the economy | October 02, 2011

Daron Acemoglu: One of the World's Most Cited Economists Offers Solutions

One of the world’s most cited economists, Daron Acemoglu has made tremendous strides in answering the big economic questions that have obsessed us for generations. In a far-ranging interview with The Region, he provides a roadmap of fascinating recommendations for today's deeply troubled global economy. Why Nations Fail, Acemoglu’s forthcoming book, co-authored with James Robinson, is shaping up to be one of 2012's most anticipated titles—a major work of historical, political, and cultural heft that comes along only once every few years.

Some things we learn from Acemoglu, from The Region:

The male half of the US workforce is in big trouble.

Our workforce, especially the male half, hasn’t really made an adjustment to the new technologies and types of skills that are required. Labor market imperfections play a role in that, in the sense that I think most people are not sufficiently informed about the sort of skills that they will require. ...there isn’t quite enough of an understanding that most U.S. workers who don’t have college degrees are not going to be able to get good-paying manufacturing jobs. ...Those types of bread-and-butter jobs of previous decades have gone; now those tasks are being performed by robots and computers, and instead we have an explosion of demand in the service sector.

Social insurance programs aren't helping things.

Social insurance programs, while not very generous, have really relaxed their eligibility requirements. A lot of people who get discouraged because the sort of jobs they were expecting don’t exist, drop out of the labor market. So, disability rolls, for example, have exploded, mostly with low-skilled males who are frustrated because they’re not finding the sort of jobs they hoped for.

Beware financial sector over-regulation will stifle innovation.

A lot of regulations should be in the form of speed bumps, meaning they shouldn’t eliminate financial innovation, but they should slow it down. They especially should make sure that the core of the financial system doesn’t become mired in new types of assets and new risks before they are properly understood. ...As for focusing on the asset side of banking, I think a lot of the emphasis among economists on regulation has been on the leverage side, on the liability side, so if we reduce leverage, that’s going to resolve things.

The key to solving global warming is supporting new tech, not taxing dirtier economic activity.

If you think of a single-sector economy, with one sector that depends on coal, or on gas, that’s the only thing you can do: slow down that one sector. If you want to reduce carbon emissions, you just have to slow down that sector. Now, you don’t directly slow it down; you change its composition of factors, perhaps, but you can’t let that sector take off at a very rapid rate and still, at the same time, limit carbon emissions....well, the economy has several technologies; some of them are cleaner than others. How should we shift toward the cleaner ones? When you look at the climate science, there’s a lot of emphasis precisely on this and on questions such as, When is it that nuclear power will become economical? When will geothermal or wind or solar solve both their cost and their delivery problems? … The focus shouldn’t be on slowing down economic activity, but on changing its composition and changing the type of technological changes that the market generates.

Economics was a big part of the Arab Spring.

When you have a system like this when a very narrow group controls political power for its economic ends, it also is quite disappointing for economic growth. It doesn’t encourage new technologies to come in; it doesn’t allow people to use their talents; it doesn’t allow markets to function; it doesn’t give incentives to the vast majority of the population; moreover, it encourages the people who control political power to suppress many forms of innovation and economic change because they fear it will be a threat to their stability....So the result was large fractions of the population were excluded from political voice, they were excluded from economic power and they also saw their living standards not increase because there wasn’t strong enough economic growth.

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the middle east | September 27, 2011