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International capital movements
Brad DeLong ponders them; there is wisdom throughout the piece.
Posted by Tyler Cowen on May 27, 2008 at 07:21 PM in Economics | Permalink
Comments
It'd be nice if you indicated that it was a PDF file with a "(PDF)" somewhere so that this old man wouldn't get so confused on why the link isn't working! (pdfs autodownload in the background for me, and a lot of people with firefox)
Posted by: Nitpicker at May 28, 2008 1:51:48 AM
Agreed PDF warning is good internet etiquette. IE user here with a weak laptop that gets tempoary killed when it loads a PDF.
Posted by: Sune at May 28, 2008 5:16:17 AM
Here's a thing, Sune, if you move the cursor over the link it says pdf at the end of it.
Posted by: Tom at May 28, 2008 5:59:46 AM
"This paper will therefore present a confused and rambling look at the issue
of capital and its complements in economic growth in five stages".
I stopped there.
Posted by: mpkomra at May 28, 2008 7:48:57 AM
"It is not unreasonable to think that simply piling up
more capital without having better organizations or better technology does
not do much good. Yet it is also not unreasonable to think that a high level
of capital is an essential complement to the things that really do matter, and
that the things that do matter the most matter the most only if capital is not a
significant constraint."
I marvel at the construction of things like Disney World. I bet the popular assumption would be that something like that would be easier today because we are a richer society. But, I think we'd just be better at throwing more money down a rat hole. It would be harder to gather and concentrate the management resources to spend the capital wisely.
In our economy, I think an under-appreciated bottleneck to growth is my assertion that the proliferation of products has spread the quality management and skillsets very thin. In poor economies, throwing money at the problem when they aren't prepared to spend it has predictable results. One of my favorite retorts to optimistic management is that you can't create a baby in 3 months with 3 women.
Posted by: Andrew at May 28, 2008 9:23:40 AM
If one agrees with this paper that we need to reverse the flow of capitol, it seems to me that an easy way is to increase the taxes on capitol in the US. Instead we have lowered them.
Posted by: RobbL at May 28, 2008 9:32:57 AM
I don't know that the paper advocates reversing the capital flow. I think his point is just that the market didn't work out as predicted and as a lot of people thought it "should." "Should" is a dangerous word.
"But for the next two or three years,
governments should lower taxes—
especially for the poor, who are most
likely to spend—and spend more."
And, to do what you suggest, wouldn't you increase taxes on INVESTMENT in US domestic capital? This wouldn't necessarily be good for the poor in other countries because they are sending us capital for reasons. One reason implied in the paper is that it's harder for regimes to threaten fungible investments than physical capital.
And, do taxes really shift capital between countries? It seems the first and biggest effect would be to shift capital to the government, where it will surely be invested less efficiently, in things like, say, wars that are a negative investment in trade and stability and sure to undermine international cooperation and communication.
"...locomotives have driven the world economy over the past 15 years. The first
was heavy investment, centered in the United States, owing to the
information technology revolution.The second was investment in buildings,
once again centered in the United States, driven by the housing boom. The
third was manufacturing investment elsewhere in the world, predominantly
in Asia—"
I say, what's the problem? How do we complain about outsourcing on the one hand AND lack of investment in other countries on the other?
We in the US got a little carried away thinking consumption goods just show up on our doorstep by magic. As long as we correct a bit and don't overreact the other way, I think things will chug along okay.
I do have a question. When savings is so rare, shouldn't one get paid more to save? Maybe the returns to saving are beaten down by foreign savings. That might cause a positive feedback against domestic savings. When it again becomes profitable to save, will we do it, or will we have forgotten how?
Posted by: Andrew at May 28, 2008 9:56:56 AM
Oh, and it might be perfectly rational for the poor to send us their savings.
The paper also discusses the "order of operations" necessary for growth. Capital is necessary but not sufficient. As long as we give them their returns when their economies are better prepared for growth it could be fine.
Posted by: Andrew at May 28, 2008 10:04:22 AM
It all comes down to individual property rights and whether governments are doing a good job of recognizing and protecting them.
Posted by: Al Abbott at May 28, 2008 12:02:26 PM
I am still befuddled by the term "global imbalances". It's negative connotation presumes that somehow we are in disequilibrium, with the periphery sending their savings to the core. In a Keynesian context, I suppose that is correct. But just because Keynes said it does not make it so.
The welfare effects of such massive capital flows are poorly understood. In my view, we as economists have done a poor job of theorizing these effects from first principles.
Posted by: stanfo at May 28, 2008 6:11:19 PM
needs proofreading
Prof. DeLong, I'd be happy to be your RA
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