Chrystia Freeland

Manufacturing redux

Chrystia Freeland
Mar 29, 2012 20:17 UTC

Chalk one up for continental Europe’s economic architects. For the past several decades, the Anglo-Saxon consensus was that state interference in the private-sector economy was a mistake. Government bureaucrats were in no position to pick economic winners and losers – and if standing aside meant letting the forces of creative destruction sweep away entire industries, so be it.

The continental Europeans, most successfully the Germans, demurred. They were unconvinced that the shift from manufacturing to services was either good or inevitable, and they used the full might of the state to try to hang on to their industrial base. The financial crisis may have briefly felt like a vindication of this model – but the near collapse and continued frailty of the euro brought a quick end to that moment of schadenfreude.

When it comes to manufacturing, though, the European approach is being embraced in the White House. In a speech this week, Gene Sperling, director of the National Economic Council and assistant to the president for economic policy, laid out the economic rationale for the U.S. shift. When I spoke to him afterward, Sperling was careful to point out that the new approach did not amount to industrial policy, or an attempt by the government to pick winners and losers.

But the White House has come to believe, Sperling said, that manufacturers more broadly should be first among equals. Giving manufacturers slightly lower taxes and more support for their research and development is a good idea, Sperling argues, for two reasons. First, because manufacturing has a particularly powerful spillover effect on the rest of the economy.

The benign effect of manufacturing Sperling is most enthusiastic about is the connection with innovation. That link, he argues, has been drawn out in research by the Massachusetts Institute of Technology’s “Production in the Innovation Economy” initiative. Its premise, which Sperling embraces, is that in most new technologies, innovation happens most quickly and effectively when the inventors work close to the builders.

Trickle-down consumption

Chrystia Freeland
Mar 22, 2012 23:29 UTC

We know now that trickle-down economics doesn’t really work – the past decade in the United States has seen incomes at the very top soar, while the earnings of the middle class stagnated or declined. But a growing body of academic research is suggesting that this benign force’s wicked stepsister, a phenomenon two economists have dubbed ‘‘trickle-down consumption,’’ is having a powerful impact on the economy and politics of the United States.

The idea is that income inequality has a significant impact on the 99 percent: It drives the rest of us to consume more, whether we can afford to or not.

Robert H. Frank, an economist at Cornell University, is a pioneering student of this behavior who has been writing about the subject for nearly two decades, long before it became fashionable. Frank, who is the co-author of two economics textbooks with the Federal Reserve chairman, Ben Bernanke, believes that rising income inequality affects the rest of us through what he calls ‘‘expenditure cascades.’’

Loose cultures and free women

Chrystia Freeland
Mar 15, 2012 19:51 UTC

With hindsight, we may find that the 2016 U.S. presidential race began last week, when Hillary Rodham Clinton made a politically electrifying point. ‘‘Why extremists always focus on women remains a mystery to me,’’ she said at the Women in the World conference in New York. ‘‘But they all seem to. It doesn’t matter what country they’re in or what religion they claim. They want to control women.’’

At a time when birth control has re-emerged as a political issue in the United States, 94 years after the first legal ruling to permit it, Clinton’s comments were an inspiring rallying cry for worried American women. But what about the mystery she identified? Why, as the secretary of state asserted, do extremists, from the Taliban to conservative Christians, want to control women?

An intriguing new study by two professors at the Rotman School of Management at the University of Toronto suggests a possible answer. (Disclosure: I am on the school’s Dean’s Advisory Board.) Soo Min Toh and Geoffrey Leonardelli didn’t set out to discover why extremists want to control women. Their question was more familiar: Why aren’t there more female leaders?

The 1 percent recovery

Chrystia Freeland
Mar 8, 2012 23:58 UTC

Forget Roman Catholics and contraception, evangelicals and Mormonism, Newt Gingrich’s three wives and even Mitt Romney’s dog. If you are struggling to understand a roller-coaster U.S. election season, described by one writer as “wackadoodle,” your Rosetta Stone should be a dry academic paper by the economist Emmanuel Saez.

In an age of celebrity scholars, Saez, a professor at the University of California at Berkeley, is a shy data jock who does most of his communicating by marshaling vast pools of statistics. But he has probably done more than any pundit or political spinmeister to shape the political narrative of our age — it is the number-crunching of Saez and his longtime collaborator, Thomas Piketty, that gave us the notion of the 1 percent and the evidence that they are pulling away from everyone else.

That’s why, in the community where economics and politics intersect, a new Saez paper is hot news. And his latest, which set Twitter abuzz this week, is a humdinger. Saez has come up with a killer fact: In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent.

Prosperity, autocracy and democracy

Chrystia Freeland
Mar 2, 2012 00:00 UTC

To understand the significance of the presidential election this weekend in Russia, read a book by two U.S.-based academics that is being published this month. Why Nations Fail by Daron Acemoglu and James Robinson, of the Massachusetts Institute of Technology and Harvard University, respectively, is a wildly ambitious work that hopscotches through history and around the world to answer the very big question of why some countries get rich and others don’t.

Their one-word answer, as Acemoglu summed it up for me, is ‘‘politics.’’ Acemoglu and Robinson divide the world into countries governed by ‘‘inclusive’’ institutions and those ruled by ‘‘extractive’’ ones. Inclusive societies, with England and its Glorious Revolution of 1688 in the vanguard, deliver sustainable growth and technological innovation. Extractive ones can have spurts of prosperity, but because they are ruled by a narrow elite guided by its own self-interest, their economic vigor eventually fades.

‘‘It is really about societies that have a more equitable distribution of political power versus those that don’t,’’ Acemoglu told me. ‘‘It is about societies where the elite, the rich, can do what they want and those where they cannot.’’