Three Papers You Have Not Seen, But May Want To

The GDP Paradox

Jeroen van den Bergh
Journal of Economic Psychology, forthcoming

Abstract:
Despite all theoretically and empirically motivated criticism of GDP as a social welfare and progress indicator, its role in economics, public policy, politics and society continues to be influential. To resolve this paradox, one has to recognize that many economists accept the criticism of the GDP indicator but deny its relevance. This paper evaluates the reasons for denial. This entails five steps: (1) a brief review is offered of the extensive literature showing that GDP per capita (growth) is far from a robust indicator of social welfare (progress); (2) the influence of GDP information on economic decisions by firms, consumers, investors and
governments is examined; (3) behavioural explanations for a widespread belief in the relevance of GDP are discussed; (4) the customary arguments in favour of the GDP indicator are analysed; and (5) proposed alternatives to GDP are evaluated. The paper ends with outlining the implications of giving less attention to GDP information in policy and politics. It is argued that removal of the information failure which GDP represents, in monitoring economic progress and guiding public policy, will lead to decisions and developments being more in line with improving human well-being. Moreover, ignoring GDP information is consistent with a perfectly neutral stance regarding economic (GDP) growth. Indeed, an unconditional anti- or pro-growth imperative acts as an unnecessary constraint on our search for human progress.

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Why Aren't Developed Countries Saving?

Loretti Dobrescu, Laurence Kotlikoff & Alberto Motta
NBER Working Paper, December 2008

Abstract:
National saving rates differ enormously across developed countries. But these differences obscure a common trend, namely a dramatic decline over time. France and Italy, for example, saved over 17 percent of national income in 1970, but less than 7 percent in 2006. Japan saved 30 percent in 1970, but only 8 percent in 2006. And the U.S. saved 9 percent in 1970, but only 2 percent in 2006. What explains these international and intertemporal differences? Is it demographics, government spending, productivity growth or preferences? Our answer is preferences. Developed societies are placing increasing weight on the welfare of those currently alive, particularly contemporaneous older generations. This conclusion emerges from estimating two models in which society makes consumption and labor supply decisions in light of uncertainty over future government spending, productivity, and social preferences. The two models differ in terms of the nature of preference uncertainty and the extent to which current society can control future societies' spending and labor supply decisions.

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On the robustness of laissez-faire

Narayana Kocherlakota & Christopher Phelan
Journal of Economic Theory, forthcoming

Abstract:
This paper considers a model economy in which agents are privately informed about their type: their endowments of various goods and their preferences over these goods. While preference orderings over observable choices are allowed to be correlated with an agent's private type, we assume that the planner/government is both uncertain about the nature of this joint distribution and unable to choose among multiple equilibria of any given social mechanism. We model the planner/government as having a maxmin objective in the face of this uncertainty. Our main theorem is as follows: Once we allow for this kind of uncertainty and assume no wealth effects in preferences, the uniquely optimal social contract is laissez-faire, in which agents trade in unfettered markets with no government intervention of any kind.