There is a lot of criticism on Indian society for lack of inter-generation mobility. But pretty much similar things exist in western societies as well.
In this paper, authors look at an example of mobility from Florence, Italy:
Jeremiah Dittmar and Ralf Meisenzahl have an interesting research on the topic. They look at role of social institutions in development.
They use the tool made popular by likes of Acemoglu/Robinson. One region gets these social institutions and other does not? What is the overall impact on one vs the other? This time the region is Germany and we have cities instead of countries. There were certain cities where Protestant movement led to development in some cities over others:
One always believes that those born in bigger cities usually have more advantage then those in smaller places. Those in former category get better schools, public services, a wider social network and so on.
So in this article Clément Bosquet and Henry Overman look at this aspect of role of location in human capital:
Chris Benner and Manuel Pastor have been workin on a project looking at local regions in US and what drives growth in them. It is called Just Growth? Social Equity and Metropolitan Economic Performance. Here is an excerpt from the book.
Here is an interview of Chris Benner. He says unlike what most think, more equal the region, higher is its growth:
Daniel Mitchell has a superb picturesque post comparing Europe with US.
It first looks at which US States are richer/poorer than European countries. Does not look good for Europe. Germany the richest pean country is ranked 39th in the ranking.
Then there is a Europe map which colors the countries as purple and yellow. Purple ones are as rich as US states and Yellow ones are poorer than Mexico. Again only a handful are in purple and most are yellow.
The Impact of Globalization on Argentina and Chile is the title of a book which looks at the paths taken by two countries. Argentina which was one of the top economies in the beginning of 20th century is not even a pale shadow of its great past. Chile also after many upheavals has managed to get its act together.
The editor of the book, Prof Geoffrey Jones explains the findings in this interview:
Giovanni Federico and Antonio Tena-Junguito update the historic trade data of more than 2 centuries using a new database:
Eric Beinhocker of the Institute for New Economic Thinking has a piece on American economic dream gone wrong.
He first sums up how America moved from being what you know to who you know economy. Then he says US needs to go back to its core factor – rooting for middle class: The usual cited business of trickle down economics doesn’t work. What matters is middle out economics where middle class rules the roost:
Anders Aslund gives a nice name/tag to the once emerging markets – the submerging markets..
It is time to put the rise of the emerging economies in perspective. The rapid economic growth in much of the developing world since the beginning of the century was fueled by a commodity boom and an overextension of credit. But, because the emerging-market boom was not accompanied by sufficient structural reforms, it was not sustainable.
Today, most of the major emerging economies have experienced a severe reversal of fortune. Russia and Brazil have plunged into severe crises, with double-digit inflation accompanying a 4% contraction in GDP last year. South Africa is barely growing. China’s phenomenal rate of expansion has slowed to below 7%. Unsurprisingly, Goldman Sachs has closed its money-losing BRIC fund for investment in Brazil, Russia, India, and China.
Most parts of the article are of course well known and hugely written about..
Fascinating bit of research by trio of Ulrik Beck, Benedikte Bjerge, Marcel Fafchamps.
Ever since the seminal paper of Coase (1937), economists have known that transactions costs can hinder the efficiency of exchange. If transaction costs are present, some mutually beneficent transactions may not take place.
In developing countries, poor institutions mean that many such transactions are left on the table since transaction costs are too high. For example, property rights are often vaguely defined and contracts hard to enforce legally. Well-functioning institutions support well-functioning markets through low transaction costs. In these contexts, there is increasing evidence that households instead rely on their social networks. One example is how social ties play an important role in informal insurance schemes (Fafchamps and Lund 2003, Mazzocco and Saini 2012). In fact, the importance of social ties shows up in very diverse contexts where they can help to decrease transaction costs; other examples from the economics literature are in the selection of an international trading partner (Granovetter 1995, Topa 2001) and in labour markets where seeking and getting a job is affected by social networks (Rauch 2001, Chaney 2014).
There are good reasons to think that social networks can also reduce barriers to the exchange of production factors. Social connections can increase trust between individuals and important information can be exchanged. Social ties can also reduce the risk of violation of agreements, since the violator risks losing not only the contract but also the social connection. These are some of the ways in which social ties are thought to lower transaction costs. However, the extent to which social ties can offset the negative impacts of high transaction costs for exchange of production factors is an open research question. Earlier papers provide indirect evidence that this may be the case (Sadoulet et al. 1997, Holden and Ghebru 2005, Macours et al. 2010).
So what does their analysis show? Do networks help? Somewhat…
Diane Coyle has a piece on the topic:
Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.
Some examples of this:
Digital technologies, like any innovation, clearly create consumer surplus. Hedonic pricing techniques capture some quality improvements, but it seems unlikely they can ever fully reflect large qualitative changes in human possibilities or well-being due to such major innovations. It is clear that there is additional consumer surplus associated with developments such as the wider choice available through online marketplaces, or the time saved by using online services, or from zero price and voluntarily-produced online products and services. For example, somebody who uses an online platform to swap homes for a holiday might well spend the money they save on other goods and services that are captured in measured GDP, but the benefit of their ‘free’ holiday is not. It is not clear how to assess the scale of this digital surplus.
What’s more, the impact of digitally business on measured GDP by current definitions reveals some oddities. For example, the disintermediation and move to online provision in several sectors such as finance, travel, and retailing is reducing GDP as investment in commercial property declines, but the service provided to consumers is clearly the same or better. Figure 1 shows the decline in constant value investment in just two sectors in the UK, retailing and finance, taking their share of total gross domestic fixed capital formation in buildings from 17% in 1997 to 4% in 2014 (investment in buildings has typically been in the range of a fifth to a quarter of total business investment over this period.)
