As my internal clock is not on internet time, I’m only now getting up a post in reaction to the death of William Baumol, who has been a consistent reference on this blog over the years. My topic page on the productivity slowdown is in many ways an extended riff on his work.
I can share no personal stories about the man, as I never met him. What I can do is spend some time digging through what I consider the key paper of his most famous idea, the “cost disease of services”. I’d like to think that as an academic, he’d appreciate this as much as an anecdote.
Before we get started, Baumol was one of the handful of towering figures of economics who recently passed, along with Ken Arrow and Allan Meltzer. In response, I would like to suggest that someone move Robert Solow to a secure underground bunker, and encase him in bubble wrap, just in case.
Back to Baumol. The central paper is “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis”, published in 1967 in the American Economic Review. For me, this contains a handful of insights that allow you to understand much...
I guess we need to go over this again. No, cuts to corporate tax rates and/or the reforms/cuts proposed on individual income taxes will not boost economic growth in any appreciable way. Not to 4%, nor 4.5%, nor 5%. There is no evidence supporting this claim. And even theoretically, there is no reason to believe that these tax reforms/cuts can boost growth to those rates.
Prima Facie Evidence
Start with a simple smell test. The figure below plots two series: the backward-looking 5-year average growth rate of real GDP and the forward-looking 5-year growth rate of real GDP. For example, in 1981, the backward looking series is the average growth rate of real GDP from 1976-1981, and the forward looking series is the average growth rate of real GDP from 1981-1986. For any given year on the graph, we can compare the growth rate people had experienced in the recent past (backward looking) to what they would experience in the near future (forward looking).
Also on the figure are red lines indicating when significant tax legislation was passed, and whether it was considered a tax cut, or a tax increase. 1981 and 1986...
Less of a post, and more of an announcement. I just created some new pages here at Growthecon.com that collect resources and materials related to specific topics regarding growth. See the Topics link in the header of the webpage.
This was an exercise in intellectual housecleaning, and a way to organize some materials for possible use in classes in the future. Each topic has links to my own posts on the subject, links to other web articles or resources, and some selected academic citations. The topics are thus more accessible, but less comprehensive, then the pages of references that are also posted on this site.
Right now, the topics include
- Are we rich?
- Can you reform your way to higher growth?
- Does growth depend on competition?
- Does economic growth mean economic development?
- Productivity slowdown
- Is manufacturing special?
- Robots and jobs
- Deep determinants of development
- Does economic growth harm the environment?
It’s a decent start, and there may be a few more topics to show up. The first job is probably to split the topic on productivity slowdown into separate pieces, maybe just on measuring TFP, and then...