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March 06, 2017


Patrick Kirk

If John Landon-Lane and Peter Robertson are correct that national government policies have no discernible impact upon long-run growth at all, does that mean things like Brexit and TPP are irrelevant to the economy and jsut about identity signals?

Luis Enrique

On resources non-fungible point, you might like this book by Ricardo Caballero:


"Caballero argues that macroeconomic models need to be made more "structural" in a precise sense and can not be maintained on the assumption that decisions are fully flexible. What is needed, he proposes, is the notion of specificity — the idea that factors of production are not freely interchangeable."


My feeble mind "Boggles" hopelessly trying to imagine a budget that is a "match-fit" for "Brexit".
A man with a mission indeed.
Maybe he should be carrying a jar rather than a box this time, and take the moniker.... Pandora.

Ralph Musgrave

So Chris, you're saying politicians are not to be trusted. I'm shocked...:-)


It has surely been obvious for decades that the only thing Chancellors should aim for is to avoid large falls in aggregate demand persisting for long periods. The experience since 1945 is that it is easy to reduce growth by mismanaging demand but there are no effective ways to increase economy wide productivity growth except of course for the ones that work all the time whichever party is in office, namely competition, firm entry and exit and technological innovations.

Unfortunately chancellors have repeatedly allowed demand to be too low such as by maintaining the fixed exchange system from 1948 to 1973 and the repeated dalliance with monetarism and the ERM fix by lawson/ major. Which is just the same old shit in a different guise. Going back further we had the return to Gold in 1925. The treasury certainly never gives up on trying to wreck the economy with depression inducing policy.

Steven Clarke

At the risk of being biased towards my pet policy, I suspect the biggest gains could come from liberalising the land market.

The labour and capital markets are already pretty flexible. Further attempts to liberalise them will run into diminishing returns.


Are Japan and Italy really so pathological when you allow for demography?


Slightly off topic, but the New York Times has discovered that an oversupply of labour DOES reduce wages - but only in Mexico.


"More returnees means lower wages for everybody in blue-collar industries such as construction and automobile manufacturing, where competition for jobs is likely to increase, economists say."


Damn - WaPo, not NYT. Still, they're nearly identical - almost fungible, you might say

Tim Bassett

My guess is that people paying too much for growth because they misprice the correlation of growth stocks. If long term growth is roughly constant then a basket of growth stocks must have negative correlation with with each other.

Thinking of growth stocks as call options shows how the overvaluation can occur. Markets are notoriously poor at dealing with correlation risk as we have seen in an almost continuous series of blow-ups over the years most notably the mortgage/CDO crisis.

Thinking about why this happens I suspect that it is because all the models I have seen take one correlation term when it is quite easy to imagine real life correlations that have both positive and negative terms plus a whole lot of noise. I have not seen any models that deal with this well and am rather unconvinced they can even exist (too many degrees of freedom to produce much useful results) but it is often useful to try and figure out boundaries in changing circumstances as different correlation factors predominate.

Eg In a normal economy two close competitors may be negatively correlated but a change in the macro environment or an innovation in the industry can rapidly switch them to exhibiting positive correlation

C Adams

Would it be better to say that John Landon-Lane and Peter Robertson find that similar countries with similar policies have similar growth rates?

To suggest that government policy does not have a dramatic effect on growth is crazy. Take North and South Korea.

Also small changes can have a big impact over the longer term. I would argue that government policy is very significant.

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