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Monday, February 25, 2008

"Mr. Kristol"

Dani Rodrik has been waiting for this chance:

Mr Kristol, you get a C in economics, by Dani Rodrik: There! I said it, and I feel better already.  I have waited a really long time to do this, and ... Bill Kristol finally gave me an opportunity with his column in today's New York Times. ...

[H]e was my dreaded instructor long ago in two of the classes that I took as a Harvard undergraduate. He was a doctoral student at the time in the Government Department (no relation to the HKS)...  The first course was Harvey Mansfield's political theory course (for which Kristol served as teaching fellow), and the second was a sophomore tutorial (a required course for government concentrators). 

In each course, we had to write short papers once every couple of weeks. I can say that my performance on these papers, which Kristol graded, was fairly consistent.  The essay on Machiavelli? Here is a C-.  The essay on the Federalist Papers?  Here is a C.  John Stuart Mill?  Well, how about, yes you guessed it, another C.  You can say that Kristol did his best to discourage me from pursuing a career in political science...

I remember well the very first time I saw  him.  It was the first meeting of the discussion session in Mansfield's course...  He walked into the classroom and his first words were: "Hello, my name is Mr. Kristol."  To underscore the point that he was that, and not Bill or any other friendly appellations by which we students may have chosen to address him, he went to the board and wrote "Mr. Kristol." I may have been a poorly adjusted Turk in my first year in the U.S., but this still struck me as odd. He was certainly the only graduate student I met in my four years as an undergraduate who insisted on being called by his last name.   

Well, Mr. Kristol's column today takes aim at Barack (and Michelle) Obama, and does so quite unfairly in my view.  ...  What caught my attention was this passage:

Michelle Obama, in the course of a stump speech, remarked...: “Life for regular folks has gotten worse over the course of my lifetime, through Republican and Democratic administrations. It hasn’t gotten much better.”

Now in almost every empirical respect, American lives have in fact gotten better over the last quarter-century.

Really? Look at the chart below, which comes from Frank Levy... It shows the median compensation since 1980 of different groups of prime-aged men, alongside productivity. ...

People like me with graduate degrees have done great.  But the median compensation (that includes fringe benefits, by the way) of high school graduate men has declined by about 10 percent since 1980!  Mr. Kristol: that means that for a high-school graduate, the odds that his compensation would have fallen by more than 10% is 50-50.  Note that even college graduates have not seen any income gains since around 2000. ...

What is special about the last quarter century, as Frank Levy makes clear, is that it followed a period when productivity increases were broadly shared by different groups in society. That is no longer the case...

So statistics aside, who do you think has a better sense of what has happened to "regular folk" since 1980? Michelle Obama or Mr. Kristol?

Update: Different topic: Dani Rodrik and Arvind Subramanian have an article in the Financial Times arguing that we need to limit the flow of financial capital on international markets:

We must curb international flows of capital, by Dani Rodrik and Arvind Subramanian, Commentary, Financial Times: First large downhill flows of capital – from rich countries to poor countries – led to the Latin American debt crisis of the early 1980s. In the 1990s similar flows begat the Asian financial crisis.

Since 2002 the flows have been uphill, from emerging markets and oil-exporting countries to the developed world, especially the US. But the outcome has not been very different. So, it does not seem to matter how capital flows. That it flows in sufficiently large quantities across borders – the celebrated phenomenon of financial globalisation – seems to spell trouble.

Causes and consequences vary, depending on which way capital flows...

Some would claim that the problem in all these instances was not liquidity but lax regulation... But ... risk-taking behaviour of financial intermediaries cannot be regulated perfectly, [so] we need to find ways of reducing the volume of transactions. ...

But how is such a levelling-off of flows to be achieved? ... Two concrete actions – one for each source of liquidity – suggest themselves.

First, some variant of petrol tax in the main oil-importing countries (including the US, China and India) is essential to cut demand and reduce ... the current account surpluses of oil exporters. ... Even though undervaluation is a potent instrument for promoting growth in low-income countries in general, at this juncture self-interest on both sides calls for an orderly unwinding of current account imbalances. ...

Measures needed for when capital flows downhill are likely to take a different form. ... Deposit requirements on capital inflows and financial transaction taxes are some of the tools available. We need an enlarged menu of such options. Unfortunately, capital controls are such a bugaboo that the International Monetary Fund, to its discredit, has done little work on capital-account management techniques.

But will not such interference with capital flows reduce the benefits of financial globalisation? Even leaving financial crises aside, those benefits are hard to find.

Financial globalisation has not generated increased investment or higher growth in emerging markets. ... Nor has financial globalisation led to better smoothing of consumption or reduced volatility. If you want to make an evidence-based case for financial globalisation today, you are forced to resort to indirect and speculative arguments.

It is time for a new model of financial globalisation, one that recognises that more is not necessarily better. ... Depending on context, the appropriate role of policy will be as often to stem the tide of capital flows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective will get it badly wrong.

I'll just note Frederic Mishkin's comments on this topic.

    Posted by on Monday, February 25, 2008 at 11:18 AM in Economics, Income Distribution, Productivity | Permalink  TrackBack (0)  Comments (31)


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