Why I hate the "skills shortage" debate

Few econ policy debates are as fraught, or as confused, as the debate over "skills shortages" in the labor market. This debate occasionally crops up in discussions of the labor market as a whole, i.e. interpreting shifts in the Beveridge Curve. But it mostly comes up in the context of high-skilled or STEM labor.

The main problem with this discussion, as I see it, is that no one really knows what a "shortage" of skilled or STEM labor is supposed to mean. Here are some possible alternative meanings:


1. The labor market for skilled/STEM workers is not clearing, due to government policy; demand is outstripping supply. (This is the classic "econ 101" definition of "shortage").

2. There has been an increase in demand for STEM workers in the U.S. not matched by an increase in supply, causing wages in those occupations to rise.

3. A policy-engineered increase in the supply of STEM workers would raise overall U.S. GDP per capita.

4. A policy-engineered increase in the supply of STEM workers would reduce income inequality in the U.S.

5. A policy-engineered increase in the supply of STEM workers would raise the relative power of the U.S. nation-state relative to rivals like China.

6. An increase in the amount or quality of STEM education in the U.S. would raise overall U.S. GDP per capita.

7. An increase in the amount or quality of STEM education in the U.S. would reduce income inequality in the U.S.

8. An increase in the amount or quality of STEM education in the U.S. would raise the relative power of the U.S. nation-state relative to rivals like China.


I'm sure I could think of more. But in addition to these multiple definitions, there is the question of time horizon. Are we talking about what has happened since 1980? Since 2000? Or since 2010?

There is also the question of the size of the posited effects in each case. Do we think that a bit more computer science education, on the margin, would be a good thing for American schools, or do we think that we should be training our workforce en masse to be knowledge workers?

Finally, there is the question of domain size. Who is a STEM worker? Are we just talking about software engineers in Silicon Valley? Are we talking about anyone who majored in a STEM field? Are we talking about anyone who works with a computer on a daily basis?

This huge proliferation of hypotheses pretty predictably leads to a massively muddled debate. Some pieces focus on one definition of the "shortage" hypothesis to the exclusion of others. Others lump many versions together and treat them as if they're the same thing.

But despite the hopeless confusion, people get very passionate about this debate. To many on the left, emphasis on STEM education must seem like an attempt at a "third way" substitute for redistributionary policy, or an attempt by employers to make employees shoulder more of the financial burden of training. It also might seem like an attempt by anti-interventionists to substitute "structural" explanations for the Great Recession for explanations based on aggregate demand. To those on the neoliberal right, denial of the importance of STEM must seem like a minimization of the importance of productivity in national wealth, or even a refusal to focus on total national wealth at all. Supporters of high-skilled immigration (including Yours Truly!) see the denial of "STEM shortages" as the beginning of an attempt to restrict high-skilled immigration in order to boost the incomes of the upper middle class.

So there are definitely some Robertsian effects at work here. That's going to make the debate even more difficult to conduct in a reasonable, rational manner.

So is there a STEM skills shortage in the U.S.? The answer is that I don't know. I've looked into a few of these sub-hypotheses, but there are just too many. In my opinion, we should be focusing on the marginal policy effects of A) an increase in high-skilled immigration, and B) a tilting of school curricula toward math and engineering. I will search the literature for quasi-experimental evidence on these policy effects, and report back what I find. But whatever I find is unlikely to satisfy most of the people involved in this argument.

Cultural appropriation is great!

"You'll wear a Japanese kimono, babe/There'll be Italian shoes for me" - Randy Newman, Political Science


A lot of people are talking about this story from Oberlin. Apparently some kids are complaining because certain kinds of Asian-themed food served in dining halls is crappy and non-authentic, and therefore constitutes "cultural appropriation."

Now, on one hand, this is just a story about rich kids complaining about bad food. Nothing much to see here. But it gives me an opportunity to say something that has been rattling around in my head for a while: Cultural appropriation is actually a great thing!

Wikipedia defines cultural appropriation as "the adoption or use of elements of one culture by members of a different culture." This is a good thing, for several reasons.


Reason 1: Product diversity.

