Saturday, January 10, 2009

Daron's wisdom

The lessons from the crisis of 2008, as identified by Daron Acemoglu (below are my expressions based on his splendid essay -- I suggest you to read the whole thing directly)
  1. Business cycle is not dead.
    1. Pay more attention to the "tail" events.
    2. Years of economic calm can be followed by tumultuous times.
    3. Schumpeterian creative destruction can happen in the macro.
  2. Free markets are not equal to unregulated markets.
    1. Institutions matter more than thought.
    2. Greed is neither good nor bad. But can be made good or bad.
  3. The giants don't self monitor well.
    1. Role of reputations should not be underestimated.
    2. Firm reputation should be derived from the behavior of individuals in that firm.
  4. Growth economics still very important.
    1. Recognize not just K, L, and technology, but also innovation and reallocation.
    2. Look at the institutional framework.
    3. Pay attention to the political economy of growth.
  5. Others
    1. Stimulus plans are fine, but consider their full set of implications.
    2. Ideological pendulum might swing too far to heavy government and away from market.
    3. Warning: anti-market policies are real threats to economic growth.
HT: Arnold Kling, who also offers his takes on Acemoglu's.


Roby said...

it's a nice article, thanks.

1 question and 2 comments:

Q1: what was/were the tail event/events in the current crisis?

1. I really like the notion that higher correlation (from learning) in the behavior economic agents could cause instability in the aggregate (macro) level.

2. The role of reputation in market competition is one of the main problems in economic sociology, e.g this book:

3. I like this quote:"They were lured by ideological notions derived from
Ayn Rand novels rather than economic theory."

Aco said...

Roby, glad you liked it. I think Acemoglu's mention of tail events is general in nature. The way I see it, he reminds us not to overlook "abnormal" events in the past just because they are rare (in our usual normal distribution). In the current crisis, I think that refers to some abnormalities in the financial pattern -- of which I don't know much. Thanks.

Roby said...

i think you know it already, but i just found out that you can still download his 'introduction to modern economics growth' in its entirety here

Aco said...

Rob, I'm aware of that book, but I haven't got a chance to get a hold of it. It's now still in my list of books to buy. (I'm an old skool: can't read comfortably from screen). Thanks for reminding, Rob.