Monday, October 30, 2006

No golden age

Even the title of the piece is an eye-opener. The May, 2006, QJE includes Xavier Sala-i-Martin's "The World Distribution of Income: Falling Poverty and ... Convergence, Period". It's lovely when the work is solid enough to back the claim that it is shutting the door on an ongoing debate. Einstein did it with mathematical proofs; Sala-i-Martin does it with incredibly clever data analysis.

In today's LA Times, Lawrence Summers writes about "The global middle matters." As some of the poorest start to participate in the world economy, they become better off. The rich also get richer. But, Summers writes,

"[e]veryone else has not fared nearly as well. Low-cost labor -- ordinary, middle-class workers and their employers, whether they live in the American Midwest, Germany's Ruhr Valley, Latin America or Eastern Europe -- are left out. ... Just as the GI Bill and domestic housing programs in the aftermath of WW II were crucial parts of the overall policy approach in the U.S. that permitted the Marshall Plan, GATT and international financial institutions go forward, our success in advancing international integration will again depend on what can be done for the great middle class, at home and abroad."

Summers' call for more "international integration" is promising insofar as it limits the damage that local policy makers can inflict -- and makes possible the outcomes that Sala-i-Martin documents. But Thomas Di Lorenzo questions the wisdom of (and the motivations behind) the GI Bill. If he is right, there goes the last of the plausible policy success stories. Perhaps there never was a Golden Age of inspired policy making.