Wednesday, May 4, 2016

The Microfoundations of the Weeds in the Garden Model

Last fall John Cochrane argued:
Sclerotic growth is the overriding economic issue of our time. From 1950 to 2000 the US economy grew at an average rate of 3.5% per year. Since 2000, it has grown at half that rate, 1.7%. From the bottom of the great recession in 2009, usually a time of super-fast catch-up growth, it has only grown at two percent per year. Two percent, or less, is starting to look like the new normal…Our economy is like a garden, but the garden is choked with weeds. Rather than look for some great new fertilizer to throw on it, why don’t we get down on our knees and pull up the weeds? At least we know weeding works! …Cleaning out the weeds also needs a large effort of simple governance. The President has to revisit and rewrite the mass of executive orders and memos. The Congress has to get serious and pass laws that are actually laws, not thousand page instructions for agencies to figure things out. It has to get around to repealing laws everyone understands are bad — the Jones act restricting shipping, the ban on oil exports, and so on — and reforming laws that everyone understands need to be reformed. It needs to actually follow its own budget law. The heads of agencies will have to renew the staff and reorient them to growth-oriented policy, and undertake a sweeping house-cleaning of regulations and procedures. They will have to implement managerial techniques such as pervasive cost-benefit analysis, regular retrospective review, and sunsets.
I was so tempted to go snarky and ask what are the microfoundations of the weeds in the garden model of economic growth? Noah Smith did the heavy lifting for us:
Most of the so-called growth policies Cochrane and other conservatives propose don't really target growth at all, just short-term efficiency. By pretending that one-shot efficiency boosts will increase long-term sustainable growth, Cochrane effectively executes a bait-and-switch.
Brad DeLong notes Cochrane is up to his old tricks:
Sclerotic growth is America’s overriding economic problem. From 1950 to 2000, the U.S. economy grew at an average rate of 3.5% annually. Since 2000, it has grown at half that rate—1.76%. Even in the years since the bottom of the great recession in 2009, which should have been a time of fast catch-up growth, the economy has only grown at 2%. Last week’s 0.5% GDP report is merely the latest Groundhog Day repetition of dashed hopes…The third camp (mine) holds that the U.S. economy is simply overrun by an out-of-control and increasingly politicized regulatory state. If it takes years to get the permits to start projects and mountains of paper to hire people, if every step risks a new criminal investigation, people don’t invest, hire or innovate. The U.S. needs simple, common-sense, Adam Smith policies. America is middle-aged and overweight. The first camp says, well, that’s nature, stop complaining. The second camp looks for the latest miracle diet—try the 10-day detox cleanse! The third camp says get back to the tried, true and sometimes painful: eat right and exercise.
I guess we will eat healthy foods from that garden once we remove the weeds. Brad complains that a Cochrane chart of per capita income and some “ease of doing business” index is “Extraordinarily Unprofessional!” I was about to comment – where are the microfoundations but someone beat me to this again.


Peter T said...

In this post:

I commented that mathematical prooofs were unlikely to shift positions. If I were in the dock on this, I would cross-examine Cochrane and Williamson for the defence.

Sandwichman said...

On the question of "weeds," one needs first to distinguish between indigenous plants and invasive species. It may even be that some of the latter were first introduced as cultivars. English ivy, Himalayan blackberries, highway iceplant ("a ground-hugging succulent perennial that roots at the nodes, has a creeping habit").

If one is going to pursue the bad analogy of growth with additional garden metaphors, then perhaps one should have a look at a early and authoritative contribution to the theme.

"Growth is a concept whose proper domicile is the study of organic units, and the use of the concept in economics is an example of that prevalent employment of analogy the dangers of which have been so eloquently stressed recently by Sidney Hook."

We've got to get ourselves back to the garden metaphor and ask "what proportion of what we have been counting as 'growth' has been the creeping habits of invasive species? How much highway ice plant is there in the GDP?

Thornton Hall said...

What if you can't even get the analogy side correct?

But the worst of it is this. This post isn't a critique of Cochrane. It's evidence that with friends like Smith and DeLong, the truth has no need for enemies. Because DeLong and Smith both ratify the idea that the best way to learn about how the world works is for white men with above average math skills to reflect upon it.