countries become what they make

César Hidalgo argues, “…in the long run, the income of countries is determined by the variety and sophistication of the products they make, rather than by the traded value of their exports.” In The Dynamics of Economic Complexity and the Product Space over a 42 year period, Hidalgo applies network science techniques to 42 years of trade data in order to better understand the impact of a country’s product space (e.g., oil, pears, chemical, cars) on future income growth and movement into new product markets.

Filed under: Economic Policy

help haitians (and haiti) through immigration

In the past, I have covered Lant Pritchett’s wonderful book on immigration, “Let Their People Come: Breaking the Gridlock on Global Labor Mobility.” In those posts, I addressed the morality, the positive development implications, and the benefits to host nations of increasing work visas. The tragedy in Haiti has pushed the question to the forefront, thanks in no small part to the work of folks like Michael Clemens (whose article includes many of the numbers included below).

Visa expansion is competing for airtime with debt forgiveness and disaster relief, and it’s worthwhile to restate the human value of greater immigration. As Michael Clemens and many others have reported, 50% of Haitians wanted to leave Haiti before the disaster. Last year, following an earlier natural disaster, the US refused to grant temporary protected status to Haitian immigrants and proceeded with deportation hearings. Thankfully, the US has granted TPS to immigrants in the wake of the latest disaster.

Yet the US could do significantly more good by taking the next step and opening its doors, even if on a temporary basis, to Haiti’s poor and huddled masses. Such a policy may even find broader support than TPS, which touched on the political nerve of protecting immigrants in the country illegally.

Filed under: Economic Policy, General Welfare

USAID needs outcome measures

The United States Agency for International Development (USAID) was established in 1961 with a mission of fomenting economic and social development through direct assistance. The State Department and USAID are currently operating off a strategic plan developed in 2007 for fiscal years 2007 through 2012. The plan presents seven strategic goals, including the promotion of economic growth and prosperity, with an emphasis on immediate, inclusive, and sustainable development.

Filed under: Economic Policy

jane jacobs: a model for conciliation

Jane Jacobs ushered in a revolution in city planning with her classic Death and the Life of Great American Cities in 1961, inspiring a generation of urbanites to fight off the technocratic meddling of big government. She fostered an appreciation for the natural ecology of the city, the emergence of an exciting and productive spontaneous order. She rallied against central planning, mounting a Hayekian stand to defeat Robert Moses, the Great Man of NYC development. Jacobs’ New Urbanism represents a unique conciliation of Austrian economics and the political left. In Death and the Life of Great American Cities, Jacobs spins a tale of well-intentioned but brutally wrongheaded urban planners -some of the the smartest folks of the time- whose hubris leads to nothing but destruction and blight. Austrian economists, such as Hayek, have been telling this story for years, in all areas of government, but never managed the success of Jacobs.

Filed under: Economic Policy, Philosophy

odds and ends for development assistance

In what will be my final post (for more, see: the failure of supply-side (aid) economics, no wal-marts in malawi, the great quality of life convergence) based on selections from Charles Kenny’s draft of “The Success of Development,”  below are some of my favorite nuggets and takeaways from his work:

Sachs‘ Millennium Project produced a report Investing in Development, based on such ideas. New York University Economist Bill Easterly was outraged on reading Sachs‘ report and demanded that we―discard the Planners‘ patronizing confidence that the Planners know how to solve other peoples‘ problems better than the people themselves do. He contrasted the planning approach to that of a ‘searcher‘ who ―admits he doesn‘t know the answers in advance… believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors and ―only hopes to find answers to individual problems by trial and error experimentation.
…
If rich countries increased the size of their labor forces by only three percent through reduced restrictions on migrant labor, Lant Pritchett estimates that this would add $300 billion to the welfare of citizens of poor countries –roughly four times the magnitude of foreign aid flows.

