Dani Rodrik's weblog

"Political Economy after the Crisis"

I teach what is, for me, a new course this semester together with Roberto Mangabeira Unger of the Law School, called “Political Economy After the Crisis.”  Roberto and I end up arguing quite a bit, with plenty of contributions from the students.

For those of you who are interested, here is the syllabus of the course.  As a bonus, the videos of the first two classes are also online.  This one is the first session on the crisis, and this is the second session on the way out.

The Turkish economy after the global financial crisis

This paper of mine on the Turkish economy was completed more than a year ago but has just been published in the new journal of the Turkish Economic Association. Re-reading it, I feel it captures well the missed opportunities of the last few years.

Unwillingness to use fiscal policy in a countercyclical manner (tighten when times are good), discourage capital inflows, and prevent real exchange rate appreciation until it becomes too late have once again placed the Turkish economy on an unsustainable course. Worse, with an external deficit reaching close to double-digit levels, the economy is poised for a painful hard landing as soon as confidence turns south – triggered, for example, by bad news in the Eurozone.

As recent experience shows, the countries that are worst hit by sudden flight to safety in financial markets tend to be those caught with large external deficits:

Governments that engineer growth accelerations on the back of unsustainable foreign borrowing booms like to repeat the mantra “this time it is different.” Unfortunately, few current account deficits as large as Turkey’s end well.

Distributive politcs, economic growth, and the Simpsons

Many moons ago, I wrote a paper (with Alberto Alesina) called “Distributive Politics and Economic Growth,” which remains one of my most heavily cited publications.  The paper has a simple idea: in highly unequal societies, the median voter is more likely to demand high taxes on capital, which in turn can be adverse for growth.  So high inequality leads to redistributive politics, which is bad for growth.  We also supplied some cross-country empirical evidence that is consistent with the theory.

This idea has been resuscitated in recent discussions on the consequences of the rise in American inequality. In a speech that has received much attention, for example, Alan Krueger highlighted this line of thought (referring to a paper by Torsten Persson and Guido Tabellini contemporaneous with ours as well as more recent supportive empirical research at the IMF).

So it was particularly timely when Jose Tavares from Universidade Nova de Lisboa in Portugal sent me a report on the paper prepared by two of his students, Luís Fonseca and Miguel Aguiar.  Ingeniously, the students explicate the paper using the Simpsons as a backdrop.  It’s very well done, and worth a look.  Here it is.