Dani Rodrik (2008), "The Real Exchange Rate and Economic Growth." Some notes:
A. Undervaluation does two things. It shifts your employment and production toward export and import-competing tradeables-producing industries. It also gives you lousy terms of trade. Dani wants to argue that the first is good--that there are powerful wedges which make emerging-markets countries, especially, prone to have too small a share of employment and production in those export and import-competing tradeables-producing industries. But the second has to be bad for growth.
I realize that this is the room in which Charlie Schultze back in 1984 carried out his intellectual police action against the industrial-policy tradeables-subsidizing faction of Gary Hart, Bob Reich and company. And it seems that you don't you want to push your argument further and say that--at least with a relatively-autonomous, technocratic state apparatus, at least for emerging-markets economies--that Gary, Ira, Bob, and company were right. Why not? You identify market failures, and then you say that direct subsidies to neutralize them run into problems of implementation--but I want to see you spend more time on the implicit theory of government failure that underlies your conclusion that depressing the value of your currency is the best strategic intervention that a government can undertake. There must be a strongly-held view of government failure underlying this conclusion. What is it?
B. Let me ask two questions. First, a general question: the Balassa-Samuelson fact tells us that economy-wide productivity growth is predominantly growth in the efficiency of making tradeables. What's wrong with taking what Paul Romer has been telling us for thirty years seriously, and saying that this is simply a corollary to the Paul Romer view of the world? Of course learning-by-doing and other effects matter, and of course they matter more in those industries which are the centers of technological progress--which are the tradeables?
Second, a specific question for Dani, who continues here to pursue his long-run plan of making space for social democracy in a neoliberal age. Dani: You are cautious. You don't want to push it far enough to say that--at least with a relatively-autonomous, technocratic state apparatus, at least for emerging-markets economies--the industrial-policy arguments against which Charles Schultze carried out an intellectual police action in 1984 in this room are correct. You identify market failures, and then you say that direct subsidies to neutralize them run into problems of implementation, and conclude that depressing the value of your currency is the best strategic intervention that a government can undertake. There must be a strongly-held theory of modes of government failure underlying your conclusion. What is it?
C. How do you keep undervaluation going for long? It produces, as we saw in Europe at the end of the 1960s and as we see in China now, rather a lot of inflation. What are the long-run costs of that inflation? Is there a link between the success of European development in the 1950s and 1960s and the long period of prolonged high unemployment in the 1970s and 1980s?
This article has 11 comments:
One group is strengthening itself at the expense of another. You could argue that the gift economy does exist for the economic group holding the reins, the market economy for the income earning homeowner, and that may be an answer to your Coase question. Musing along a little further, maybe capitalism has a Jekyll and Hyde personality or personality disorder. Although it might be more interesting to go back to the beginnings of capitalism in the 12th century city of Bruges, Belgum, and the development of markets, finance, and cash flows that followed in the wake of their re-opening their canal, and eventually making it the main link to trade in the Mediterranean until the 15th century when silt started refilling the canal again. During that time, wealth and social upheaval appeared hand in hand as would be expected, and throwing aside the usual panoply of anachronisms, has continued on through to the present.
Fair Trade and commerce rules bend and twist to enrich those engaged in the process of exchange. The growing interest in economy comes to the lower reaches of the fairytale by way of bad times ... the good times are tossed to housing purchases, auto and job pursuits.
The same can be said for the world economy, the dogged ability of oversight has come to roost. I find the comments of Balance Sheet ratings perfectly normal ... just as we lie to protect assests from the IRS we lie to sell assests at any cost, and at any rating, in order to plug holes in debt servicing and possibly, instant profits. Like the famous button says (back in the sixties) Where Does It End? With the proper fuel, in revolution. Revolution of economics only exists at the behest of the drivers and those drivers are now fueled by outside interests and intertwined goods and services. This should be a doozy !(Hazel)
You have five bad years to decide an economic direction. You have three to engage the results. You have two years to sell it to the public(now, the world). You are lambasted or hailed in one year. If it sucks too bad, you find yourself in all out anarchy. Economies are whipsawed in years now, not centuries. Campaigns work best upon admitting income to fuel the homeowner earnings and sustained ability to produce goods for trade. What A Rush!
We are not a hunter gatherer society. That's where the Coase fairy is.
One group is strengthening itself at the expense of another. You could argue that the gift economy does exist for the economic group holding the reins, the market economy for the income earning homeowner, and that may be an answer to your Coase question. Musing along a little further, maybe capitalism has a Jekyll and Hyde personality or personality disorder. Although it might be more interesting to go back to the beginnings of capitalism in the 12th century city of Bruges, Belgum, and the development of markets, finance, and cash flows that followed in the wake of their re-opening their canal, eventually making it the main link to trade in the Mediterranean until the 15th century when silt started refilling the canal again. During that time, wealth and social upheaval appeared hand in hand as would be expected, and throwing aside the usual panoply of anachronisms, has continued on through to the present.
Our so-called "free" trade agreements are simply the rent seeking they've been ever since the ICC stood the constitution's "do no harm" commerce clause on it's head.
We've got King Geo III's mercantilism in spades, and it's gets ever worse.
We blew it by not electing Ron Paul.
Congress's credit card of infinite limit, the "Federal Reserve" robs American's ability to accumulate wealth via inflation and interest expenses turned into multi-trillion dollar liabilities, neither of which were present before the Fed.
Govt NEVER bails out anything that doesn't grow it's operator's own powers or bank accounts. Indeed that has become it's MAIN function.