Economics & Marginalia: October 14, 2022

Hi all,

So, I took a couple of months off the from writing the links for the first time since I started them about a decade ago, and what happens? Let’s see: Liz Truss becomes Prime Minister, and almost immediately the Queen died and gave the English around 48 hours to explore what peak English looks like (and it turns out it looks like a youtube channel devoted to watching a queue, and fawning over David Beckham, so no surprises there). We all settled down, and then Liz Truss blew up the economy, mortgage rates and—almost—our pension funds with a spectacularly ill-judged not-a-budget (and if you don’t believe me, listen to Planet Money, though they’re too kind to the Bank of England here). Her Chancellor then made things worse by doubling down on every mistake they collaborated on; indeed at one point it looked like every time either of them spoke the markets began to gallop towards ruin—I’m not sure if that has changed, actually. The new King then appeared to troll his Prime Minister on TV. Then the Chancellor flew to the US, just as Biden pardoned thousands of people convicted of marijuana possession, which is nice because I bet Kwasi needed something to relax him during his visit: he apparently missed all his meetings and then came home early to get sacked. Then Liz Truss managed to choose the worst set of options available to her by u-turning on enough of her flagship economic programme to annoy the few people who thought it was a good idea (they did exist, though they will probably try and deny it; receipts here), but not enough to convince the markets that the UK was on its way back to a sound-ish economic footing. And after all this, Ed Miliband finally saw enough and cashed in his chips, mocking the most poorly-aged tweet in history. And I swear, all of this wasn’t even one-third of my break. I’m never going to stop the links again: they’re all that keeps a modicum of sanity in the world.

1. Not everything that happened in my absence was bad: Dietrich Vollrath returned to blogging, which means I became a slightly better macroeconomist again (this against all the stupidity-by-osmosis everyone in the UK has been exposed to over the last few weeks). He returned with an in-depth discussion of Thomas Philippon’s new paper which suggests that productivity growth is better understood as additive, rather than exponential. What does this mean? Essentially, rather than productivity growing fairly at a fairly constant rate, it grows by a roughly constant amount each year—with the consequence that we should expect less productivity growth to be the norm, and that the growth rate of productivity should decline over time. If he is correct, this would suggest that we haven’t observed a productivity slowdown over the last few years—it’s our assumption about the ‘normal’ pace of productivity growth that was off. Dietz does his normal thing of explaining everything here very clearly, and then complicating things a little by bringing some new data to the table. He also points out it is still possible to change the rate at which productivity grows—but probably extremely difficult. If you care about growth (and really, all the madness in the UK over the last month has come from Truss and co. having some odd views about how to make growth happen), read this. Then go back and read the back issues. No-one writes about the macroeconomics of economic growth more clearly or accessibly than Vollrath.
2. In the three months I was away, there was an incredible amount of interesting work showcased on VoxDev, too. I can’t possibly do it all justice here, but here are a few of the topics covered, click wherever your interest is piqued: through what mechanism do firms in developing countries learn from foreign firms? Typically it’s assumed that contracting or supplier relationships between firms is the main channel, but evidence from Ethiopia suggests that more diffuse learning may be occurring, with implications for policies such as the use of special economic zones. What does it take to scale a child development programme? This paper from Mexico suggests that scale up requires a lot more investment in the quality of the programme; a similar kind of result is found in trying to sustain behavioural change in Pakistan. And how do firms avoid taxes? Appropriately for October, the answer involves ghosts.
3. I’ve managed to get to link three without mentioning the econ Nobel, which is in a field I know relatively little about, but again relates back to the chaos in the UK over the last few weeks. The Nobel went to Ben Bernanke, Phil Dybvig and Douglas Diamond for research on bank runs and financial stability. As ever, the Nobel materials are worth reading; this Planet Money take on Bernanke’s contribution was good (transcript), as was this Krugman thread on the Dybvig and Diamond paper for which they won the award.
4. A very good Tim Harford piece on the importance of how people feel about things as an economic indicator. Like Harford I have been sceptical of happiness research in the past, but the evidence is mounting that my scepticism is at least largely misplaced.  And not quite related, but also about measurement: Branko offers a critical (in the sense of thoughtful, not in the sense of straightforwardly negative) assessment of the recent inclusion of human freedom into the Human Development Index. As ever, an erudite, engaged discussion of the merits and limitations.
5. I could do a whole links round-up just with what Development Impact have been up to since I took a break (now sadly without Markus Goldstein, one of my favourite economists and bloggers out there). They have covered: how to make your code and paper replicable; how to make your regression outputs less annoying (I really needed to read this); and continue to do brilliant summaries of new papers (this summary by Kathryn Beegle). It really is one of the great public goods in development economics.
6. I like this Larry Summers piece on how the World Bank needs to reform, because it’s one of the few takes that still fully centres the Bank’s central role in financing development. Yes, Summers calls for a bigger role on sustainability and global public goods, but he doesn’t forget that the Bank’s job is development, and it can still do much, much more to further that.
7. The last three months I’ve been on a Links break for have thrown up a huge amount of pop culture geekery for us, so much it’s hard to know where to start (maybe the incredible trailer for Wakanda Forever?). But rather than give you a rundown of every idiotic thing Kanye said or my thoughts on She-Hulk (fan), here’s a long appreciation of Goodnight Moon, probably the book I’ve read most over the last two years. It’s enduringly strange and enduringly moving (though some parents hate it). It’s also incredibly, inexplicably odd. And yet, a classic.

Have a great weekend, everyone!

R