I have long argued that Anne Kruger and Jagdish Bagwati should win the Nobel Prize in Economics for their work in trade, protectionism and economic development. Certainly they should have shared the 2008 Nobel with Paul Krugman, a student at Bagwati.
Krueger’s extensive interviews in the latest issue of the Journal of Economic Perspectives support my view on the importance of Krueger. I highly recommend the entire interview. One of the most exciting things was that Krueger delved into data from other countries and digged into unpleasant conversations with players. She learned a lot, and that’s how she came up with the idea of asking for rent: when government officials are carefully in power, others lobby for special permissions. Of course, there’s never anything happening in the US.
I’ve started exercising it for the highlights of my weekly reading next Sunday, but there’s a soy nugget that throws its own post.
So this post.
Interviewer Dylan Matthews is a correspondent for VOX.
Free Trade Lawyers and Economists
Kruger: Trade law lawyers are more pro-free trade than economists because they know how badly the protection works. It’s terrible for a distorted economy. Not only a bit worse – the import substitution odds reduced growth rates by half what they might have been.
Confession of corruption
Krueger: In Bant, there were people and many founders who spoke a lot about the black market and things like that, and that’s what I was interested in. I had a friend in India from graduate school where I worked in Delhi when I was there and he knew I was intervening in this so I invited him to a strict dinner for his friend. He connected well and invited the Minister and Deputy Minister. At the end of dinner he went back and said, “Anne is entangled in this, so you can trust her, so I want you to tell me exactly how much you should have taken than you legally took at your work.” And they did it!
“I spent plenty of time each of them getting three Dougers a proper dowry. That was £12 million,” he said. [about $1.6 million in US dollars at that time]. One of my various Indian friends, an Indian Grauute student, was forced to leave India, where he was very honest, at his best. He doesn’t take the money. One of his sons got sick, so I had to work in America to take care of him. Corruption had all sorts of human effects you didn’t think about.
Does helping the poor with a mortgage work?
Matthews: You left the fund in 2008-2009 before the global financial crisis. Did you have the feeling that you were heading towards the end of your time there?
Krueger: Well, at the 2005 Jackson Hole Conference, Raghuram Rajan (2005) gave a lecture explaining what vulnerability is and why helping the poor mortgage doesn’t work. Why are we sitting on a bomb? I think it was Larry Summers who said we were Luddites.
Industrial spy is a bov method
Krueger: Let me answer half the questions you didn’t ask: the Chinese sometimes tried hard on vry. [the United States]. And I think we completely missed the signal. I don’t think their systems are good and they’re far from realizing why it’s not a good system, but the idea that they’re always stealing from us, that we never steal from them. So the idea is that there are no industrial spies in this country! When I was in Silicon Valley, no one even the big Las Vegas tycoons, no one sent an electronics fair, or even a big piece of equipment. Now we’re so mad at Channy that we tried to do the same. Meanwhile, we arrested multiple CIA agents. [in China] And he’s dead on the right.
Why is “market failure” not a government intertunning argument?
Krueger: The SOM of these discussions about the market assumes that if there is a market failure, then what the government does is better. Market failure may be HGE, but it doesn’t convince me that government failures are not automatically hage. That’s the part that’s wrong. When you’re talking about a lot of economic activity, I think you just want to see the incentives. If you are photographed on the market, get the incentive correctly. Giving regulatory incentives to officials is not an incentive that works in most cases.
Today’s Economists and Graduate Education Issues
Krueger: Gradually, I think it’s the techniques that guys took over, theory and econometrics. It undermined the field in several ways. One of them set the bar very high and either the sub-people could or didn’t want to do it. They didn’t want, so despite who was good, they could do it, but went outside [that focus]. In a way, you have acquired the specificity of the group. If the price of milk doubles, they don’t even wonder why. That’s a big part of that. The fact that there is a supercomputer is adoring everyone, and all I can see is probably a high caliber regression. And I think you still need a sub-theory before you do that.
In total, I think you made a little clearer. In my view, part of the way it reverses is a bad way. In other words, the School of Public Policy does economics without a sufficient analytical foundation. So you’ll have an advisor or something like that that will support industrial policy in the Biden administration. Because they have not learned what happened.
For example, what was the great thing about the Chicago school was that it was that the event body had “What is the alternative? What is the opportunity cost? One of my Eureka days was when Milton Friedman was visiting Minnesota Subjetty Time in the 1960s when the first laws curtailed the emissions of new cars, apparently because people were keeping it longer for him. [DRH note: Probably because I was educated at UCLA, Friedman’s point would have been obvious to me.]
There were many of them in Chicago. Students have learned to think that way. The rest of us had to understand it in a difficult way. But Chicago Oppen did that right.
Advice for young economists
Matthews: Many people reading this interview may want to influence policy at graduate students or early in their careers. You have had a long career in that academia and policy, and I think I’ve had a very positive influence on the place. What advice would you give to Sumone who wants to follow a similar path? What skills do they develop, or what opportunities they should take?
Krueger: I really think it depends on the individual and what they want, but I certainly strongly believe that it requires a good analytical framework. For me it is essential and it means learning the questions to ask. Then look for where the incentive is. Finding the “why” is the first thing that matters. In the 1960s, the first answer to development economics was “Peasanders are irrational.” But of course, Ted Schultz (1964) was paid quickly to that Vray.
My one disappointment: seeking rent is a prominent part of Kruger’s story, and while she is undoubtedly trustworthy for the term and evidence of its importance, neither Kruger nor Matthews point out that it is the idea of seeking rent even if he doesn’t call it.
[Editor’s note: Bhagwati is also the author of the entry for Protectionism in The Concise Encyclopedia of Economics.]