This is the simple, "Econ 101" reason, if you will. Suppose Japanese people open a bunch of Italian restaurants in Tokyo. The "Italian food" is not quite what you'd get in Italy, and it's made by Japanese people rather than Italians. There's mentaiko in some of the pasta dishes. This is cultural appropriation, pure and simple. But the existence of these "Italian" restaurants increases the number of dining options available in Tokyo. More dining choices = more fun city = better life for people.

In fact, pasta itself is probably the most famous example of this sort of cultural appropriation. It was originally a failed Italian attempt to copy Chinese noodles (as is Japanese ramen, actually). Aren't you glad we have pasta? Aren't you glad we have ramen? You can thank cultural appropriation.


Reason 2: Beneficial mutation.

Pasta isn't just a crappy dining-hall imitation of Chinese noodles. It's a new, wonderful dish in its own right. The same is true of ramen. If Italy and Japan had insisted on only eating real, authentic Chinese noodles, pasta and ramen wouldn't even exist! In other words, cultural appropriation creates mutations by trying and failing to copy other cultures. The good mutations survive - we still have pasta and ramen - while the bad ones mostly die out. Cultural appropriation thus leads to innovation.

This happens a LOT in music. Almost every modern genre of popular music is influenced by either blues, jazz, or hip-hop - three genres invented by black Americans. Sometimes that influence just leads to something lame (Iggy Azalea). But often, appropriators have gone in interesting new directions with the elements they take from black American music - think of the Beatles, Led Zeppelin, Sublime, or Daft Punk. And often, that mutation and experimentation travels back and affects black American music in return. A larger ecosystem of people bouncing ideas off of each other is a recipe for creativity, even if it sometimes creates boring crap.

If you don't like cultural appropriation, you shouldn't watch Star Wars. Not only does the first movie appropriate much of its plot from Kurosawa Akira's movie "Hidden Fortress" (which itself appropriated elements of Shakespeare), but many of the elements of the Star Wars universe are appropriated from Japanese culture. Lightsaber fighting is based on kendo, Yoda is a sennin, and Darth Vader wears Muromachi period armor.


Reason 3: Technological diffusion.

In the long run, diffusion of technology between cultures is one of the main forces that helps poor countries get richer. Cultural appropriation seems like it can help this process, since many technologies are invented to fill culture-specific needs.

For example, take electric kettles. You use these to make tea. They are wonderfully efficient and labor-saving. But they would not exist if the British had not appropriated tea-drinking from Asia. Another example is rice-cookers. These are just great. But you don't need a rice cooker unless you eat dishes with rice. And often the first dishes that introduce American white people to rice are sugary, fatty, crappy imitation Chinese dishes. But so be it. Now those white folks have rice cookers! And now they can make much better rice dishes.

Now, I don't know how big a factor this can be, and those are some pretty small examples. But in general, it seems like product diffusion can boost technological diffusion, and technological diffusion is usually a good thing.


OK, you say, but these are all benefits to the appropriators. What about the appropriated? Is this one of those cases where the majority benefits from free exchange at the expense of a dispossessed minority? Actually, I think it's quite the opposite. Here are some reasons cultural appropriation helps its supposed "victims":


Reason 4: Consumer Demand Spillover

Suppose that imitation Italian restaurants flood Japanese cities (as they have actually done). Many Japanese people will be content to eat only at these, but some Japanese people will go looking for more authentic fare. They will go looking for food cooked by actual Italians, which will offer job opportunities for Italian chefs. The supposed victims of appropriation - Italians - reap economic benefit.

Hip hop is another example. How many white kids in the late 90s and early 00s got into rap and hip-hop because of Eminem? I am willing to bet that many of those kids went on to listen to black rappers and hip-hop artists (especially because Eminem did his best to promote these artists). I also bet that Elvis' popularity caused some money to flow to black artists like Chuck Berry. Sure, these artists probably deserved to get popular before their white appropriators did. That would be the ideal. But since most consumers need some kind of "gateway" music, appropriators can help funnel money to more authentic artists who would otherwise be completely ignored.