Filed under: Economic Policy, General Welfare, World, book bytes

the invisible hand: a caricature of a myth

It’s difficult to pin the myth of the invisible hand on the left or right, both sides have perpetuated the false idea that Adam Smith believed that an invisible hand guided each person’s self-interest to the betterment of society as a whole everywhere and always. This brutal caricature of Smith’s work reveals itself often in cutesy commentary by economists/pundits on the left who point out that Adam Smith and his mysterious hand theory was obviously wrong given some recent occurrence, or dolt pundits on the right supporting their opposition of all regulation. ever. for anything. ever. The invisible hand myth is not only unbelievably vexing to anyone who is familiar with Smith’s work and tremendous legacy, but also retards any meaningful dialogue on difficult economic policy/regulation issues.

Filed under: Economic Policy

no wal-marts in malawi

In a previous post on Charles Kenny’s book draft, “The Success of Development,” I highlighted the immense quality-of-life gains enjoyed in the past century.  Inventions, such as the polio vaccine and the green revolution, have made it much cheaper to provide quality of life, allowing societies who’ve seen no wage gains in 50 years to live longer, healthier, better educated lives.  The other side of the coin, however, income growth, depends not on inventions but on ‘sticky technologies.’ Kenny makes the argument that national policy, be it collectivist or capitalist, is fairly lousy predictor of income growth, and joins Douglas North in pointing to institutional development – be it a legal system or factory management system – as determinative of economic growth. Also, notice the insight of Paul Romer, recently in the news for revealing his plan to create Hong Kong-like exchange zones  across the world. A future post will highlight Kenny’s recommendations for effectively catalyzing income and quality-of-life improvement:

Filed under: Economic Policy, General Welfare, World

the great quality of life convergence

Development economists spend a lot of time talking about the stagnation in GDP of the bottom billion (cough, cough, Msr. Collier). I never thought much of it until I read the working draft of Charles Kenny’s book “The Success of Development,” which provides mountains of evidence that despite the income stagnation, the quality of life (by virtually every measure) has improved greatly over the past 50, 100 years for the world’s poorest people. In fact, while there’s been a divergence in income, there’s been a convergence in quality of life, and “the forces driving convergence in quality of life appear to be broadly independent of income.”

Furthermore, “far more than income, quality of life appears to follow a pattern of exogenous growth,” relying on global technological progress rather than national policy or institutions. There are tons of great factoids that make Kenny’s larger point, but below I’ve selected some clippings that I believe do a good job capturing the success of development (in a later post I’ll pull what Kenny thinks could be done better/how to continue this success):

Filed under: Economic Policy, General Welfare, book bytes

why you’re stuck in traffic, nowhere to park

Tom Vanderbilt, from Traffic:

In other words, cities should set prices on parking meters at a level high enough so that an area’s spots are only 85 percent occupied at any time. The ideal price, says Shoup, is the “lowest price that will avoid shortages.” Spaces with no meters at all, in a city like New York, are total anathema to Shoup.

Filed under: Economic Policy, book bytes

ascent of money in two paragraphs

Niall Ferguson covers a vast number of topics in The Ascent of Money (to a fault in the book’s latter half), but below I have two paragraphs that sum up what I took from his book:

For example, the Renaissance created such a boom in the market for art and architecture because Italian bankers like the Medici made fortunes by applying Oriental mathematics to money. The Dutch Republic prevailed over the Habsburg Empire because having the world’s first modern stock market was financially preferable to having the world’s biggest silver mine. The problems of the French monarchy could not be resolved without a revolution because a convicted Scots murderer had wrecked the French financial system by unleashing the first stock market bubble and bust. It was Nathan Rothschild as much as the Duke of Wellington who defeated Napoleon at Waterloo. It was financial folly, a self-destructive cycle of defaults and devaluations, that turned Argentina from the world’s sixth-richest country in the 1880s into the inflation-ridden basket case of the 1980s.

Filed under: Economic Policy, General Welfare, World, book bytes