The Unassuming Economist

Below is the latest update of the World Uncertainty Index (figure 1) and World Trade Uncertainty Index (figure 2). These indexes are constructed by Hites Ahir (IMF), Nick Bloom (Stanford University) and Davide Furceri (IMF).

To read how the index is constructed, see the paper here and also see the dataset here. The dataset includes the aggregate index (the index at the global level, by income group, and by region), as well as the country specific index (143 countries) from 1996Q1 to 2019Q3. It also contains a beta version of the historical index for about 80 countries starting from the 1950s.

See the coverage of the index in the press: Bloomberg, The Economist, Financial Times, Reuters, and Wall Street Journal.

Figure 1.

Figure 2.

From the IMF’s Finance & Development magazine:

“Markets and the state have long competed to control what Lenin called the commanding heights of the economy. After the Berlin Wall fell, markets seemed to reign supreme. Even many on the left, traditional supporters of a strong state, became champions of free markets. The brilliant economist Larry Summers professed “grudging admiration” for Milton Friedman and, while at the US Treasury in the 1990s, pushed for financial globalization, the free flow of capital across national borders.

Raghu Rajan never succumbed to the euphoria. While a firm believer in free markets and their benefits, he has been vocal about their costs. In Saving Capitalism from the Capitalists he wrote that the victims of competition should get help to ease their pain and secure their future: “Markets need a heart for their own good.” In 2005, in a now-famous speech, he warned that the excesses of financial globalization raised the odds of a “catastrophic meltdown,” earning a rebuke from Summers that Rajan was “slightly Luddite” and “largely misguided.”

The global financial crisis and recent discontent with globalization have proved Rajan prescient. His latest book attempts to go beyond warning of the dangers of unfettered capitalism to what can be done to fix it. Rajan suggests restoring the third pillar of society, the community, which he defines as a social group residing in a specific area that shares government and often a common heritage. Markets and the state remain indispensable, but “when the three pillars of society are appropriately balanced” … “society has the best chance for providing for its people,” particularly those who lose out from the effects of trade and technology.

Rajan points up the damage from international trade. US job loss from increased foreign competition, for instance, has contributed to lowering the life expectancy of middle-aged non-Hispanic white males. “It is as if ten Vietnam wars were simultaneously taking place, not in some faraway land, but in homes in small-town and rural America,” Rajan writes. Yet these communities’ fate was largely neglected by the mainstream establishment parties, who Rajan laments “do not even admit to the need for change” and tend to castigate losers from the effects of trade and technology as belonging to a basket of deplorables.

Rajan of course knows that communities too can pose dangers. The book contains a fascinating account of how markets and the state overcame the shortcomings of feudal communities, which provided stability but did little to spare most from abject poverty. Modern communities also erect walls, and overemphasis on tradition and fear of strangers and new ideas can leave people “trapped by the past.”

Still, Rajan argues, markets and the state have usurped communities’ power, and the balance needs to be reset. Power must devolve from global and national levels to the community. Rajan notes that as machines and robots begin to produce more of our goods and services, human work “will center once again around inter-personal relationships.” Communities could well be the workplace of tomorrow.”

From a Vox piece on NZ’s well-being budget:

“To Prime Minister Jacinda Ardern, the purpose of government spending is to ensure citizens’ health and life satisfaction, and that — not wealth or economic growth — is the metric by which a country’s progress should be measured. GDP alone, she said, “does not guarantee improvement to our living standards” and nor does it “take into account who benefits and who is left out.”The budget requires all new spending to go toward five specific well-being goals: bolstering mental health, reducing child poverty, supporting indigenous peoples, moving to a low-carbon-emission economy, and flourishing in a digital age. To measure progress toward these goals, New Zealand will use 61 indicators tracking everything from loneliness to trust in government institutions, alongside more traditional issues like water quality.”

Other material on similar subjects include an earlier IMF paper on Bhutan’s Gross National Happiness index (GNH) by Sriram Balasubramanian and Paul Cashin and a Vox piece on new growth models.

From Economic Principals:

Economics Principals notes “the rapidly-approaching centenary of Robert L. Heilbroner(1919-2005), author of The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. Can there ever again be as wildly popular a history of economic thought as that modern classic?  The answer is, No, there cannot.

The first edition appeared in 1953, with its table of contents brilliantly spilled across the cover of its dust jacket.  In notebook-fashion script, complete with little pen portraits, it read:  “The wonderful world of Adam Smith. The gloomy world of Parson Malthus and David Ricardo. The beautiful world of the Utopian Socialists:  John Stuart Mill, Charles Fourier, Saint-Simon, Robert Owen.  The inexorable world of Karl Marx. The Victorian world and the underworld of economics: Henry George. The savage world of Thorstein Veblen. The sick world of John Maynard Keynes. The modern world: Joseph Schumpeter.”

In each case. Heilbroner was attentive to the “philosophical history” envisaged and propounded by his authors, but never overbearing about it. Those lives, times, and ideas about the future are set out in prose sonorous and lyrical by turns, with a  Dickensian flair for characterization throughout. Heilbroner’s account remains nearly as fresh as on the day it first appeared.

Yet for many the exhilaration of reading the book is followed by disappointment of one sort or another.  As Robert Solow wrote, in “Even a Worldly Philosopher Needs a Good Mechanic,”

Anyone who teaches owes a debt to The Worldly Philosophers for having attracted so many bright and interested students to economics….  Those same teachers are also aware that some of the same students felt let down by the texture of the discipline when they begin to study it. Instead of debating big ideas about the nature of society, they found themselves drawing demand and supply curves and learning to set marginal this equal to marginal that.

On the other hand, some of the students who took to economic analysis felt frustrated that Heilbroner failed to tell the story of their great adventure.”

Continue reading here.

Here are the top 17 posts of 2017:

1. Understanding Housing Supply: Views from Joseph Gyourko
2. Inequality of Opportunity, Inequality of Income, and Long-term Growth
3. Steve Malpezzi on Housing Markets
4. Housing: From Immobile and Illiquid to Mobile and Liquid
5. Decoupling of Emissions and GDP: Now you see it, now you don’t
6. Workshop on Forecasting Issues in Developing Economies
7. Housing Market in Africa: What We Do and Don’t Know
8. Housing Construction: The Current State, Policy Implication, and the Future
9. Stabilizing the System of Mortgage Finance in the United States
10. The State of Housing Market in Africa
11. Okun’s Law in Black and White
12. Property Tax in Africa
13. Cross-Country Spillovers of Fiscal Consolidations in the Euro Area
14. Construction Sector: The World’s Next Productivity Story?
15. Meeting EU Climate Pledges: Assessing Some Potential Policy Refinements
16. IMF Executive Board Discusses Macroeconomic Prospects and Challenges in LIDCs
17. Going for (Inclusive) Growth