In fact, cultural appropriation can be the first step toward real cultural diversity. First, American stores start serving crappy sushi. Eventually, people eat good sushi somewhere and realize that most of the stuff in their stores is crappy. They complain. Stores then make an effort to get real, good, authentic sushi. And thus true cultural diversity is achieved.


Reason 5: Immigrant Opportunity

Americans were introduced to Chinese food via crappy faux-Chinese restaurants like Panda Express. But by helping develop a general taste for "Chinese food", those culturally appropriated restaurants helped create business for Chinese restaurants owned and staffed by Chinese immigrants. Chinese restaurants are now a huge source of employment for immigrants in the U.S. If you move from China to the U.S. with poor English skills and little formal education, you can work in a Chinese restaurant. That increased opportunity for immigrants is a huge boon to the supposed "victims" of cultural appropriation.


Reason 6: Cultural Empathy

Many of the American white kids who listen to black music - or faux-black music - will never interface with, or have any sympathy for, black culture. Some will drive around in SUVs their parents bought for them, blasting rap music even as they spout racist crap and condone policies that keep black Americans disadvantaged. Seeing this kind of thing is frustrating, and the fact that these kids listen to rap can seem like adding insult to injury.

But a few of those kids will go beyond a superficial adoption of memes from black culture. They will like the hip-hop they hear, and they will go to hip-hop shows (or at least watch them on TV). They will see black people in a context other than the conservative media narrative of "welfare queens" and "black-on-black crime". Black people will start to seem like human beings to them, and they will begin to have sympathy for movements fighting for better lives for black Americans.

This seems to have happened to my own father and a number of other white kids at his school in the 1950s and 1960s. They got into rock music - cultural appropriation of black music by whites - and this led them to get into blues music. That led them to go to clubs and stores in the black part of town, and make friends with black people. That in turn led them to be sympathetic to - and even participate in - demonstrations and sit-ins staged by black students over civil rights issues. Without that cultural appropriation, they might have simply bought the conservative line that black protesters were thugs and criminals.

Another example is how anime, cosplay, and other elements of Japanese pop culture are leading Westerners to travel to Japan and discover what that country is really like - which will probably benefit cultural, economic, and even national ties between the two nations.


So there you go: Six reasons why cultural appropriation is great. Sure, this is not always true - nothing is great 100 percent of the time. Naming a football team the "Redskins" will not have any benefit for anyone, and simply mocks the victims of ethnic cleansing. There are some bad examples of cultural appropriation, and we should get rid of them. Other examples are neither harmful nor beneficial. But most cultural appropriation seems like a very good thing - a first step and gateway to a more diverse, more interesting, more empathetic world.

Macro theory vs. string theory

After reading this cool article about the debates surrounding string theory, someone on Twitter asked me to do a post comparing it to macro theory. Well, I did that a long time ago back when I was a snarky young lad, but as someone at Bloomberg once said to me, "If you know a good story, tell it from time to time," so here goes.

String theory and macro (business cycle and growth theory) have one big problem in common: They're not easily testable. They are not untestable. There's a big difference. With string theory, if you could build a really really really huge powerful particle collider, you could probe particles down to the Planck scale, and you could establish whether or not particles are shaped like tiny strings. With macro, if you could observe a whole bunch of planets with no mutual trade between them, or if you could establish a world government and get it to do random policy experiments, you could definitely test growth and business cycle theories.

The problem is, we can't do any of these things. String theory deals with ultra high-energy phenomena, and macro deals with aggregate time series, and those are just very difficult things to observe. In both cases, one big problem is the lack of experimental controls. High-energy phenomena can sometimes be indirectly observed by looking at black holes or the echoes of the Big Bang, and the effects of time-series macro phenomena can be observed every quarter. But you can't really put these things in a lab (well, not real versions of them, anyway), so you can't poke and prod them and explore counterfactuals and deduce the underlying structure, etc.

(Update: This was a little confusing. Yes, you can test theories by looking at non-controllable phenomena. If a macroeconomic theory says "There will be a huge recession next year" and there is no recession, the theory has major problems. But because you can't do controlled experiments, you often have to deal with multiple competing theories that fit the same data. Did they U.S. economy recover from the Great Recession because of easy monetary policy, or in spite of it? And so on. In physics, this is especially problematic when looking at data from the Big Bang, of which there is only one. As you might expect, there are tons of theories floating around about how the Universe began, some of which incorporate string theory.)

