[lbo-talk] Whither AEA 2006

Paul paul_ at igc.org
Sun Jan 15 18:15:15 PST 2006


[This note focuses on a few areas presented by the AEA and some closely related associations at the ASSA meetings in Boston this month. The wide range of "heterodox" presentations (URPE, EPS, AFEE, etc) are not covered]

1) Triumph yet stagnation It is hard to believe that the American Economic Association (AEA) could become more monolithic. Yet each year amazes. This year its evolution was more stark: the annual meeting was held in Boston - that previous bastion of neo-classical Keynesian liberalism. Only one, poorly attended, session on Robert Solow remained from the era that ruled just a few years ago. This time Harvard and MIT's economists (often still Democratic Party stalwarts) dwelled on criticizing the proto-Keynesianism of Bush budget deficits and expressed the marvels of Greenspan (who was promoting Ayn Rand when Paul Samuelson made his name).

But the lack of ideas - and lack of a *role* for those ideas - seems to have begun to cost the AEA. Journalists combed the sessions and yet published almost nothing from the sessions (Joe Stiglitz' estimates of the cost of Iraq got most of the coverage). Senior advisors to US Presidents sat in half-empty rooms...their lack of clout showing. The Fed, the IMF/World Bank and various US govt departments were present - but at more junior levels than in the past, and more as a sponsor than as learner (see below). The international representation is an exception - both more non-US academics and more foreign officials (junior officials, often "sponsored", see below) were present.

The AEA and its neo-classics continue to consolidate their power and tighten internal control (and have resolved not to meet in the foreseeable future in Boston, nor New York nor Washington). But the system that produced this philosophy almost seems to begin to need them less. Even AEA membership has been slightly declining since the '90s.

2) Macro-economics and Politics Despite the very narrow band of disagreement remaining between them, there is now acceptance of a rather partisan Democratic-Republican split in the presentations that focus on certain areas, especially Presidential fiscal policy.

At what was billed in advance as "The Roundtable from Hell" [MaxSpeaks], Clinton CEA member Jeffrey Frankel (of Harvard) presented a detailed critique of the budget deficits of the Bush era, emphasizing that this is a Republican tradition, and then went on to use the standard "twin deficits" analysis (per 1980s). He argues that the rationales for the Republican tax cuts have failed, that the resultant fiscal policy will have the negative impact that orthodoxy predicts and that the larger economic conditions make this particularly irresponsible behavior. He goes fairly far in predicting that Bush's policies will lead to a near term decline in the bond market and a medium term loss of the role of the dollar. ((Mankiw and Hubbard were muted in their orthodox defenses.)) see:

http://ksghome.harvard.edu/~jfrankel/The_Twin_Deficits.pdf and related slides at http://ksghome.harvard.edu/~jfrankel/WeqTwinDeficitsSlides.ppt

3) Dramatic Changes in Income Distribution None of the mainstream commentators criticized the massive shift in US income distribution. Many referred to the recent years of healthy growth without apparent awareness that, for the majority, real income had often stagnated.

There was an AEA panel on income distribution where the first two presentations (including Lawrence Katz from Harvard and David Autor of MIT) calmly explained away the changes as normal market adjustments to changing skill demands resulting from changed global technology. BUT the 3rd presentation swept this away -- a simple historical reconstruction (by Pikketty & Saez) of the income shares of the rich (based on tax data, extending the pioneering work of Simon Kuznets). In an understated, factual, way they show how the income distribution of the US Canada and the UK dramatically shifted as a result of the Depression and WWII and under neo-liberalism have radically shifted back -- to the extreme of a return to the 1920s. They also show how the continental Europe and Japan have seen no such change -- dismissing the 'changed technology' thesis. (see The Evolution of Top Incomes: A Historical and International Perspective http://emlab.berkeley.edu/users/saez/piketty-saezAEA06.pdf ) [BTW confirmed by several other works such as by Tony Atkinson and the UN University/Wider]

4) China There were a plethora of sessions on China. Few sought to understand China itself; most focused on the short run impact or opportunities for foreigners (FDI, exchange rates, doing business, entrepreneurs, etc). But the AEA policy world is clearly fragmented about strategic policy towards China with some sharp divergences.

