As Time Goes By;History and Economics

Gavin Wright

25th Summer Economics Institute

July 30, 2012

25 Years of Summer Economics1. 1988 Joint meeting (International)

2. 1989 Participating in the Economy

3. 1990 Participating in Financial Markets

4. 1991 Technology and the Economy

5. 1992 Economic Growth: World Perspective

6. 1993 Economic Agenda for the Nation

7. 1994 Economic Agenda for California

8. 1995 ?

9. 1996 Economic Issues in Pres. Election

10.1997 Economics of Creative Destruction

11. 1998 The American Economic Miracle

12. 1999 ?

13. 2000 The New Economy?

14. 2001 Global Challenges Facing U.S. Economy

15. 2002 Competition in the American Economy

16. 2003 Global Economic Developments

17. 2004 Economic Wellbeing in America

18. 2005 Economic Growth in 21st Century

19. 2006 Participating in Economic Prosperity

20. 2007 Health, Health Policy, & Economics

21. 2008 Economic Policies in Pres. Election

22. 2009 American Economy Under Stress

23. 2010 Behavioral Economics & Others

24. 2011 Economics for the Long Run

25. 2012 Looking Forward & Looking Back

Looking Back, Looking Ahead: Keynes (1930)

Economic Possibilities for Our Grandchildren

In the long run mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day… It would not be foolish to contemplate the possibility of afar greater progress still.

Keynes: Implications of Long-Run Growth

Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.

Acemoglu’s Ten Trends

1. The Rights Revolution

Democracy and Civil Rights

2. The Sweep of Technology

“Directed technological change?”

3. Unrelenting Growth

4. Uneven Growth

Rising Disparities (between nations & within)

5. Transformation of Work and Wages

Democracy Around the World

1976 Portugal

1978 Spain

1983 Argentina

1985 Brazil

1988 Korea

1990 Chile

1990 Poland

1990 Hungary

1994 South Africa

1996 Ghana

1997 Mexico

1999 Indonesia

1999 Nigeria

2005 Liberia

2011 Tunisia

2012 Egypt

6. The Health Revolution

Convergence in Life Expectancy

7. Technology without Borders

Globalization: Trade & Knowledge

8. Century of War, Century of Peace

Cf. Steven Pinker, Better Angels (2011)

9. Counter-Enlightenment in Politics

Rise of religious activism

10. Population Explosion, Resources and the Environment

Trade/GDP

Deaths/100,000

Homicides/100,000

Traffic Deaths

Acemoglu Synthesis: Spread of Inclusive over

Extractive InstitutionsInclusive institutions: Broadly-based opportunities and rights, pluralistic politicsTechnological change, growth, better health, decline in violenceBut also population growth and threats to environment

Rising College Premium

Economists’ Views on Rising Inequality

• Technology (SBTC) 45%

• International Trade 12%

• Fall in Real Min Wage 9%

• Fall in Unionization 8%

• Rising Immigration 6%

• Other 14%

The Very Top: Market Forces?

The Top 1%: Winner-Take-All Markets

• Market for Superstars:

– Athletes & Entertainers

• Elite Personal-Service Positions:

– Lawyers, Investment Bankers

• CEOs (two rival theories)

– Opening the Market

– Collusion with the board

• Not plausibly explained by tech/skill “bias”

Lawyers!

Top-Half & Bottom-Half Inequality

Polarization after 1990

Surge in IT Investments

Computers and Skills

• Autor et al Polarization thesis:

• Computers substitute for routine cognitive and manual tasks

• But not for

– “abstract reasoning tasks” (problem-solving, coordination)

– Nonroutine manual tasks (truck drivers, waiters, janitors)

=> “hollowing out” of wage distribution

Stagnation in Schooling

Rising College Tuition

Polarization Overstated: Prominent Middle-Skill Jobs

• Construction– Inspectors, Electricians, Plumbers

• Healthcare Support– Dental Hygienists, Technicians, Therapists,

Diagnostic Sonographers

• Law– Detectives/Investigators, Paralegals

• Protective Services[Holzer & Lerman, “The Future of Middle-Skill Jobs”

(Brookings 2009)]

Employment Shares by Occupational Skill, 1986 & 2006

Returns to Additional Schooling

Male vs. Female

Murray, Coming Apart (2012)

The New Class Segregation

Lifestyle Choices:

diet (obesity), culture, intense parenting

residential separation

The College Sorting Machine

Dominance of Upper Middle-Class

The Perpetuator: Homogamy

Economic Base: Market Value of Brains

High vs. Low Income Students

Black vs. White Students1940 1970 2000

Reading Test Score Gaps (by Birth Year)

Moretti, New Geography of Jobs “Great Divergence” in metro areas based on

% College Grads in Population

Agglomeration Economies

Thick Labor Markets

Specialized Service Providers

Knowledge Spillovers

Universities as Engines of Growth

Medical Schools & hospitals

Salaries of High School Graduates and % College Graduates

Paradox

Rising globalization intensifies localization