The Unassuming Economist

From The Conversation:

“Economists working on macroeconomic policy – things like taxes and spending, interest rates and border controls on flows of trade and money – often refer to a set of key relationships governments can influence. In the textbooks, each of those relationships is drawn as a curve in a graph.

First is the IS (“investment–saving”) curve. This says that if everything else stays the same, the Reserve Bank can increase economic output and employment by lowering the interest rate. Or it can cause a recession by raising the interest rate. (For simplicity’s sake, the curves here are depicted as straight lines.)

Second comes the Phillips Curve, which is usually drawn sloping upwards to suggest that if everything else stays the same, inflation will rise during economic booms and fall in recessions. In other words, the Reserve Bank or the government can apparently bring inflation down by causing a recession.”

Third comes the trade balance – the current account of the balance of payments (investment income and traded goods and services between New Zealand and the rest of the world).

If everything else stays the same here, as the exchange rate of the dollar falls, the current account strengthens by moving towards or expanding a surplus. If the exchange rate rises, the current account weakens: exports fall and imports increase.”

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From a new World Bank report:

“We are facing a series of overlapping and interconnected crises that are impacting lives and livelihoods almost everywhere. The combined effects of slow economic growth, rising conflict and fragility, persistent inequality, and extreme weather-related events have sent shockwaves across the globe.

High-income economies are showing signs of resilience, but the outlook for low-income economies and fragile countries remains deeply troubling.

Just a decade ago, we had cause for more optimism. There was significant progress in sustainable development between 1990 and 2015, with more than a billion people lifted out of extreme poverty. This was a monumental achievement, driven primarily by strong economic growth in China and India, and it brought the wealthiest and least-well off economies closer in income levels.

Yet, what seemed like a clear path to complete poverty eradication has since faded. Our new report shows that global poverty rates have only now gone back down to pre-pandemic levels, with forecasts indicating a trajectory for the coming years that is dismal at best.

Almost half the world’s population—around 3.5 billion people—is living on less than $6.85 a day, the poverty line for upper-middle-income countries. At a more extreme level, almost 700 million people are living on less than $2.15 a day, the poverty line for low-income countries. Extreme poverty has become increasingly concentrated in Sub-Saharan Africa or places affected by conflict and fragility.”

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From Nishtha Anushree at Swarajya:

“The Nobel Prize 2024 in Economic Sciences has been awarded to Daron Acemoglu, Simon Johnson and James A Robinson “for studies of how institutions are formed and affect prosperity.”

The Royal Swedish Academy of Sciences has chosen the awardees of the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for demonstrating the importance of societal institutions for a country’s prosperity.

The laureates’ model for explaining the circumstances under which political institutions are formed and changed has three components. The first is a conflict over how resources are allocated and who holds decision-making power in a society (the elite or the masses).

The second is that the masses sometimes have the opportunity to exercise power by mobilising and threatening the ruling elite; power in a society is thus more than the power to make decisions.

The third is the commitment problem, which means that the only alternative is for the elite to hand over decision-making power to the populace.

“The introduction of inclusive institutions would create long-term benefits for everyone, but extractive institutions provide short-term gains for the people in power,” the laureates say.

The laureates have also developed an innovative theoretical framework that explains why some societies become stuck in a trap with what the laureates call extractive institutions, and why escaping from this trap is so difficult.

They have added a new dimension to previous explanations for the current differences in the wealth of countries around the globe. One of these relates to geography and climate.

Their insights regarding how institutions influence prosperity show that work to support democracy and inclusive institutions is an important way forward in the promotion of economic development.”

From McKinsey & Company:

“Daron Acemoglu and Simon Johnson of MIT, and James Robinson of the University of Chicago were awarded the 2024 Nobel Memorial Prize in Economic Sciences for their research on how societal institutions shape a country’s prosperity. “I believe that the political economy of growth, how we make it happen, what sort of institutions we have to have in order to undergird growth, who benefits from growth, how you regulate growth, and technology, automation, AI, the direction of technological change—those are intimately connected,” said Acemoglu in a 2021 episode of the McKinsey Global Institute’s Forward Thinking podcast with Michael Chui.

For more on the role of inequality in economics, check out McKinsey Publishing interviews with Nobel Prize winners Angus Deaton, Robert Solow, and Richard Thaler, and insights from McKinsey’s Anu Madgavkar, Sven Smit, Kweilin Ellingrud, Tracy Francis, and Asutosh Padhi.”

Matthew A. Killingsworth, Daniel Kahneman, and Barbara Mellers explore the relationship between income and emotional well-being.

“Using dichotomous questions about the preceding day, [Kahneman and Deaton, Proc. Natl. Acad. Sci. U.S.A. 107, 16489–16493 (2010)] reported a flattening pattern: happiness increased steadily with log(income) up to a threshold and then plateaued. Using experience sampling with a continuous scale, [Killingsworth, Proc. Natl. Acad. Sci. U.S.A. 118, e2016976118 (2021)] reported a linear-log pattern in which average happiness rose consistently with log(income).”

Read more here.