A core "established" group are calling for the standard prescriptions: re-valuation, capital account liberalization (not to mention overall liberalization), etc and are prepared to brave the deflationary effects on China they mostly acknowledge this portends. They see the pain as worthwhile in order to break the closed nature of China's economy which some also see as a world threat. Staff from the Inst on Intl Econ (IIE, very influential in Washington establishment circles) presented this view along some support from the international economics specialists of the eastern elite universities (Peter Kenen of Princeton, Frankel of Harvard, etc) [see http://www.aeaweb.org/annual_mtg_papers/2006/0107_1015_1301.pdf]

A smaller (less influential?) group are less keen to prematurely break up arrangements that they feel have worked well and see the change in growth trajectory of Japan and of the Asian crisis as cautionary tales. These views can be found in papers by McKinnon of Stamford [http://www.aeaweb.org/annual_mtg_papers/2006/0107_1015_1302.pdf] and somewhat in Eichengreen's suggestion for an Asian currency area [http://www.aeaweb.org/annual_mtg_papers/2006/0107_1015_1303.pdf].

An attempt to mediate these views came from the IMF's chief economist for China (Deputy head of the IMF Anne Krueger has expressed no such moderate views). The more moderate views often came from those from the Asia region itself or the west coast of the U.S. Those closer to Washington power seem to arguing for a hard line and pressing for action.

5) US Statistics There have been a number attempts, subtle or explicit, to influence US and international statistics. In addition, the numbers presented by statistical agencies increasingly include adjustments that emerge from modeling and imputations some of which rely on neo-classical general equilibrium models which can bias the very economic questions under debate.

One AEA panel reviewed the 10 year aftermath of one well known incident - the so-called Boskin Commission, formed after Alan Greenspan, followed at length by New Gingrich, detected biases in the Consumer Price Index that were allegedly inflating 'cost of living' adjustments in social payments, salaries, etc.

Robert Gordon (close at the time to Sen Moynahan) and a hard critic of the CPI defended their position and made it clear that this may well resurface (see NBER Working Paper No. W7759 for a statement of his views). The senior statistician at the time (Jack Triplett, now at Brookings) stressed the disservice done to statistics by Boskin Commission while acknowledging that it has had considerable impact both in the US and in international statistics. His criticisms of the Boskin work were supported by Dean Baker (from the floor) and, to some degree by, Martin Baily one-time Chair of Clinton's CEA. (see http://www.nber.org/sloan/Triplett.html for background)

Principal concerns focused on: the inappropriate shift from a Price index to a 'Cost of Living' framework, one sided methods and choices for quality adjustments, one sided interpretations of adjustments for new products, inappropriate confusion of "bargain" retail outlets with those providing better services and locations, inappropriate use of the geometric and superlative indexes, etc.

In other panels technicians from the various Govt agencies, along with economists that have worked with them, made clear that neo-classical modeling has been on the rise in the formulation of statistics and that this trend is likely to continue and even grow.

6) "Sponsors" of Economic Research Over a number of years there has been a growing trend for interested parties to "sponsor" academic research for presentation to the AEA, among other venues. However, the AEA (along with much of the discipline) has not yet embraced disclosure rules or non-conflict-of-interest rules that are standard in other parts of academic research.

The World Bank and the IMF have been particularly active in sponsoring such research. As in the past, many AEA panels promoted the policies advocated by these institutions - without attention to alternative views (in some years there were even presentations assessing these agencies actual job performance). But a large number of the presenters in these panels were receiving funds from these same organizations (or even in the final stages of being recruited as full time staff) as were some members of the AEA program committee that put the panels together. In the absence of Association standards, usually there was no disclosure to the audience. (In fact, ironically, some of the audience were also "sponsored" - junior government officials from 'emerging' nations who had been sponsored indirectly by these same institutions - ostensibly to hear the best advice academic independence could offer.)

One hears of a similar influence exerted by the Federal Reserve in the area of monetary policy. This year a new "sponsorship" was brought to my attention: the Office of Advocacy of the Small Business Administration apparently "sponsored" three AEA panels as part of its special award to William Baumol. The "sponsorship" was not mentioned in the Program. The Office of Advocacy of the SBA has an utterly unique mandate for a government agency which permits it to "...independently represent the views of small business to federal agencies, Congress, and the President". (see "[SBA] Advocacy Sponsors Three Academic Seminars at the American Economics Association" http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/01-09-2006/0004245275&EDATE )

Hope this has been useful Paul



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