David Brooks on the Multi-Dimensions of Skill and Pinpointing What is our "Engine of Growth"
Labor economists study the microeconomics of skill acquisition. Do you attend UCLA or not? What do you major in? Macro growth theorists examine how a nation's cumulative human capital maps into "good economic" outcomes such as GNP growth and a high per-capita income level. But what is "skill"? Charles Murray claimed that it boils down to IQ but Jim Heckman has disagreed. It turns out that each of us is "multi-dimensional". Michael Jordan can beat me at basketball and in making underwear commercials but I can dunk on him in the court of "environmental economics".
Today, David Brooks offers his own take on the "Wealth of Nations". Permit me to paraphrase. Suppose that each adult person is a bundle of 3 attributes;
1. Raw ability to solve logic problems
2. Charm in social settings
3. perseverance and ambition and focus
Parental upbringing, choices over time allocation during the early years, peers in school and university and random luck determine an adult's "endowment" of these 3 .
Your wages in capitalism are an increasing function of each of these 3. David Brooks appears to argue that Capitalism over-rewards #2 relative to the interaction of #1 and #3. If David Brooks had to choose between the Ivy League Schmoozing well networked lawyer or a strange innovator to help America get its groove back he is betting on the "Bobby Fischer".
Now, in the article he appears to go further arguing that the large number of #2 types may actually be slowing growth as they use their nepotistic ties to get legislation that helps them but may strangle the economy in the long run. This is an interesting claim. Could Harvard University actually be slowing the growth of our economy as it churns out unlimited numbers of smooth articulate people who want to be part of the Washington/Wall Street Nexus?
"The princes (type #2) can thrive while the government intervenes in the private sector. They’ve got the lobbyists and the connections. The grinds (type #1 and #3), needless to say, don’t.
Over the past decade, professionals — lawyers, regulators and legislators — have inserted themselves into more and more economic realms. The princes are perfectly at home amid these tax breaks, low-interest loans and public-private partnerships. They went to the same schools as the professionals and speak the same language. The grinds try to stay far away and regard the interlocking network of corporate-government schmoozing with undisguised contempt."
Implicit in Brooks' article is a libertarian streak that government (and the anticipation of government intervention in everything) has grown too big and that connections to Washington can make magic happen but that unintended consequences lurk.
He would be wise to explore the 2nd clause. I'm sure that he is right that the connected can make a fortune (I'm thinking of Rahm Emmanuel's consulting firm after he left the Clinton Administration) but the link to how this retards economic growth isn't completely clear to me. For "Silicon Valley" types, how does "connected capitalism" slow them down? Does it tilt the playing field against innovation? If yes, then maybe Brooks is right but this needs to be examined. I would guess that connections (through Government picking winners -- think of corn based ethanol) tilts the innovation to specific causes that may not play out in the long run. This would be one causal pathway such that networks and connections influencing government policy help to slow macro growth.
In this case, skills such as (#2) above that payoff individually are actually socially unproductive from society's standpoint. We want fewer charmers!
A final point on "endogenous skill acquisition". Suppose you are 18 and a Harvard freshman. You can either devote your time and effort to being a "charmer" (i.e go to law school) or become an applied math major (#1 and #3). If you believe that the Age of Big Government and social connections is here to stay, you will be more likely to be nudged to invest your scarce time towards the "Charmer" sector. If many of your classmates make the same choice, then we will be poorer in the long run. How could the price sector send the wrong signals? There must be a disconnect between the marginal valuation of rent seeking (so you can earn a high private wage while not being socially useful --- there is a negative externality associated with your efforts) while if you went into applied math you could come up with a socially useful breakthrough (such that your private wage understates your social value to society because of the positive externality here).
Today, David Brooks offers his own take on the "Wealth of Nations". Permit me to paraphrase. Suppose that each adult person is a bundle of 3 attributes;
1. Raw ability to solve logic problems
2. Charm in social settings
3. perseverance and ambition and focus
Parental upbringing, choices over time allocation during the early years, peers in school and university and random luck determine an adult's "endowment" of these 3 .
Your wages in capitalism are an increasing function of each of these 3. David Brooks appears to argue that Capitalism over-rewards #2 relative to the interaction of #1 and #3. If David Brooks had to choose between the Ivy League Schmoozing well networked lawyer or a strange innovator to help America get its groove back he is betting on the "Bobby Fischer".
Now, in the article he appears to go further arguing that the large number of #2 types may actually be slowing growth as they use their nepotistic ties to get legislation that helps them but may strangle the economy in the long run. This is an interesting claim. Could Harvard University actually be slowing the growth of our economy as it churns out unlimited numbers of smooth articulate people who want to be part of the Washington/Wall Street Nexus?
"The princes (type #2) can thrive while the government intervenes in the private sector. They’ve got the lobbyists and the connections. The grinds (type #1 and #3), needless to say, don’t.
Over the past decade, professionals — lawyers, regulators and legislators — have inserted themselves into more and more economic realms. The princes are perfectly at home amid these tax breaks, low-interest loans and public-private partnerships. They went to the same schools as the professionals and speak the same language. The grinds try to stay far away and regard the interlocking network of corporate-government schmoozing with undisguised contempt."
Implicit in Brooks' article is a libertarian streak that government (and the anticipation of government intervention in everything) has grown too big and that connections to Washington can make magic happen but that unintended consequences lurk.
He would be wise to explore the 2nd clause. I'm sure that he is right that the connected can make a fortune (I'm thinking of Rahm Emmanuel's consulting firm after he left the Clinton Administration) but the link to how this retards economic growth isn't completely clear to me. For "Silicon Valley" types, how does "connected capitalism" slow them down? Does it tilt the playing field against innovation? If yes, then maybe Brooks is right but this needs to be examined. I would guess that connections (through Government picking winners -- think of corn based ethanol) tilts the innovation to specific causes that may not play out in the long run. This would be one causal pathway such that networks and connections influencing government policy help to slow macro growth.
In this case, skills such as (#2) above that payoff individually are actually socially unproductive from society's standpoint. We want fewer charmers!
A final point on "endogenous skill acquisition". Suppose you are 18 and a Harvard freshman. You can either devote your time and effort to being a "charmer" (i.e go to law school) or become an applied math major (#1 and #3). If you believe that the Age of Big Government and social connections is here to stay, you will be more likely to be nudged to invest your scarce time towards the "Charmer" sector. If many of your classmates make the same choice, then we will be poorer in the long run. How could the price sector send the wrong signals? There must be a disconnect between the marginal valuation of rent seeking (so you can earn a high private wage while not being socially useful --- there is a negative externality associated with your efforts) while if you went into applied math you could come up with a socially useful breakthrough (such that your private wage understates your social value to society because of the positive externality here).
posted by Matthew Kahn at 12:31 PM
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