Wednesday, October 07, 2015

"One of things just doesn't belong here, and now it's time to play our game!"

Usually I see the Washington Center for Equitable Growth in the usual convoluted cross-chain of Brad DeLong links and sub-links and can't make hide nor hair of what may or may not be going on.

But this morning Brad tweeted a straight up link to an article there by Nick Bunker that made me sit up and take notice.

It is called "What does and does not boost Economic Growth"

Good topic. Kudos.

Unfortunately, the post considers 3 policies. (1) Investment, (2) paid family leave, (3) Ideas.

We are told "under Solow’s framework, adding more capital and labor will only temporarily boost growth, and the pace of growth in the long run will eventually go back to where it was before. What needs to be increased, then, is productivity."


But for many countries increasing capital and labor has provided increased growth for decades. The east asian "miracle" was not a primarily a productivity miracle but rather an accumulation miracle.

How is this possible? Well the speed of convergence to a new equilibrium growth path is slow so the temporary boost can last a long time. Also, if you keep increasing capital, the path keeps shifting up! See China.

Then, incredibly, the article segues into,  "policies like the one proposed by Equitable Growth’s Heather Boushey that help workers balance work and family responsibilities are important to boost overall economic growth."

Heather's article is about paid family leave. Yes, paying people not to work will raise economic growth. Who knew?

No models to cite, no evidence given, no idea that there might be a cost-benefit analysis to consider, just toss it out there like it's obvious and move on.

Finally, we are told that Romer's endogenous growth model puts ideas at the center of long run growth. Totally true. But in Romer's model, the level of ideas affect the rate of growth, because there are non-diminishing returns. This has been pretty comprehensively beaten down, mostly by Charles Jones.

Note that if we allow for non-diminishing returns to capital (the AK model) investment increases can permanently raise growth.

I would be so bold as to venture that over a 20 year horizon a boost in investment would do much more for growth than instituting paid family leave.  I guess maybe that's one reason why I'm not writing for the Washington Center of Equitable Growth.

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