Hmm.. There is more in the post.
This is all interesting stuff to ponder upon. We could actually see a world where GDP does not show much progress or a decline but people are overall fine/happy..
There is a lot of talk especially in US Presidential debates on adopting Danish economic model.
Otto Brøns-Petersen of Center for Political Studies (CEPOS), a think tank in Denmark has an article on the issue. He says do not try the model at home until you know what it is all about:
Increasingly, both in Denmark and abroad, I hear the claim that Denmark is somehow proof that a gentler socialism is preferable to free-market capitalism, promising more happiness, greater wealth, or both. Recently, Democratic presidential candidates Bernie Sanders and Hillary Clinton declared their admiration for Denmark. I came across the rising attraction of the so-called Danish model earlier this year at conferences in Athens, Greece, and Sofia, Bulgaria. My advice at those events was and continues to be, “Don’t try this at home — at least until you understand what the Danish Model is about.”
The first thing to recognize is that Denmark, like the other Nordic countries, has quite a free-market economy, apart from its welfare state transfers and high government consumption. The Nordic countries tend to get rather high rankings on global measures of economic freedom. Denmark is thus number 22 on the Fraser Institute’s Economic Freedom of the World (EFW) index and number 11 on the index published by the Heritage Foundation.1 Denmark ranks at number 3 on the World Bank’s Doing Business report, which assesses the ease of doing business around the world.
….Second, Denmark did not become a rich country recently. As Figure 1 shows, Danish per capita GDP relative to other countries reached a maximum 40 to 60 years ago (ignoring the “noise” from the Great Depression and World War II). Denmark caught up to and overtook “old Europe” in the fifties, while it narrowed the gap with the United States and other Western offshoots until the early 1970s, when the process of catching up came to a halt. Danes are still not as rich as Americans.
…Denmark first became rich, and then introduced the government programs that make up the welfare state. The huge increase in government spending has been accompanied by deep structural problems, which has made it necessary to reform the Danish economy and welfare state. It can hardly be claimed that introducing the welfare state made Denmark rich; rather it was the other way around. Denmark first became rich, and then the authorities began to redistribute some of the wealth.
Hmm..Takes you to the Bhagwati vs Sen debates..
In the end, one needs to learn the right lessons. A welfare economy does not mean a careless one:
In many respects, Denmark could serve as a model for the world. But if you fail to learn the right lessons, it could be dangerous to try to imitate our model, especially the idea that you can become rich by redistributing wealth or that there is a gentler, more successful way to socialism than the one experienced by typical socialist countries.
And it would certainly be ironic if the Danish case were to become an excuse for politicians in the United States, Greece, or other countries to avoid fiscal consolidation and economic reform, since we Danes have been reforming and consolidating for decades to deal with the problems created by the introduction of our welfare state.
Nice bit..going back to basics..
Prof. Peter A.G. van Bergeijk of Erasmus University raised the issue earlier. He said the Planet GDP aggregate differed when looked from different sources.
IMF researchers responded to the issue here. They say choice of numeraire matters. As most GDP is accounted in terms of USD. As USD has appreciated this year, these issues have cropped up:
It is quite a surname for a President to have – Macri and that too of Argentina. It was a matter of time before his policies were to be converted into Macrinomics.
There is a lot of noise That Macrinomics can do for Argentina where so many others have failed. But what if this too remains a promise?
K@W has a discussion on the issue:
As President-elect Mauricio Macri prepares to take office in Argentina, the country is at a crossroads: Will Macri’s administration mark a bright new age? Or will the current revival of optimism in Argentina be short-lived?
For the past 12 years, successive populist governments headed by the late Nestor Kirchner and his widow, outgoing President Cristina Fernandez de Kirchner, have staked the nation’s prosperity on high commodity prices and free-spending social programs, leaving Argentina mired in high inflation and a huge public-sector deficit, and isolated from access to international financial markets.
Under Macri, “important aftershocks are going to be felt across the region,” says Peter Schechter, director of the Latin America Center of the Atlantic Council, a Washington-based think-tank. The results of the Argentine presidential election will eventually have a profound effect on much more than domestic economic policy in Argentina, he adds. “It is a dramatic moment of inflection for the country.”
And yet, opinion is widely divided about Argentina’s prospects. Is the stage finally being set for Argentina to deliver on the enormous promise of its vast natural resources? Or will the nation of 43 million — the third most populous in South America after Brazil and Colombia — remain stymied by its deep-seated tradition of political divisiveness? The optimists stress that Argentina has a sizable middle class, huge energy reserves already popular with Chevron, Total and ExxonMobil, and an educated population. Those assets could offer significant additional opportunities for foreign investors and open new markets in Argentina for foreign providers of sophisticated consumer goods and value-added technologies and services — provided the Macri administration manages to make the critical economic reforms that he advocated during his campaign. Although everyone agrees that Argentina has vast potential for growth, the pessimists argue that Argentina’s long history of political instability and corruption does not bode well for Macri’s prospects to make those reforms over the next few years.
Argentina is a great case of misplace priorities and injustice to history. It was one of the richest countries in the beginning of the 20th century only to go down the drain with series of disasters. Like someone said, there are four kinds of countries – developed, underdeveloped, Japan and Argentina!
It will be really interesting to see what Macri ends up doing…