Arnold Kling  

What's the Big Story?

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Tyler Cowen writes,


the Japanese economy was more dependent on productivity gains in the first place. As those gains start to slow down or dry up, it bites harder and more quickly.

I want to talk about three big stories for what is going on in the world today. Cowen's big story is The Great Stagnation. Productivity growth has slowed, in part because of a slowdown in technological change.

The Krulong big story is that the market animals escaped from the zoo. We need to put the technocrat/zookeepers back in charge.

My big story is the opposite of both. It is that (1) we have had a speed-up in technological change, and (2) the technocrats have too much power and too little knowledge. The technocratic approaches to bank capital regulation, U.S. housing policy, and European integration have failed spectacularly, illustrating the knowledge-power discrepancy.

I think my story has the easiest time explaining the strong relative performance of emerging-market countries. The Internet has made it easier to establish and manage patterns of trade that incorporate emerging-market economies. This has produced the Great Factor-Price Equalization between workers of average IQ's in different countries. A large number of average-IQ workers in the United States have yet to find their place with new patterns of sustainable specialization and trade (PSST).


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COMMENTS (13 to date)
John Alcorn writes:

Pellucid post!

E. Barandiaran writes:

Please don't forget my big story --the greatest shock to the world economy ever. I mean the integration of over 3 billion people to the world market economy in the past 25 years. In terms of population, a doubling of the world economy's size. We are still adjusting to the shock.

The adjustment means a relocation of activities across and within countries and therefore a reallocation of resources. It'll take a long time before it's over because the losers, most of them in advanced economies, are fighting for their interests.

DW writes:

No Sumner story?

JP59 writes:

Fascinating! Please elaborate on this in future posts.

randy writes:

It seems Krugman's and Delong's story is one of liquidity preferrence during debt deleveraging. What you have attributed to them is amounts to a strawman.

Shangwen writes:

How does your story reconcile with the New Commanding Heights narrative? In one of the heights (health care), there is a campfire ghost story about information asymmetry, which is then used to justify endless regulation. For NCH to work as an optimistic idea, we have to get out of the asymmetry/regulation death spiral.

Dave Schuler writes:

It isn't just that the technocrats don't know enough but that they can't know enough. Change is too rapid and pervasive and, by their nature, technocrats want to preserve the conditions on which their expertise is based.

Thomas DeMeo writes:

The conclusion that the technocrats are over their head and have failed is on pretty solid ground. Reducing their power makes sense, regardless. The question is whether they were the central to the problem or just a scapegoat.

Vladimir writes:

Arnold Kling:

This has produced the Great Factor-Price Equalization between workers of average IQ's in different countries. A large number of average-IQ workers in the United States have yet to find their place with new patterns of sustainable specialization and trade (PSST).

So does this mean that free trade has been a raw deal for the common folk after all, as populists of all stripes have been arguing? (And contrary to the economists' almost uniform insistence that it simply must be making everyone better off as a law of logic.)

What does it mean "technocrats know too little and are too powerful"?

I think that's an unhelpful rally against technical competence -really a dog whistle for the envious to gain or maintain an audience for your blog.

If you're discussing institutional design optimization in good faith, that's helpful and needed. We need our best experts, operating within the best institutional design, to play our best in the game of survival as a society. Even then, we're probably all still doomed. But I think playing our best at the game of survival is the right god for us to worship.

R Richard Schweitzer writes:

What of the role of "Surplus" in the expansion of any known civilization; usually expressed in what we refer to as its "economics" (or some equivalent term)?

If the U S is in fact at the "core" of Western Civilization, have we been accumulating Surplus (excess of product less costs of production & distribution over consumption)? If we have, where has that surplus been aggregated for possible redeployment? If any (real), where has it been redeployed; and to what objectives (e.g., social, knowledge accruals, other...)? How are determinations for aggregations and redeployments being made; by what processes; by whom?

The end of surpluses, their consumption, or the failures of adequate redeployment for effective expansion objectives, have been markers in Western Civilization's ups and downs - now down.

Floccina writes:

@Barandiaran, I think that you have a good point there. I think that some blame belongs with Mao and the other communist. Change came too fast for the west to adjust. Greenspan created too much money because he focused on CPI and China kept most prices down but not real-estate.

I considered the under performance of China in the Mao, communists years truly amazing. The country had everything going for it but economic freedom. When they allowed a little freedom the size of growth excellerated until the west needed a big adjustment.

Anonymous writes:
So does this mean that free trade has been a raw deal for the common folk after all, as populists of all stripes have been arguing?

It's been a great deal for most common folk, just not those that were overpaid...

What does it mean "technocrats know too little and are too powerful"? I think that's an unhelpful rally against technical competence -really a dog whistle for the envious to gain or maintain an audience for your blog.

The fundamental problem with technocrats in the modern international economy is that they can only largely affect policy in their country. If they work to raise the wages of workers in their country, production can move to another country.

We need the national government to think a little more like state and local governments and compete for business (like Zug).

Instead, they don't seem to be focused enough on Kling's final sentence, which is the key factor...

A large number of average-IQ workers in the United States have yet to find their place with new patterns of sustainable specialization and trade (PSST).
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