A nice confidence boosting speech from Alan Krueger, Chairman of CEA.
First the title of the post. he says unlike others Americans like to try out other options before arriving at a final solution. However, others imterpret this differently:
We are a resourceful, results-oriented people, with the capability to continually reinvent ourselves to pursue solutions that solve our problems. Winston Churchill reportedly said, “You can always count on the Americans to do the right thing – after they’ve tried everything else.”
There are two ways to interpret this quote. One, which is probably what Churchill meant, is that the answers to our problems are clear from the outset and that we go down many paths before choosing the one we should have started with.
The other interpretation – which is my preferred one – is that the solution to many of our problems may not be as clear cut as people think they are at the outset. Our system leads us to try lots of things. We Americans experiment a lot, and are good at shaking off setbacks and being persistent as we strive to improve ourselves. We are pragmatic. Once we find something that works we settle on it.
Hence just like the Bayesian idea of learning from the past applies to Americans:
We are Bayesians, in the sense that we learn from the past and try things until we get it right. Our optimistic sense that we can solve our problems by pursuing a pragmatic approach is an enduring characteristic of our startup nation.
Like economists often say We are Keynesians now or Hayekian now, we have something new here. However, I think most of us are neither of these. We all are just predictably irrational and learn very little from the past. We keep making the same mistakes believing this time is different (these 4 words are perhaps the most powerful in economic history). Infact if we were Bayesians may be we would not eb making the same mistakes over ad over again. Actually the question is why aren’t we Bayesian?
Anyways, now coming to the speech. The speech is nicely titled as “Finding Economic Certainty in an Uncertain World” . Krueger says despite no easy solutions to fix the crisis, US still has a few strong points of its economic system (call them low hanging fruits if you like):
First, the United States of America will continue to have a large, free market economy that benefits from competition and easy entry of new competitors. This applies to both product markets and labor markets. Creative destruction, as Schumpeter called it, is a hallmark of the American economy.
Second, in spite of our problems, we have strong and stable legal and economic institutions that are capable of adapting with the times and circumstances.
Third, we are diverse country and we have a diversified economy. High school textbooks will tell you that our economy moved from being agrarian and resource-based in the 1800s to being industrial in the first half of the 1900s and then to being service oriented later in the 1900s and then idea-oriented in the 2000s. But the truth is that we are all of those things. No major (twodigit) industry contributes more than 15 percent of our GDP.
Fourth, education will continue to be the most sure path to success in the U.S. and around the world, and the U.S. will continue to have the best system of higher education in the world.
Fifth, we have an entrepreneurial culture, supported by a vibrant venture capital community. It should be no surprise that the MBA degree was invented in the U.S., and that it took over 40 years for schools in other countries to start issuing MBA degrees. The U.S. has always had the most daring entrepreneurs and we have a market, education system and culture that encourages entrepreneurship. Examples of some storied U.S. entrepreneurs include Steve Jobs, Jerry Yang, Jeff Bezos, Vera Wang, Warren Buffett, Howard Schultz, Walt Disney, Henry Ford, Ben Franklin, and Oprah Winfrey.
Sixth, it is a safe bet that the U.S. will continue to have a highly productive and innovative economy. Innovation comes in two basic forms: product innovation and process innovation. First, we innovate by creating new products, spurred by the rewards of having an opportunity to succeed in the largest economy in the world. Second, we innovate by figuring out ways to make the things that we already make with fewer resources, which raises our productivity
Lastly, we are a resourceful, results-oriented people, with the capability to continually reinvent ourselves to pursue solutions that solve our problems.
Well, whatever strong point he mentions are exactly the points some econs have questioned. Yes, they were present earlier which made US the world’s leading economy for so many years. But not anymore:
- It isn’t a free market economy anymore but run for a few powerful people as criticized by Luigi Zingales, Simon Johnson and many others.
- Economic institutions have become outdated which have allowed cronyism to prosper
- Stiglitz recently pointed out that this inability of US to transition to services is what has led to the current crisis
- Well, Krueger points to US top colleges most are concerned with primary education. Acemoglu says education suffering as migrants have not played the catch-up game well. It is amazing how this primary education is a concern in US..
- Yes, US still produces top entrepreneurs and new products. But with above struggling this will lag behind as well. Same stands for innovation and Americans as Bayesians..
Apart from this he points to some myths that Obama has introduced more regulations hence business suffering. However, Obama’s regime has introduced lesser number of regulations compared to Bush.
Nice effort from Dr Krueger but frankly US needs to work a lot on the seven pillars of US economy he has pointed. The foundations have weakened over the years (atleast that is what majority of US based econs tell us)..