Tag Archive for 'Growth'

Working hours in the OECD

Via Economix, here’s an OECD study of working hours by citizens of it’s member countries.  Here’s the relevant graph:

Much of it is as you’d expect from cultural stereotypes — Western Europe working the least, Japan and Mexico working the most — but I was a little surprised that Australia isn’t above average.  What’s striking — to me, at least — is that hours worked per day doesn’t seem to be a particularly good predictor of income per capita.  In fact, it’s interesting enough that I pulled the GDP per capita data from the OECD to do up a scatter plot:

There’s not much of a relationship at all (R-squared of 0.1) and to the extent that there is one, it’s negative — working more per day is associated with a lower income per capita.  Without Mexico (on the bottom-right), the R-squared drops to 0.04.

Time spent working per day doesn’t correlate significantly with growth rates in (real) GDP per capita, either (I’ve plotted it for 2006 to capture the state of the world before the financial crisis):

At least here the relationship, if you want to pretend there is one, is positive.

The short-long-run, the medium-long-run and the long-long-run

EC102 has once again finished for the year.  It occurs to me that my students (quite understandably) got a little confused about the timeframes over which various elements of macroeconomics occur.  I think the reason is that we use overlapping ideas of medium- and long-run timeframes.

In essense, there are four models that we use at an undergraduate level for thinking about aggregate demand and supply.  In increasing order of time-spans involved, they are:  Investment & Savings vs. Liquidity & Money (IS-LM),  Aggregate Supply – Aggregate Demand (AS-AD), Factor accumulation (Solow growth), and Endogenous Growth Theory.

It’s usually taught that following an exogenous shock, the IS-LM model reaches a new equilibrium very quickly (which means that the AD curve shifts very quickly), the goods market in the AS-AD world clears quite quickly and the economy returns to full-employment in “the long-run” once all firms have a chance to update their prices.

But when thinking about the Solow growth model of factor (i.e. capital) accumulation, we often refer to deviations from the steady-state being in the medium-run and that we reach the steady state in the long-run.  This is not the same “long-run” as in the AS-AD model.  The Solow growth model is a classical model, which among other things means that it assumes full employment all the time.  In other words, the medium-run in the world of Solow is longer than the long-run of AS-AD.  The Solow growth model is about shifting the steady-state of the AS-AD model.

Endogenous growth theory then does the same thing to the Solow growth model: endogenous growth is the shifting of the steady-state in a Solow framework.

What we end up with are three different ideas of the “long-run”:  one at business-cycle frequencies, one for catching up to industrialised nations and one for low-frequency stuff in the industrialised countries, or as I like to call them: the short-long-run, the medium-long-run and the long-long-run.

New Scientist is loopy

New Scientist has a feature this week blaming the unsustainable destruction of the environment on an obsession with economic growth and calling for a move to a growth-free world.  The answers to the questions raised by the collection of articles (all essentially repeating each other) are straightforward and widely recognised:

  • As the supply of something dwindles or the demand for it rises, the price of that thing will rise.  If we run low on some particular natural resource or our demand for it at the current price proves greater than the supply, the price will rise.  That will cause demand to fall and will spur innovation in searching for an alternative.  Trains in Britain first ran on coal-fired steam engines.  Eventually the price of coal rose too high and they switched over to diesel.  The price of oil was going up too, so after that they moved to electric engines.  The transitions aren’t perfectly smooth, I’ll grant you – there are discrete jumps that can make it a bumpy ride – but it does happen.
  • Externalities exist, both good and bad.  Actions that come with positive externalities ought to be subsidised.  Actions that come with negative externalities ought to be penalised.  We’re producing too much carbon dioxide?  Make the polluters pay.  Whether it should be through taxes or a trading system is a matter of debate, but bring it in.  We’re over-fishing in the North Atlantic?  Impose a tax directly on the fishermen for every fish they catch.  When the cost of doing a bad thing rises, people do it less and innovate to find an alternative.
  • Yes, extreme inequality is a Bad Thing ™.  It’s true that for some time we’ve had worsening inequality because of low growth among the poor and high growth among the rich, but that doesn’t mean that growth is bad per se, only that the composition of growth is around the wrong way.  It is far better to have low growth for the rich and high growth for the poor (so they catch up) than to have no growth at all and rely entirely on redistribution.  Redistribution should happen, yes, but primarily for the purposes of enabling the poor to grow faster.  Have the rich pay for the health care and education of the poor.

You don’t think this all this is possible?  Of course it’s possible.  Here is an article from Der Spiegel from April 2008 talking about solar power and the Sahara desert.  Here is a map from that same article:

The caption reads:  “The left square, labelled “world,” is around the size of Austria. If that area were covered in solar thermal power plants, it could produce enough electricity to meet world demand. The area in the center would be required to meet European demand. The one on the right corresponds to Germany’s energy demand.

If the cost of coal- and gas-fired electricity production were high enough, this would happen so fast it would make an historian’s head spin.