Thursday, November 08, 2012

The University of Chicago's Economists Debate About the State of the Macroeconomy

John Cochrane and Austan Goolsbee held a debate on economic policy last week.  Here are Cochrane's opening remarks.       To paraphrase the Beatles, "All you Need is 4% Growth".  Forget love, we need growth.   Last year, the Clark Medalist President George W. Bush wrote the forward for a book that claims it has the secret recipe for achieving 4% GNP growth.  

How do you unlock the full potential of an individual, a nation or a world economy?  Jim Heckman is working away on how we build productive young adults.    But, once we all graduate from Perry pre-School and we are 25 years old --- what type of national and world economy await us?

In the year 2012, what is the U.S' comparative advantage?   If the U.S economy features a 1% set of Steve Jobs and the Zuck and has the 99% providing non-tradeable service jobs (i.e yoga and Starbucks), is that a sustainable economy?  Can any public policy seriously address this issue in the short term or is Heckman's child "big push" the only viable medium term strategy?  Given that it takes 20 years to grow a child, no short run politician will invest too much in his strategy.

For conservative economists, do you  have a credible computable general equilibrium model that allows you to decompose how much of the growth gap in the U.S is due to tax distortions, environmental regulations, the advent of Obamacare,  uncertainty about future taxes etc?   Casey Mulligan's work offers a micro-economic approach to begin to quantify these unintended consequences but I'm confused about how we calculate the aggregate effects of such policy induced distortions.

We know that we seek 4% GNP growth  but we know that we do not know how to achieve this.  In such cases, we are supposed to experiment.  In this age of the field experiment perhaps John List should move away from schools and car dealers and start to experiment with our macro economy. How would he figure out causal effects of various policies and use these estimates to make the jump from partial equilibrium findings to general equilibrium conclusions?

I'm asking for a lot from the University of Chicago but it has a lot of talent.