Why nations fail? Interview/Profile of Daron Acemoglu

I recall reading about how Joseph Stiglitz was the most prolific economist with something like 600 papers with CV running in 59 pages. This was was 2008 so it could be in the 65th page as he has written so much since then as well. It was felt no one could Stiglitz on this paper writing activity.

But then as you start thinking that this record will stay comes  someone who breaks it in quick time. Take Tennis. Emerson’s Grand Slam record (12 titles) was broken by Sampras (14), Sampras by Federer (16 by now) and Federer’s could be broken by Nadal/Djokovic. Michael Schumaker’s record could be broken by Vettel and may be someone has the courage to challenge T’kar’s record.

In similar vein we have Daron Acemoglu of MIT who could challenge Stiglitz in coming years. He writes papers faster than anyone can think and on variety of topic and most are ore than 50 odd pages. Anytime you check his profile page and you get some 4-5 new papers. Most papers are so good that it leaves you gasping. Harvard  Economics Nobel Prize Pool forecasts him winning the Prize in 2020 by a wide margin.

Here is a superb (must read) interview of this giant by Minneapolis Fed Magazine- Region. He discusses his work and what more to come (His new upcoming book called Why Nations Fail). No interview can do justice to his wide span of work but Minneapolis Fed guys come somewhat close.  (read this 2005 paper summarising his works by Robert Shimer, another noted economist in line for Nobel)

First this well deserved intro:

The scope, depth and sheer volume of Daron Acemoglu’s scholarship are nothing short of breathtaking, verging on implausible. A co-author jokingly complained, “He can write faster than I can digest his research.” Another economist suggests that his extraordinary productivity can only be explained by existence of an identical twin.

Through omnivorous curiosity, apparently boundless energy and profound intellect, Acemoglu has produced seminal work in diverse, yet interrelated areas such as skills acquisition, technological change, trends in inequality, unemployment and directed job search, climate change economics, network economics, intellectual property rights and innovation. (Not to mention the occasional technical article: “Generalized Poincaré-Hopf Theorem for Compact Nonsmooth Regions,” for example.) His key focus in recent years: institutions and economic growth, and the dynamics of political economy.

The MIT economist’s gifts were recognized early. “I can say with some degree of certainty that [his] was the best thesis that I had ever examined,” remarked Christopher Pissarides, the 2010 Nobel laureate, of Acemoglu’s 1992 doctoral dissertation. “Original, full of important ideas and massive, without superfluous material.” Acemoglu received the 2005 John Bates Clark Medal, given to that year’s most-promising economist under  40. He’s been honored with numerous other awards as well, including fellowships in the American Academy of Arts and Sciences and the Econometric Society.

Acemoglu discusses following areas of work:

  • Job Markets
  • Trends in Inequality
  • The Financial Crisis: Lessons for Regulation
  • “Top Inequality” & Political Processes
  • Directed Technical Change & Global Warming
  • Growth, Innovation & Spillovers
  • Property Rights & Innovation
  • Transitions in Political Economy

And most would think his work has only been in political economy and instis based on his current research. For instance, I did not know (as a regular visitor of his profile page) he has stuff on climate change.

Couple of interesting points (which I am familiar with). Raghuram Rajan has been saying this crisis is a result of rising inequality which has forced govt to make people eat credit. And as a result we have had this crisis. Acemoglu has been disagreeing ith the view. He clarifies here:

First, I think evidence that the demand for redistribution from the bottom was strongest in the 2000s is nonexistent. If anything, it was stronger in the 1980s, which was a time when the bottom of the income distribution was falling and, in fact, there was a stronger labor movement to demand such changes. If you look at the 2000s, the bottom of the income distribution is doing well, actually, for the reasons that we just talked about. In fact, the middle is not doing all that badly either in the 2000s, relative to what was going on before. So the 2000s seem to be a particularly peculiar time for people to make those demands.

