I am interested in development economics, economic growth, and economic policy. Apart from blogging, I also write op-eds focusing on economic growth and public policy pertinent to the Nepali economy
Perhaps the most telling indicator that El Salvador is not constrained by a lack of savings is that a dramatic boost in remittances has not been converted into investment. This suggests that the country invests little, not because it cannot mobilize resources (though savings are low) but because it cannot find productive investments.
Over the longer term, further strengthening the economy’s growth prospects and reducing poverty, while safeguarding fiscal sustainability, requires a comprehensive strategy, including measures to raise revenues, structural reforms aimed at enhancing the business climate, and higher private investment...
The authorities’ strategy for 2011, which includes strengthening tax administration to increase revenues as well as reforming energy subsidies, will create space for high-priority social spending and public investment while lowering the fiscal deficit to 3.5 percent of GDP.
“Beyond 2011, timely enactment of a fiscal pact, which includes measures to raise revenue on a durable basis, and continued adherence to expenditure targets in the authorities’ program will be critical to sustain fiscal consolidation, placing the debt-to-GDP ratio on a firm downward path.
“Continued commitment to the dollarization regime has been the cornerstone of macroeconomic and financial stability. While the Salvadoran banking system is liquid and well-capitalized, it would benefit from further reforms aimed at enhancing its resilience. Approving the Financial Sector Supervision and Regulation Law, bolstering the corporate governance of banks, and upgrading the bank resolution framework will be key to this objective. Limiting the fiscal risks associated with the provision of credit by public banks will also be necessary,” Mr. Shinohara said.
At one point in book lovely parallel between an Edward Hopper painting and a woman at work writing a marketing study. Hopper really tried to force the eye to notice a lot of that--the industrial life, the unseen, quiet moments of daily existence, not cathedrals or great landmarks. Lots of pictures of paintings of corners of things. Help us see some of the things we are looking at. Hopper classic example. Can't be an American today in many situations without that word "Hopperesque" coming to mind. Be it the late-night motel, the bar, the diner, whatever, we'll be in the footsteps of this great painter. Art is putting post-it notes on parts of the world going, Notice this. Your book is a tourist guide to some of the aspects of modern work.
Initially, he was first asked to speak about Aid Effectiveness but he wanted to talk about effective comparative to what. He thinks we should still be realistically ambitious and part of that is to look at best successes – China and development of US, including the expansion of the US frontier.
In his view, the key element regarding China’s development as well as the history of US lies in the concept of norms and rules. (He chooses not to use the words governance and institutions as they sometimes have certain connotations).
First, he outlined the difference between the sharing of ideas versus objects. Ideas are non rival compared to objects which are finite. Objects are finite - the more people around the fewer objects for each. However with ideas, the more people, the more ideas are developed. So the non rivalry of ideas and the power that comes from sharing amongst each other is inherent in successes of globalization, urbanization, and communication networks. The discovery and sharing of ideas helps countries that were behind, to catch up economically and developmentally.
He then linked ideas with the development of rules and used the example of Mauritius where a change of rules helped with rapid expansion of economic growth. If you can change rules, technology transfer can be done more quickly which supports economic growth. China has experienced that same dynamic – a change in rules led to special zones, foreign investment, increased expertise, a dramatic increase in manufacturing and rapid increase in economic growth and income. He posits that the puzzle of development needs to be framed around persistent stagnation – growth isn’t surprising, but stagnation is. Why do inefficient rules and ideas persist, limiting growth?
Then, he discussed formal versus informal rules, whereby formal rules are enforced through laws and informal ones are cultural, decentralized, and socially based. Informal laws are flexible and can lead to multiple equilibriums – what your norms are of right and wrong are based on what you see around you. All kinds of rules are enforced by informal norms. Norms can be functional at one point that become dysfunctional later – for example, norms regarding sharing versus norms of individual responsibility and work. But norms are very hard to change. So the answer to why rules can be so wildly inefficient for so long, although could sometimes change, has to do with the stability of norms.
Economists are much too ready to assume rules that are once and done – establish laws and then you’re done. But rules might need to change over time. Need new rules based on new technologies. Another driver of change is scale – rules and social norms that were designed for a small group of people and with scale you now need formal rules and then enforcement. So need to think about “metarules” – what are the rules for when you need to change the rules.
Norms are socially determined, as well as based on persuasion and the educational system. Efficient rules depend on the technologies, patterns of interaction, and distribution of norms in a population. Substitution between formal and informal rules depends on the norms that exist in different parts of the world – so formal rules aren’t always universal. Dynamics of informal rules and norms can trap groups making the shift to new rules and processes difficult. You see this in the business world where large corporations often can’t be as flexible as a startup – they are stuck with older norms that are harder to shift.
Executive action can change norms – i.e. the anticorruption commission created in Hong Kong, which was coupled by anticorruption campaign. It undermined corruption as an accepted norm. But how do you translate this to other contexts?
One way is to focus upon start ups and new norms. The notion of a start up is an important metarule – new initiatives have a chance to set up fresh and good norms. You can create a new set of norms among people who share your concepts, create a model and then acculturate the newer people to follow these standards, thus expanding the norms and rules outward.
This theory is behind his assertion that new Charter Cities can be an important development tool. Romer feels it would be possible to create hundreds of cities that are set up with new norms, special zones where new rules can be implemented, so you can recreate what happened in the US when it was developing and expanding its frontier. That situation, the new US cities attracted outsiders through opportunities and services. One can replicate this success by creating a competition of new cities, such as having hundreds of Dubais, where there would be competition for better living standards. The timing is ripe for this method as the world continues to urbanize currently – once the world’s population stabilizes and people stop moving into new cities, this start up concept will no longer be possible. So we need to look at meta rules beyond just voting, but start ups and other ways to affect norms which impact economic growth and development.
The Worldly Philosophers, by Robert Heilbronr
Reinventing the Bazaar: A Natural History of Markets, by John McMillan
Thinking Strategically, by Avinash Dixit and Barry Nalebuff
Capitalism and Freedom, by Milton Friedman
Equality and Efficiency: The Big Tradeoff, by Arthur Okun
Nudge, by Richard Thaler and Cass Sunstein
How the Economy Works, by Roger E.A. Farmer
The Return of Depression Economics, by Paul Krugman
The Road to Serfdom, Friedrich Hayek
The Myth of the Rational Voter, by Bryan Caplan
The Big Questions, by Steven Landsburg
This marvellous book by Howard Wainer, Picturing the Uncertain World: How to Understand, Communicate and Control Uncertainty through Graphical Display, is an absolute must for anyone who claims to be involved in the search for empirical evidence. It's a sequel to the same author's Graphic Discovery and also in the tradition of Edward Tufte's The Visual Display of Quantitative Information. All applied economists should have read carefully all three books and keep them close by for reference. So should all other researchers - social science, medicine, education - anybody who needs to navigate the shoals of carrying out robust empirical work and communicating it to others.
Three principles of effective display are mentioned that can be called “THREE COMMANDMENTS of effective data display of data”
1. Remind us that the data being displayed do contain some uncertainty , and then
2. Characterize the size of that uncertainty as as it pertains to the inferences we have in mind , and in so doing
3. help keep us from drawing incorrect conclusions through the lack of a full appreciation of the precision of our knowledge.
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