Friday, September 10, 2004

Economists Gone Wild

The recent confab of economics Nobelists has produced copy that has appeared in various places. The WSJ's Fredrick Kempe offers this interesting summary:

"How De Niro Boosted Global Growth"

"LAKE CONSTANCE, Germany -- To illustrate a point, Nobel laureate Robert Mundell offers a pop quiz for doting economics graduate students arrayed around his dinner table here. What movie, he asks, has contributed most to the global economy?
"One student guesses 'Gone with the Wind.' Another ventures: 'Titanic.' None lands on the answer before Professor Mundell volunteers: 'Taxi Driver.' He says the 1976 Martin Scorcese movie starring Robert de Niro and a waifish Jodie Foster brought a cool couple of trillion dollars into the world economy. 'No other movie comes close.'

"By way of explanation, Mr. Mundell -- the father of supply side economics -- first recounts that Congressman Jack Kemp only pulled out of the 1980 Republic presidential primary after Ronald Reagan promised to make Mr. Kemp's tax reduction plan part of his platform. He continues that President Reagan never could have pushed the Kemp-Roth bill through a Democrat-controlled Congress if not for his increased stature following his stylish survival of a 1981 assassination attempt outside the Washington Hilton.
"That brings Mr. Mundell back to Taxi Driver. The would-be assassin was John Hinckley, who was inspired by the movie and his own deranged, DeNiro-esque desire to impress Ms. Foster, who was then attending Yale University. So without the movie, Mr. Mundell winks, the U.S. may not have had Mr. Reagan's growth-generating tax cuts -- which inspired low-tax policies elsewhere.
"Now that Professor Mundell has his audience's attention, he speaks of how President Reagan's tax cut plan was just one of several 20th century economic revolutions that have prepared the ground for a uniquely promising 21st century. His optimism reflects the general consensus among eleven Nobel Prize economic laureates that gathered here at a roundtable last week on the island of Lindau for a unique summit of international graduate students and assorted VIPs (The Wall Street Journal and Handelsblatt were media partners). It was accompanied by a survey this paper conducted to gauge the thinking of the 32 living Nobel laureates in economics. Read the answers1 of the 12 laureates who responded.
"Taking together, the laureates' ideas about the future are a timely reminder that many of the trends that wiped out European fascism and the Soviet bloc -- technological progress, globalization, democratization and the growth of free markets -- are still at work and in some ways have grown more powerful in their potential. It isn't that these men (for that is what they all are) don't worry about matters like nuclear proliferation, overpopulation, global warming and Mideast violence -- they just consider the countervailing positive opportunities to be more powerful and lasting.
"Mr. Mundell's revolutions begin but don't stop with the broad acceptance since the Reagan years that punitively high tax rates stymie growth. The European Union still has skeptics in places like Germany and France who would prefer that the more competitive small European economies adopt their bad tax policies. But the tide is against them -- newly elected European Commission President Jose Manuel Barroso appears to know better, having kept the French and Germans out of jobs from where they could better dictate anti-competitive tax harmonization. A Latvian named Ingrida Udre will be responsible for tax policies -- and her country has eagerly embraced the Irish low-tax model.
"Mr. Mundell's second revolution is trade liberalization, which will continue to spread despite occasional reversals. The third is a productivity revolution driven by information technology that is holding inflation down and pushing growth and efficiency up. Another revolution was mentioned by Milton Friedman in response to our survey. He said it was the acceptance of the idea that inflation is a monetary phenomenon -- 'producing more than two decades of relatively low inflation in most developed countries, relatively stable economic output, a high level of employment and well-being.'
"Professor Mundell also considers the introduction of the single European currency, which he championed early in these pages, as a further positive push. He counts it as one of the best economic ideas the world has had in a long time -- moving the world beyond notions of national economies and currencies. He recognizes that the euro zone isn't a perfect currency area, but there are increasing indications that the euro's advocates are being proven right: Sharing a single currency and interest rate leads to healthy competition among euro members for smart economic policies where best practices eventually win out. Protests in Germany show how painfully these changes can be, yet the reforms of Social Democratic Chancellor Gerhard Schroeder also prove that they are inevitable.
"Another encouraging sign this week was a World Bank report that credited increased competition in the newly expanded European Union as the catalyst for business deregulation in several member nations. The report analyzed how regulation and legal systems in 145 countries affected entrepreneurs' ability to start and operate businesses. Slovakia led the list of the 10 countries that had done best at reducing the cost of doing business along with six other EU members: Lithuania, Poland, Belgium, Finland, Portugal and Spain.
"Finally, China's quarter century of rapid economic growth, now followed by India, is triggering yet another revolution. The Nobel laureates in our survey mostly believed that world wealth would be more evenly distributed in 2054. Gaps may continue to widen within countries, as they have in China. Yet most of the laureates believed that the income gap between the First and Third world would shrink. The Berkeley economist Bradford Delong (not part of this Nobel group) has predicted that the boom in developing countries -- spurred above all by China and India -- would see them converge toward the developed world norm at twice the pace seen in the late 20th Century. The introduction of fiber-optic cable and the satellite made it possible for people living anywhere in the world to compete for jobs that were once the exclusive property of the Western middle class.
"It's easy to poke holes in optimistic scenarios. And these Nobel Prize winners see their share of threats: terrorism, global warming, extreme poverty in sub-Saharan Africa, the difficulty of holding down the inefficiencies of big governments, financing the health care and pension systems of the aging societies in the Western world, stubborn subsidies and barriers to free trade and migration. It's also clear that while liberal economists have won the intellectual battle of the last twenty years, they still haven't won the political one in many places. Transatlantic political strains have also made too many Europeans and Americans focus on their superficial differences rather than the fact that they are the ultimate drivers of positive change and comprise the world's largest and most dynamic cross-investment and trade area.
"'We are going to live with painful uncertainty for a long time,' shrugs Mr. Mundell. Yet he believes even the worst terrorist attack and the least visionary leaders can only interrupt but not stop the stream of positive economic change."

Putting aside the really weird De Niro story, Mundell and the others remind us once more that good ideas inevitably win.

The primitives seem to sense some of this and are resorting to desperation that includes putting dynamite belts around young women so that they can blow up large numbers of little children.

These nihilists may not get it but the West will always supply many writers and thinkers and pundits who support substantial parts of their view of the world.

There must be better rejoinders than allusions to Taxi Driver, Jodie Foster and Warren Hinkley.