The Unassuming Economist

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.

From Conversable Economist:

“The pandemic recession from March to April 2020 was a different creature from the previous post World-War II recessions: different in cause, length, depth, and the kinds of social and economic changes that happened. The appropriate economic policy response was also different. Instead of the standard anti-recession policy of stimulating the entire economy, it is more useful to think of pandemic recession policy as a form of social insurance. One key question is whether this social insurance should operated primarily by supporting the unemployed or by supporting jobs.

Lest this distinction sound like a word game, consider this real world difference. In the pandemic, most European countries responded with programs of “short-time work.” The idea the employer doesn’t need to fire or lay-off workers. Instead, it cuts their hours substantially, and the government makes up the difference. It’s a kind of partial unemployment, except that when the worst of short, sharp pandemic hit to the economy passed by, the workers were still employed at their previous jobs and employers could ramp up their hours again. In contrast, the US approach emphasized larger and longer unemployment payment aimed at those who were without jobs. US employers (with the exception of some small state-level programs) did not have option of switching to short-time work.

Giulia Giupponi, Camille Landais, and Alice Lapeyre discuss the tradeoffs between tehse two approaches in “Should We Insure Workers or Jobs during Recessions?” (Spring 2022, Journal of Economic Perspectives, 36:2, 29-54). Here’s one of their figures. The solid lines show the share of population receiving unemployment insurance, with the blue line showing the US and the red line showing a weighted average for Germany, France, Italy, and the United Kingdom. Notice that the share of workers getting unemployment insurance in the pandemic spikes up in the US (solid blue line) but barely budges in the European countries (solid red line). Conversely, the share of workers on short-time work spikes up in the European countries (dashed red line) but barely budgets in the US (dashed blue line).”

Source: World Bank Blogs

A recent blog by the World Bank discusses the pertinent issue of effectively measuring primarily female-run enterprises in developing and developed nations across the world. Through a compilation of resources such as the report, Women, Business and the Law, 2022 and endeavors in the We-Data project which collects data on women’s access to various business-related resources, the blog attempts to provide a broad picture of the status quo. It explores some regulatory barriers (e.g., laws prohibiting married women from being signatories to commercial contracts or accessing capital independently), operational hurdles, and data-related challenges that countries face while capturing this segment of businesses.

Read on to know more.

Watch: World Bank’s 9th South Asia Economic Policy Network conference on Social Norms and Gender Equality (May 11th and 12th, 2022)