Second, I actually see no evidence, qualitative or quantitative, that even if people at the bottom did make such demands, the political system would respond to it. Over time, the U.S. political system seems to have become much less responsive to what’s being demanded by the bottom.

And third, I didn’t see any evidence that GSEs really played such an important role in this whole thing. They were relatively late arrivals into the subprime scene, which the private sector had fought very hard to carve out away from the GSEs and had successfully done so. Then the GSEs came in because they thought this was a profitable opportunity.

He says the problem instead has been wall street guys making 40% of the total US profits. They are the ones who seem to have lobbied with the govt. for weakening fin reg. It is the 1% which has led to widening on inequality:

Region: So the demand timing was wrong, the political response wasn’t really there and the institutional details weren’t quite right either.

Acemoglu: Yes, the details of the institutional process just don’t seem to work out. Now, for all of this, we don’t have conclusive evidence, but existing evidence doesn’t seem to support the thesis.

And at the end, I said that if there was going to be any link between inequality and the financial crisis, I would have put it another way, which is that the financial crisis and the inequality of the top 1 percent, which has a heavy overrepresentation from the financial sector, has been an outcome of the political processes that have removed all of the regulations in finance, and so created the platform for 40 percent of U.S. corporate profits to be in the financial sector—which is just an amazing number. That is where financial sector profits stood at the time.

Region: Really, 40 percent? Wow.

Acemoglu: Exactly, wow. And that’s for a sector that doesn’t use much capital, so it went to a very few, 20,000 or so people, in a very unequal way—especially in the form of year-end bonuses. They were amazingly overrepresented in the top 0.1 percent of the income distribution. And the thing is that this was underpinned by a political process, in the sense that it was an outcome of this lack of regulation and the way that we have allowed the laws to be changed for things such as subprime, and the relationship between investment banking and regular banking. And those things also played a major role, obviously, in the run-up to the financial crisis.

So it could well be that a political process that responded not to thebottom of the income distribution, but to the lobbying, financial and expertise power of the very top of the income distribution might have been responsible for these two processes.

His book on why nations fail:

It’s sort of a broader take on what are the deep causes, according to us, of this great variety of economic outcomes and economic organizations that you observe around the world, and we try to sort of have a coherent theory of this that is very different from those that are very popular in the media and policy circles. It is also, to some degree, even different from the ones that economists articulate. We put much more emphasis on the politics of it, rather than geography and culture, which is what a lot of policy and media people emphasize, or things related to optimal policy and how we can improve policy at the margin, and how we can design policies better, which is what economists put a lot of emphasis on.

Our take is that the political constraints here are central. And development is all about breaking those political constraints, rather than just thinking within existing political constraints and looking at the optimal tax design or the optimal unemployment insurance design and so on, within those constraints.

Obviously, the two are complementary, but I think this perspective is quite different from what’s out there. So that’s the major thing that’s kept me busy over the last few years.

In this very long, roundabout way, let me come to the question that you asked, which was about the Arab Spring.

Read his perspective on the Arab revolution. He is wondering whether it would be like the English revolution where something good comes out of it or the numerous African ones which just has  regime changes.

Finally the interviewer rightly says:

Thank you. I know we’ve just scratched the surface. This has been wonderful.

3 Responses to “Why nations fail? Interview/Profile of Daron Acemoglu”

  1. Daron Acemoglu is blogging! « Mostly Economics Says:

    […] have written a book called Why Nations Fail. He discusses the upcoming book in the interview here. The book is sure to become a bestseller when it releases on 20 Mar […]

  2. Did inequality cause the crisis? « Mostly Economics Says:

    […] has been countered by Daron Acemoglu saying politicians have stopped responding to needs of lower class a long ago. […]

  3. Did inequality cause the crisis? – via Mostly Economics « DEMONstrate Says:

    […] has been countered by Daron Acemoglu saying politicians have stopped responding to needs of lower class a long […]

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