So that's one similarity. A second is that studying both has led to useful spinoffs. Studying macro has led to time-series techniques like GARCH models, and arguably to much of microeconomics itself. Studying string theory has led to some cool mathematics, and to some other useful modeling techniques that have been applied in other areas of physics.

Now for the big difference. String theory is not really relevant to the real world. Although string theory techniques have found real-world applications, the theory itself has not and probably never will. No one in our lifetimes or our posthuman grandchildren's lifetimes is likely to build a machine that runs on string theory. Even if the theory - in all its myriad offshoots - turns out to be total crap, it doesn't really matter whether anyone believes in it or not. You might complain that we're wasting our society's brightest minds by paying them to study an untestable theory, but you'd then have to make the same complaint about much of mathematics itself.

In that sense, string theory is "safe" for the world. Macro theory might not be. If we pick the wrong macro theories, we could enact policies that cause real human disasters for millions. In fact, this probably happens quite often.

When data don't give you a guide to policy, major policy failures are inevitable. But what if macro is not totally untestable, but just mostly untestable? What if the evidence gives us a very weak but nonzero signal about which theories are good and which are bad?

This is the danger. If macro policy is hugely important and the signal from data is very weak, then small sociological phenomena within the econ profession - conformity, political bias, etc. - might cause great harm to real people. And bad scientific techniques - ignoring data entirely while placing too much faith in plausibility - might also cause cause real-world harm.

To sum up: If string theory happens to be complete B.S., there is essentially no loss to society. If prevailing macro theory (New Keynesian models now, RBC in the 80s, etc.) is complete B.S., there might be no loss, but there might very well be a big loss. This is probably why the public gets a lot madder about macro debates than about high-energy physics debates.

Academic B.S. as artificial barriers to entry

"Stratos has never sampled the full terror stalking the stars." - David Brin, Glory Season


Paul Romer complains of "mathiness" in macroeconomics. Paul Pfleiderer talks about "chameleon" models. Ricardo Caballero says macroeconomists encourage the "pretense of knowledge". Everywhere, people complain about economists' fetish for pointless model-making. And of course, some folks accuse the economics profession of being a front for laissez-faire ideology.

But we should remember that compared to other disciplines, econ is in great shape. A friend just sent me a paper by Ananya Roy, a professor of urban planning at UCLA, entitled "What is urban about critical urban theory?" Here is an excerpt from the abstract:

This essay discusses how the “urban” is currently being conceptualized in various worlds of urban studies and what this might mean for the urban question of the current historical conjuncture. Launched from places on the map that are forms of urban government but that have distinctive agrarian histories and rural presents, the essay foregrounds the undecidability of the urban, be it geographies of urbanization or urban politics. What is at stake is a critical urban theory attentive to historical difference as a fundamental constituting process of global political economy and deconstruction as a methodology of generalization and theorization.

And here is the spectacular final paragraph:

I conclude then with the invitation to read the urban from the standpoint of absence, absence not as negation or even antonym but as the undecidable. I conclude too with the provocation that theory, including a theory of the urban, can be made from the tealcolored building at the edge of the world that is the Dankuni municipality, a panchayat office repurposed for urban government. But in a gesture befitting the task of provincializing the urban, I note that the dedication plaque for the panchayat building references a fin de siècle poet, Jibanananda Das and his writings on “rupasi bangla,” or beautiful Bengal, envisioned as rural and verdant. But Das is also the first urban poet of Bengal, with a set of starkly neo-urban poems that are now etched into the region’s self-imagination of urban modernity. The plaque can thus be read as a serendipitous anticipation and premonition of the urban yet to come but its rurality cannot be effaced or erased (Figure 4). The sign of a constitutionally demarcated urban local body, it is the undecidability of the urban.

To many readers not steeped in critical theory, this may sound like a broken fire hydrant of nonsense. One may be tempted to reach for a copy of Pennycook et al.'s paper, "On the reception and detection of pseudo-profound bullshit."

