In the wake of the financial crisis and the Great Recession, economics seems anything but a science. In this sharp, masterfully argued book, Dani Rodrik, a leading critic from within, takes a close look at economics to examine when it falls short and when it works, to give a surprisingly upbeat account of the discipline.
Drawing on the history of the field and his deep experience as a practitioner, Rodrik argues that economics can be a powerful tool that improves the world—but only when economists abandon universal theories and focus on getting the context right. Economics Rules argues that the discipline's much-derided mathematical models are its true strength. Models are the tools that make economics a science.
Too often, however, economists mistake a model for the model that applies everywhere and at all times. In six chapters that trace his discipline from Adam Smith to present-day work on globalization, Rodrik shows how diverse situations call for different models. Each model tells a partial story about how the world works. These stories offer wide-ranging, and sometimes contradictory, lessons—just as children’s fables offer diverse morals.
Whether the question concerns the rise of global inequality, the consequences of free trade, or the value of deficit spending, Rodrik explains how using the right models can deliver valuable new insights about social reality and public policy. Beyond the science, economics requires the craft to apply suitable models to the context.
The 2008 collapse of Lehman Brothers challenged many economists' deepest assumptions about free markets. Rodrik reveals that economists' model toolkit is much richer than these free-market models. With pragmatic model selection, economists can develop successful antipoverty programs in Mexico, growth strategies in Africa, and intelligent remedies for domestic inequality.
At once a forceful critique and defense of the discipline, Economics Rules charts a path toward a more humble but more effective science.
It has been two years since we published the first edition of The Atlas of Economic Complexity. "The Atlas," as we have come to refer to it, has helped extend the availability of tools and methods that can be used to study the productive structure of countries and its evolution.
Many things have happened since the first edition of The Atlas was released at CID's Global Empowerment Meeting, on October 27, 2011. The new edition has sharpened the theory and empirical evidence of how knowhow affects income and growth and how knowhow itself grows over time. In this edition, we also update our numbers to 2010, thus adding two more years of data and extending our projections. We also undertook a major overhaul of the data. Sebastián Bustos and Muhammed Yildirim went back to the original sources and created a new dataset that significantly improves on the one used for the 2011 edition. They developed a new technique to clean the data, reducing inconsistencies and the problems caused by misreporting. The new dataset provides a more accurate estimate of the complexity of each country and each product. With this improved dataset, our results are even stronger.
All in all, the new version of The Atlas provides a more accurate picture of each country’s economy, its "adjacent possible" and its future growth potential.
Why there are such significant and persistent differences in living standards across countries is one of the most important and challenging areas of development policy. In spite of a voluminous literature on the causes of economic growth, we still have a long way to go in understanding why the growth experiences of countries differ so much, why growth changes so much (for good and ill) over time, and why only a handful of developing countries have seen their incomes converge to the levels observed in developed countries. To understand the causes of economic growth, we first need to understand what growth is. Much of the focus in the academic and policy literature on "growth" has been on steady-state or long-run average rates of growth of output per capita, or equivalently, comparing levels of income. But the focus on one single growth rate for a particular country misses the point that most countries observe dramatic changes in their growth of per capita income. We present visually the dynamics of the growth experiences of 125 countries. The graphs themselves (and embedded numeric information) highlight the key point that we would like to convey in this Handbook – that economic growth is dynamic and episodic and that many countries have gone through very different growth phases. We identify the timing and magnitude of "breaks" or "episodes" or "regime transitions" for all our 125 countries from the application of a standard statistical procedure. Viewing economic growth as transitions across growth phases would imply that we would need to move beyond current approaches to growth, and that new "third generation" theoretical models and empirical methods would need to be developed to understand what determines economic growth.
In 1963, US President John F. Kennedy said that ''a rising tide lifts all the boats. And a partnership, by definition, serves both parties, without domination or unfair advantage.'' US international economic policy since World War II has been based on the premise that foreign economic growth is in America's economic, as well as political and security, self-interest. The bursting of the speculative dot.com bubble, slowing US growth, and the global financial crisis and its aftermath, however, have led to radical changes in Americans' perceptions of the benefits of global trade. Many Americans believe that trade with emerging-market economies is the most important reason for US job loss, especially in manufacturing, is detrimental to American welfare and an important source of wage inequality. Several prominent economists have reinforced these public concerns.
In this study, Lawrence Edwards and Robert Z. Lawrence confront these fears through an extensive survey of the empirical literature and in depth analyses of the evidence. Their conclusions contradict several popular theories about the negative impact of US trade with developing countries. They find considerable evidence that while adjusting to foreign economic growth does present America with challenges, growth in emerging-market economies is in America's economic interest. It is hard, of course, for Americans to become used to a world in which the preponderance of economic activity is located in Asia. But one of America s great strengths is its adaptability. And if it does adapt, the American economy can be buoyed by that rising tide.
Over the past two centuries, mankind has accomplished what used to be unthinkable. When we look back at our long list of achievements, it is easy to focus on the most audacious of them, such as our conquest of the skies and the moon. Our lives, however, have been made easier and more prosperous by a large number of more modest, yet crucially important feats. Think of electric bulbs, telephones, cars, personal computers, antibiotics, TVs, refrigerators, watches and water heaters. Think of the many innovations that benefit us despite our minimal awareness of them, such as advances in port management, electric power distribution, agrochemicals and water purification. This progress was possible because we got smarter. During the past two centuries, the amount of productive knowledge we hold expanded dramatically. This was not, however, an individual phenomenon. It was a collective phenomenon. As individuals we are not much more capable than our ancestors, but as societies we have developed the ability to make all that we have mentioned – and much, much more.
Surveying three centuries of economic history, Dani Rodrik argues for a leaner global system that puts national democracies front and center. From the mercantile monopolies of seventeenth-century empires to the modern-day authority of the WTO, IMF, and World Bank, the nations of the world have struggled to effectively harness globalization's promise. The economic narratives that underpinned these eras-the gold standard, the Bretton Woods regime, the "Washington Consensus"-brought great success and great failure.
In this eloquent challenge to the reigning wisdom on globalization, Dani Rodrik offers a new narrative, one that embraces an ineluctable tension: we cannot simultaneously pursue democracy, national self-determination, and economic globalization. When the social arrangements of democracies inevitably clash with the international demands of globalization, national priorities should take precedence. Combining history with insight, humor with good-natured critique, Rodrik's case for a customizable globalization supported by a light frame of international rules shows the way to a balanced prosperity as we confront today's global challenges in trade, finance, and labor markets.