Monday, October 08, 2018

Growth, prosperity, "tech hubs" and Paul Romer

Here is today's NY Times piece on the two new economics Nobelists. In efforts to make their work accessible to the public, much has been and will be written about them. As always, there is much useful material at Marginal Revolution. Alex Tabarrok's video on Paul Romer is clear and on point. Everyone knows about the importance of new ideas and how entrepreneurs scramble to jump on them first -- to be the first to profit from innovative product that implements new ideas.

"Tech hubs," notably Silicon Valley and the many wannabees, that incubate all this by assembling the ideas people with the money people, are written about almost daily.  What took the growth economists so long?  Economists were stuck on the textbook lesson that ideas (that are "in the air") are a "public good" accessible to all at zero cost. How then to profit from developing (let alone investing in) new ideas?  It happens all the time but can we explain in?

Once again, markets get it and demonstrate. The way to overcome the free access problem is to be the first mover. Patents can help but being first to solve all the messy problems of implementation is the key.  There will be copycats and being a first mover only confers temporary advantage but for many that is enough.

One can say that Joel Mokyr solved the problem some years ago by emphasizing useful knowledge. Purposeful action is highlighted in spite of the obvious problem of free riding. Entrepreneurs are the folks who are focused and aware. They actively seek specific knowledge and specific ideas. They want to make the world better -- and they want to profit. They have some inkling of what they are looking for and where they might find it. Hence the tech hubs that so many mayors and development authorities dream of.  Does Nobelist Romer suggest what to do?  I think he would say that Mr and Ms mayor can signal that they are open to the emergence of of spatial arrangements that let people exchange ideas.

Does this mean high densities?  How high? No one knows. Best to let the intricate order happen. Jane Jacobs (1961) knew. "Their intricate order -- a manifestion of the freedom of countless numbers of people to make and carry out countless plans is in many ways a wonder." 

Tuesday, October 02, 2018

Econ 1 v. the roadblocks

Here is Don Boudreaux referring to Leland Yeager's remarks to the effect that Econ 1 (or Econ 101) is all you really need. The uncountable confusions that we hear from writers and talkers, especially the with reference to trade, are painful.  And the marginal benefits of more advanced econ are marginal (manner of speaking). This underscores the analytic power of the basics.  It also evokes some of the confusions of high-octane theory. "Secular stagnation" anyone?

There are many super-accessible texts that any bright high schooler can easily grasp.  The Economic Way of Thinking, my favorite, is cost-effective: many powerful ideas presented clearly.  So what is the problem?  How can so many smart people remain so confused -- about the gains from trade -- among many other such topics? How many prominent commentators would be laughed out of the room when they expound on "fair trade", free tuition, minimum wages, etc., were the audience not so confused?

Here are my five top roadblocks to greater understanding: First, non-zero-sumness is counter-intuitive to many -- even though cooperative behavior has been observed among primates and other animals. How then to grasp gains from trade among strangers, including those that populate international supply chains? Second, many people trust their own vague sense of "fair" outcomes and are loath to admit that fairness is a very difficult idea mainly invoked as rhetoric. Third, many retain an amazing trust in top-down "solutions", especially ones that are cooked up via a "democratic" process.  Fourth, too many people are ignorant of history. They simply do not know that they are amazingly well off compared to the vast numbers who came before them whose lives were simply "nasty brutish and short."  They also do not know that it is the exchange economy that lifted us to where we are. Fifth, conventional economic instruction can easily fail.  Young (and some less young) professors prefer to talk about the high-brow econ they learned in grad school. They do not grasp its irrelevance to non-economists.

It will be uphill for a very long time.


"Many of the recommendations for growth and prosperity found in just about any standard 'Econ 101' textbook are the right place to start ..." (Brynjolfsson and McAdeem 2015, p. 206)