But I don't think critical theory is simply the academic equivalent of meaningless auto-generated guru wisdom. My guess is that it's actually something else: Obscurantism.

Here's what I kind of suspect is going on.

For a given level of demand, supply restrictions generally push up price. You don't want to have any old dork walk in off the street and get a full professorship in urban studies. That would send salaries crashing, and prestige as well.

But what if urban studies is just inherently a really easy field? (I'm not saying this is true, I'm just being hypothetical!) What if all the remaining big truths could be uncovered by running a few regressions in Stata? In that case, the supply of potential urban studies profs would be really big. Danger!

If existing urban studies profs can form a cartel, they can artificially raise the barriers to entry and bring supply back down again. Cartelization in academia doesn't seem that hard, since admissions, hiring, and tenure committees are already cartels, and since the barriers to creating new universities and new top journals are very high.

The barriers to entry will probably be some combination of A) a psychometric test, and B) an ideological loyalty test. These tests are relatively easy to administer. They also take advantage of natural supply restrictions - very high-ability people (along whatever dimension you want to measure) are relatively rare, and ideological buy-in is limited by the diversity of ideas in society. For example, there are just not that many people who are both A) really good at parsing dense paragraphs of text, and B) deeply committed to a quasi-Marxist lefty ideology.

Artificial entry barriers provide a tidy explanation for the rise of "critical theory" in humanities, urban planning, anthropology, and sociology departments. Critical theory is basically just the practice of taking lefty social criticism - of the type you might find in any college dorm - and dressing it up with a bunch of neologisms and excess verbiage. Stephen Katz of Trent University explains this in an essay entitled "How to Speak and Write Postmodern". He gives some hypothetical examples:

For example, let’s imagine you want to say something like, “We should listen to the views of people outside of Western society in order to learn about the cultural biases that affect us”. This is honest but dull...[Instead]  say, “We should listen to the intertextual, multivocalities of postcolonial others outside of Western culture in order to learn about the phallogocentric biases that mediate our identities”... 

You want to say or write something like, “Contemporary buildings are alienating”. This is a good thought, but, of course, a non-starter. You wouldn’t even get offered a second round of crackers and cheese at a conference reception with such a line. In fact, after saying this, you might get asked to stay and clean up the crackers and cheese after the reception...[Instead, say] “Pre/post/spacialities of counter-architectural hyper-contemporaneity (re)commits us to an ambivalent recurrentiality of antisociality/seductivity, one enunciated in a de/gendered-Baudrillardian discourse of granulated subjectivity”.

As multivocalities on the internet say: LOL.

The supply of super-lefty people who are able to parse artificially dense text is limited, but not so limited that it's hard to find people who are willing to do it for $70,000 a year. Meanwhile, student demand for humanities, anthropology, urban studies, and sociology majors is probably pretty inelastic, so university demand for professors in these areas is probably inelastic. Hence, for departments and journals in these fields to make "critical theory" a soft requirement for professors is probably an effective way of keeping their salaries (and job perks) as high as they are.

It seems pretty obvious that humanities departments have been almost entirely consumed by this sort of thing. Any semblance of objectivity (whatever that would even mean in the humanities!) is gone, replaced by pervasive quasi-Marxist doofiness. And humanities scholars' research work now appears to largely consist of parsing and writing artificially dense text. As for the social sciences, anthro seems to have taken some big steps in this direction, and sociology more modest steps.

How about economics?

The econ profession as a whole is shifting toward empirics, and possibly even toward reduced-form empirics. Since the flood of data is a recent thing, most of the new insights in the field over the next decade or two will probably be gained from doing this kind of work - as John Cochrane says, "The stars in their 30s are scraping data off the internet."

Scraping data off the internet is cognitively demanding work, but not that demanding. Without artificial entry barriers, the data flood would probably increase the supply of people qualified to be economics professors. To preserve their high salaries and high levels of intellectual prestige, it therefore behooves the economics profession to create some artificial barriers.

