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Tuesday, April 24, 2012

"Dixit on 'the 21st Century’s Economic Hurricane'"

Via New Economist:

Dixit on 'the 21st Century’s Economic Hurricane', by New Economist: Princeton emeritus professor Avinash Dixit is always worth reading, even when he is speculating about the economy over the next hundred years. Likening economic forecasting to weather forecasting (plenty of caveats and uncertainty), his approach is suitably skeptical. Here's how he kicks off:

At least one prediction can be made with high confidence... in the course of the next century there will be several financial and economic crises. Each crisis will be preceded by a boom and by a state of euphoria, when almost everyone will believe that “this time is different; we have learned how to avoid crises, and have finally learned the secret of how to sustain the Great Moderation.”
When the crisis hits, policymakers everywhere will be shocked and unprepared. Their panicked responses will merely paper over the real problems and sow the seeds of the next crisis a few years down the line.

Dixit lays out some provocative scenarios for our economic future. The chapter, entitled The Cone of Uncertainty of the 21st Century’s Economic Hurricane (PDF), will appear in In 100 Years, ed. Ignacio Palacios-Huerta, to be published by MIT Press in 2013.

Some of the scenarios are nightmarish:

In America, recurrent macroeconomic crises will be made worse by the loss of technological leadership, as governments controlled by or beholden to religious conservative forces forbid research on the frontiers of biotech and related areas. American education will continue to be squeezed...; this will accelerate the decline. China lost its technological leadership in the 1400s because of capricious decisions of its emperors, and took almost six centuries to climb back; for the U.S. the 21st century will be just be beginning of a similar downhill slide.
A side-effect of this decline will become good news for some: the U.S. will regain its position as a manufacturing economy. As early as 2011, production of some mops and brooms was coming back to the U.S. from China. The Chinese didn’t want to be making these crappy plastic goods any longer; they wanted to move into more advanced and complex technological sectors. At least this reversal will create employment for the poorly educated and unskilled U.S. workers.

However:

my real purpose in depicting such nightmares is, of course, to shock the readers, and hopefully to help set in motion some actions that will reduce the risk of turning the nightmares into reality.

He goes on to give his "dream scenario," and the set of actions that might bring it about.

    Posted by on Tuesday, April 24, 2012 at 08:32 PM in Economics | Permalink  Comments (31)


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