From the AER
By Arnold Kling
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 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.
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.
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.