Econ isn't going for ideological tests - or at least, not very much. There's too much pressure from the world at large to stay objective. So the entry barriers rely mostly on psychometric tests. Mathematical theory, of the type economists do, is hard to do - much harder, for most people, than parsing dense paragraphs of woo-woo "critical theory".

This could explain the pressure on empirical economists to include a structural theory section that has little relation to the reduced-form empirical analysis that forms the core of a paper. It also might explain why even though the economics literature is more and more filled with reduced-form empirical studies, theory papers are still very common on the job market.


Updates

Brad DeLong is annoyed with me for picking on Ananya Roy, and links to an essay of hers that he implies is much better than the paper I cited (and which is written in more-or-less plain English). But I didn't quote one of Roy's papers because I think she's a bad urban studies researcher (how would I even know if that were true?). My conjecture was that many successful urban studies profs will have written at least one or two papers like this - much like almost any top macroeconomist will have at least one or two theory papers with unrealistic assumptions and complex math that can't really be tested against data. I'm not trying to single out any individual for criticism.

Some commenters have been suggesting that critical theory is actually on the wane in the humanities. That is interesting; I don't know many humanities people, so I'm pretty uninformed about recent trends. I knew a bunch of Michigan humanities PhD students back in grad school, and they were all very into critical theory. I also met an incoming literature prof at Stony Brook who said she does "theory", and when I asked her "What kind of theory?", she blinked in surprise and asked "Are there multiple kinds?". So anecdotes suggest it ain't dead yet...

A commenter points out that, as usual, Feynman did this snark way before I did.

Efficiency in growth's clothing? (reply to John Cochrane)

In response to a John Cochrane policy paper on growth policies, I wrote a post chiding Cochrane for selling efficiency policies as long-term growth policies. Cochrane now has a long and rather testy reply to Yours Truly. The basic message of the reply is: "If level effects are really, really big, they tend to look like long-term growth effects."

Yep. That's right.

Cochrane's original paper described the impact of growth policies by drawing an analogy with the period from 1950-2000:

If the US economy had grown at 2% rather than 3.5% since 1950, income per person by 2000 would have been $23,000 not $50,000. That’s a huge difference. Nowhere in economic policy are we even talking about events that will double, or halve, the average American’s living standards in the next generation. 

To get a policy change that had that effect, we'd need:

A) A doubling of the level of detrended steady-state GDP, and

B) Frictions in the economy and/or the policy-making process that smoothed that change over 50 years.

Cochrane, in his new post, asserts that (A) is possible (I'll get to that later). He doesn't mention (B). How much of the growth we enjoyed from 1950 to 2000 a result of policy improvement? Cochrane certainly believes strongly that Reagan's policies caused a lot of the growth in the 80s and 90s, but how about the equally impressive growth from 1950-1980?

When I look at U.S. history I see a pretty smooth growth trend (I'll use a David Andolfatto tweet instead of just grabbing FRED data, because it's funnier!):




See the big growth takeoffs from policy liberalization? Neither do I.

Of course, at any time we could have chosen to become North Korea, at which point the line would have crashed and burned, so in some sense the whole upward trend was due to policy. But I think that it's hard to look at this steady upward march and see anything other than the steady improvement of technology. If you look at other countries, you see that they did just about as well as us (or better) over this time period, and that our growth and theirs was highly correlated. To me, that says that it was technology (and trade), not policy changes, that drove most of the global growth trend.

But OK, OK, if we DID engineer policy changes that doubled our income, would it matter to us if it was abrupt or spread out over decades? No, it would not. So Cochrane is right - a "level effect" that huge really would be party time.

So maybe my Bloomberg piece didn't really manage to express what actually annoyed me about Cochrane's paper. I guess it wasn't just about "growth effects" vs. "level effects". It was about proof versus conjecture.

Cochrane, by citing the growth we enjoyed from 1950-2000, and then telling us that we can enjoy similar growth if we do his preferred policies, seems to imply that this is something we've done before and therefore something we can do again. To me, that doesn't seem to fit the facts, even if you give Reagan as much credit as Cochrane gives him. To me, it seems pretty obvious that liberalizing policy changes produced, in the past, at best small bumps in the trend of steady technological progress.

