Arnold Kling  

From the AER

The Seen, the Unseen, War, and... Bruce Bartlett on "Starving th...

The regular issues of the American Economic Review rarely interest me, but the papers and proceedings issue is often better. This year, covering the meetings held in January and arranged by Robert Hall, is particularly good. It seems as though empirical work without the "con" of econometrics is in. Theorem-proving and low-credibility multiple regression is out.

The issue starts with Hal Varian's lecture on computer-mediated transactions. Some other papers that caught my eye below the fold.

Atif Mian and Amir Sufi find that, looking across zip codes,

the correlation between mortgage growth and income growth is negative from 2002 to 2005 while the correlation is positive in all other periods since 1990.

...non-GSE securitization primarily targeted zip codes that had a large share of subprime borrowers. In these zip codes, mortgage denial rates dropped dramatically and debt to income ratios skyrocketed.

They also refer to this paper that shows statistically what many of us have known intuitively, which is that rent-seeking by interest groups is a major driver of U.S. housing policy.

Dani Rodrik writes,

High-growth countries are those that are able to undertake rapid structural transformation from low-productivity ("traditional") to high-productivity ("modern") activities. These modern activities are largely tradable products...In other words, poor countries become rich by producing what rich countries produce.

His conclusion is that countries must promote export and high-end import-competing industries in order to develop. But I prefer William Lewis' explanation, which is that competition promotes growth. Perhaps political economy makes it more difficult to make nontradable industries competitive than to allow competition in tradables. But that hardly suggests that promoting tradable goods is a first-best policy.

Paul Romer argues that it is ultimately the flow of ideas, rather than goods, that leads to growth. In a very Economics 2.0 fashion, he classifies ideas as technologies (recipes) and rules.

Avner Greif and Guido Tabellini offer a cultural explanation for what Kenneth Pomerantz called "the great divergence" between Western Europe and China.

The Chinese clan is a kinship-based hierarchical organization in which strong moral ties and reputation among clan members are particularly important in sustaining cooperation. In Medieval Europe, by contrast, the main example of a cooperative organization is the city. Here cooperation is across kinship lines and external enforcement plays a bigger role

In Europe...tribal tendencies were gradually undone by the Church which...advanced a marriage dogma that...discouraged practices that sustain kinship groups, such as adoption, polygamy, concubinage, marriages among distant kin, and marriages without the woman's consent. By the ninth century, the nuclear family predominated.

Carmen Reinhart and Ken Rogoff write,

Over the past two centuries, debt in excess of 90 percent has typically been associated with mean growth of 1.7 percent versus 3.7 percent when debt is low (under 30 percent of GDP), and compared with growth rates of over 3 percent for the two middle categories (debt between 30 and 90 percent of GDP).

I read this paper as raising some doubts about the wisdom or large fiscal stimulus.

COMMENTS (2 to date)
Lance writes:

Usually the May 2010 issue of the AER contains less of the technical work, since they are papers that were requested for the conference, as opposed to individuals submitting papers for review and then publication.

If I remember correctly, some of the authors commented about not having all of their technical work in the paper due to length constraints.

Chris Koresko writes:

I read a few of these papers last night, and have some comments:

The Mian & Sufi paper was interesting. It reminded me of a piece in the WSJ some months ago which argued (based on data in a paper published by the same author; sorry I can't recall his name) that mortgage defaults were caused by going under-water rather than bad mortgage terms, loss of employment, unexpected expenses, or other reasons. I would have liked to see the data presented in a more raw form.

Grief & Tabellini looked rather poorly supported. They have some interesting and worthwhile ideas, but the paper came across as ex-post storytelling. Still worth reading, though.

The Reinhart & Rogoff paper was interesting too, but I wish their data were more clearly presented. I'd like to have seen scatter plots instead of bar graphs. Also, in at least one of their high-debt cases there was a large difference between the mean and median growth rates at high debt ratio. That tells me their result is being dominated by one or a few outliers, which may call their conclusion into question.

If I'd been the referee on these papers I'd have demanded substantial revisions on all of them before letting them see print.

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