Hole underlined the point. Arminio Frago, a former governor of Brazil’s central bank who now runs a hedge fund, noted that Brazil and South Korea once had the same per-capita gross domestic product. Now, South Korea’s is over twice that of Brazil’s. By way of explanation, he noted that the average Korean has 13 years of school, while in Brazil the figure is six years, and the education is not very high quality. Rakesh Mohan, deputy governor of the Reserve Bank of India, noted that Tokyo has 113 universities; Beijing has 59.

Feldstein Speaks Up at Jackson Hole, by Greg Ip, Washington Wire: Harvard University’s Martin Feldstein ... repeated his long-standing view that the U.S. dollar has to fall a lot to rein in the U.S.’s massive trade deficit. It’s not clear when or how fast, “but I have no doubt it will be coming.” A lower dollar, he said, will result in “higher inflation.” Furthermore, U.S. interest rates will have to rise to entice foreigners to hold onto some of their dollar holdings. So “the most likely response [is] some combination of higher real interest rates and a falling value of the dollar, further complicating the problem for monetary policy.” Alternatively, Americans could cut their consumption, leading to a narrower trade deficit and higher saving, perhaps because of lower house prices. Then the Fed has the delicate job of “balancing the decline in domestic demand and the process of international adjustment.”

Jackson Hole’s Sleeper Hit, by Greg Ip, Washington Wire: At a conference dominated by discussion of the rise of India and China and their impact on the U.S. and Europe, the sleeper hit of the Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyo., was a short presentation on why Africa has fallen so far behind the rest of the developed world, especially Asia, in recent decades.

Reflecting the conference theme — “The New Economic Geography” — Paul Collier of Oxford University made a persuasive case that nowhere more than in Africa has geography undermined economic progress. Statistically, a country’s growth is more likely to lag if it is landlocked, resource-poor or small, and Africa, which is divided into over 40 countries, has an unusually large number of countries that are all three. Many African countries are resource rich but are unable to efficiently spend those resources because, while democratic, they lack effective checks and balances. By contrast, countries that must rely on taxes are more likely to face demands for accountability.

African countries, despite being small, are also ethnically diverse. The more diverse a society, the smaller the share of the population represented by the ruling group, he notes. “A minority in power has an incentive to distribute to itself at the expense of the public good of national economic growth.”

Finally, he says, Africa has missed the globalization boat: at the time Asia was opening up to foreign investment, Africa was saddled with overvalued currencies, civil war, experiments with socialism, or apartheid. Almost all these problems have been solved, but in the meantime Asia has acquired a formidable critical mass of local skills and infrastructure that make it difficult for Africa to compete for foreign investment. Mr. Collier’s presentation was perhaps the most eye-opening to the crowd of academics, Wall Streeters and central bankers at the Fed conference, perhaps because so much of it was new to them. ... But perhaps it was welcomed because it presented a persuasive, systematic explanation for the continent’s troubles that didn’t have to argue that Africa was somehow different. “African performance has been far worse than that of any other region,” Mr. Collier has written. “The explanation for this is not that African economic behavior is fundamentally different from elsewhere, but rather that African geographic endowments are distinctive.” He sharply disagreed with economist-celebrity Jeffrey Sachs’ view that disease and climate are the principal reasons for Africa’s underdevelopment. Sachs, he said, is “barking up the wrong tree.”

Notes from Jackson Hole, by Greg Ip, Washington Wire: As a former academic, Federal Reserve Chairman Ben Bernanke is in his element at places like the economic symposium at Jackson Hole. But some of his former colleagues can’t help but wonder about his career choice. Princeton’s Gene Grossman, presenting a paper on how offshoring can actually boost low-skilled workers’ wages, says his real reason for attending is to “check up on how my colleague of 20 years is doing. Why anyone would want to give up a job at Princeton–and take a pay cut to boot–is not clear, but there’s no accounting for taste.”

Also at Jackson Hole, the forum’s ban on PowerPoint presentations forced Dartmouth College’s Doug Irwin to find a creative prop to illustrate the conventional wisdom on what happens when low-wage China starts trading with high-wage USA: plastic kitchen containers. The U.S., he demonstrated, is like a tall (high-wage) narrow (limited population) bottle of red water while China is like a flat, wide box of blue water. Irwin mixed the two together into a wide flat box producing a single (purple water) job market of low-wage jobs. Irwin himself seemed skeptical of this simplistic illustration. As for the containers, at least one was made in China.

Tidbits From Bernanke’s Dinner, by Greg Ip, Washington Wire: The Fed’s annual Jackson Hole symposium this year comes at a delicate time. With the economy slowing and inflation uncomfortably high, chairman Ben Bernanke, already a bit bruised in his efforts to talk about monetary policy, faces a tough task deciding where to move interest rates and how to talk about it.

At a dinner Thursday Thomas Hoenig, president of the Kansas City Fed, which hosts the event, neatly captured the first seven months of Bernanke’s term: “Early on, he was too soft and later he was too tough and now he’s both. He needs advice, let’s face it.” Bernanke then took the podium and said thanks for the introduction — “I think.”

Brad DeLong has a few more notes.