But OK, OK, John obviously really believes that his preferred policies would engineer a HUGE change - a doubling or tripling - of our potential GDP. I may disagree with that prediction, but I guess I shouldn't dismiss it out of hand. I definitely think that pointing to the growth from 1950-2000 as an example of what we could achieve with deregulation is misleading. But ultimately that springs from the fact that my priors about how the world works are just very different from John's.

Anyway, on to John's other points:


Cochrane Point 1: If China did it, why not us?

Because China started off very far away from the technological frontier. If you liberalize your economy in ways that allow you to start importing and applying foreign technology, you will be able to grow fast. Some of China's growth is simple Solow capital catch-up, but some of it is a sudden and dramatic influx of foreign technology.

The U.S. is at or near the technological frontier, so I assume it would be a lot harder for us to do what China did. I think this again illustrates a difference in the way John and I think about productivity - he seems to instinctively think of policy, I always instinctively think of technology.


Cochrane Point 2: We could triple or octuple our GDP by making it easier to do business!

I was pretty skeptical of this argument. Reverse causation is a much bigger problem than Cochrane seems to think; he dismisses it with some anecdotes, but I don't think it can be dismissed. Another problem is the poor fit of the regression line Cochrane shows - see Kevin Grier for more on this point.

A third problem is that the World Bank's "Ease of Doing Business" indicators are constructed from surveys, which have all kinds of huge methodological issues (which Cochrane himself has pointed out in other contexts). They are not objective measures of the ease of doing business.

What this means is that A) the hypothetical "frontier" that the World Bank and Cochrane construct may not exist, and B) attempts to reach that frontier might actually hurt rather than help growth/efficiency. Alternatively, engineering improvements in the rankings might help a lot for poor countries but not help much for rich countries.

If we look at real-world examples, only one single country - Singapore - has both A) substantially higher GDP than the U.S., and B) better performance on the World Bank rankings. Singapore's GDP is about 60% higher than ours in PPP terms, so if we could reach that level it would indeed be great. They are #1 in the World Bank's rankings. The U.S. is #7. Countries #2-#6 are actually all a bit poorer than the U.S.

But maybe we can emulate Singapore.


Cochrane Point 3: Permanent growth effects might not actually exist.

Yep, true. Cochrane points to a Chad Jones paper showing this, which I actually already knew. It's a good paper. In fact, if you just use a simple Solow-type exogenous growth model you get a similar conclusion - there's nothing you can do to boost growth in the very long run.

Whether or not this is true, it is orthogonal to my point. I was talking about the overselling of efficiency-based policies by appealing to the history of long-term growth. I did not intend to claim that there are other clearly identifiable policies we could take to boost the growth trend for 50 years.


Cochrane Point 4: I should not have used the word "conservative".

I think this word was appropriate. First of all, it's one that the public intuitively understands. Second of all, it accurately communicates Cochrane's apparent love for Republican politicians, especially Reagan. In an earlier post (also a rebuttal to Yours Truly), Cochrane wrote:

In 1980 Ronald Reagan announced some pretty radical growth-oriented policies, at least by the standards of the time. (Not much new since Adam Smith, of course.) The standard liberal commentators made the standard objections: voodoo economics, numbers don't add up, it will take generations of unemployment to lower inflation, the debt will explode, and so forth. (Plus, the Soviet Union will be there forever, we might as well get along.)  Reagan offered optimism; won, malaise ended, we won the cold war, and there was an economic boom.

I would note that:

A)  John uses the word "liberal" to describe people who disagree with his desired policies, and most people use "conservative" to mean the opposite of "liberal".

B) Reagan's policies included more tax cuts, while the big deregulations came under Carter. Deregulation is the centerpiece of Cochrane's current growth proposals, so it's interesting that he credits Reagan 100% and Carter 0%. If the World Bank's Ease of Doing Business rankings had been around at the time, I think Carter's reforms would have resulted in a lot more improvement than Reagan's, but Cochrane gives Reagan all the credit. That sort of feels like a politically "conservative" view of things.

So I don't think that any harm was done by the use of "conservative".