Lies some economists tell

Foreign Policy has a list of five lies economists are supposed to have told everyone:

1. High productivity and low unemployment make us all better off
2. It’s hard to grow without good banks and private property
3. Capital must always be let free to flow
4. The euro will never work
5. Japan—no wait, China—is going to take over the world economy

Whoever told these fibs better own up. It wasn't me.

Comments

[hari]

"4. The Euro will not work".

This is not only typical but also symptomatic of ill-informed dogma based on supremacy of dollar reserve, etc. Perpetrators of this socalled sacrilege were mainly British/US economists with doggy credentials at best.
Having worked inside EU during Maastricht Treaty & Euro introduction, I can vouch for the strategic thinking that went into it; Euro is certainly emerging not only as a global reserve currency but also currency of last resort in a world of globalization.

Some of you must go back to Maastrict Treaty and try to understand what the EU visualized in its supranational interest in introduction of Euro.

If you really want to understand the current context of global political economy - especially as it affects treasuries in Peking/Delhi - I suggest
a better understanding of
global political economy can be guaranteed by studying ways and means by which surplus trading countries are moving into Euro reserves and not necessarily into dollar denomination.

This is the political economy of globalization which must be fully studied and understood before scales tilt and a new sacrilege takesover.

[Rich C]

Back in the day, Paul Krugman articulated claims 1-4. He certainly claims in Age of Diminished Expectations that higher productivity leads to higher median incomes, and does not explicitly address the wage determination system (ie deunionization). I believe he was making a version of 2 in his mid-1990's Foreign Affairs article on the East Asian Tigers. I believe he ends up arguing for 3 in a few places, specifically in Pop Internationalism, though he emphasizes trade rather than capital openness (he has been very critical of calls for a Tobin tax right up through the early Bush years). And he made argument 4 (or at least expressed great skepticism on the issue) in a number of articles in the early 1990s. Krugman never made 5 that I'm aware of; by and large I don't think its fair to attribute this view to economists as opposed to economic journalists.

That said, Barry Eichengreen seems to be making claim 5 vis a vis China (but maybe that's not a fair interpretation) here http://www.voxeu.org/index.php?q=node/420.

[robertdfeinman]

There is some evidence for a modified version of 2.

That good property "rights" are needed for growth. This has recently been expressed as the need for people to be able to get title to their land. The argument is that without title no banks will lend them money for improvements and this will cause entrepreneurship (and home ownership) to flounder.

The issue seems especially severe in the shantytowns that have arisen in much of South America and Africa.

I don't know if anyone has studied this in detail but I think there have been some anecdotal stories presented.

[alex]

from the article: "If Japan didn’t put Uncle Sam out of business, maybe China won’t, either."

Two words: Plaza Accord. By 1985 the US had an active policy of addressing the trade imbalance.

Sometimes the sky doesn't fall because somebody took the effort to shore it up. But the "don't worry, be happy" crowd talks only of how past predicted calamities didn't occur, as though to suggest no action is necessary, and ignores the fact that they were averted by concerted effort.

[notsneaky]

"Whoever told these fibs better own up. It wasn't me."

Hmmm, yes, exactly which economists told those lies?

Okay, okay. There were some on #3. And #2 ain't much of a lie (the supposed counter example, China, has, by any reasonable standard, seen an increase in private property since Chairman Mao was around)

[notsneaky]

and #5 is like the poster child of how economists disagree with the general public - i.e.:

General Public: "Japan—no wait, China—is going to take over the world economy"

An Economist (Krugman for one): "You know, it's not a zero sum game. Just because others get richer doesn't mean you get poorer"

[alex]

notsneaky, try Krugman 2007:

http://rodrik.typepad.com/dani_rodriks_weblog/2007/06/a_new_mainstrea.html

Just because it's not a zero sum gain, doesn't mean that there aren't plenty who get poorer.

[KY Choong]

I understand Chinese growth started when farmers were allowed (by Deng Xiaopeng) to keep a share of their output. So perhaps China does really support fact 2 rather than detract from it.

[amv]

Sure, without property rights we are all better of ... well, 'Foreign Policy' should use their comparative advantage and leave economics to us ..

[jmdesp]

IMO lie 1 is the most interesting to analyze.
More productivity with low unemployment means a lot more richness so understanding why the middle class was left out of the distribution of it, despite low unemployment, is really interesting.

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Sure, without property rights we are all better of ... well, 'Foreign Policy' should use their comparative advantage and leave economics to us ..

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[Sasha]

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