Forests often missed for the trees
Here are two comments from professional economists that are delightful, because they state plain and obvious truths that most professional economists won’t fess up to. Dean Baker and Brad DeLong are both wonderful writers and thinkers. (Though I do sometimes taunt them, as here. Everyone deserves a good taunting now and again.)
First, Dean Baker on China:
Measurements of PPP are very imprecise, but China already dwarfs the U.S. as a producer of steel, gives out more college and advance degrees in science and engineering each year, has more cell phone users and almost as many Internet users. Does this sound like an economy that is one fifth the size of the U.S. economy (the relative GDPs using the exchange rate measure)?
Baker notes that “if China sustains a 10 percent growth rate, it will pass the U.S. as the world’s largest economy some time in 2010.”
Brad DeLong comments on financial markets:
I think we are pretty certain why the configuration of asset prices does not match our economists’ intuitions about what asset prices should be in a world of well-functioning markets given our estimates of preferences and technologies. It doesn’t match because our financial markets are not well-functioning. They do a lousy job of mobilizing the risk-bearing capacity of society. And they appear to be profoundly myopic in the sense that average opinion has a hard time peering into the future when calculating what average opinion expects average opinion to be. As I result, I think, we shouldn’t be surprised that there are asset pricing puzzles out there… And we shouldn’t take those puzzles to disable our ability to think long-term about issues like global warming.
DeLong’s “we” suggests there is a consensus in his profession that financial markets are poorly functioning and myopic. I wish I believed that were true. If it were true, rather than chiding reform of other countries’ financial systems, there would be a consensus that we ought to reform our own. Our financial markets are making consequential, long-term decisions for us. And they are erring.