Economics Moving Target
/ /
Economics &
Moving Targets
I a J Azis ija @ o ell.edu
Basic Premises
• E o o i g o th a e li ked to k o ledge
p odu tio , ad a ed skills, a d isi g de a d fo
highe edu atio t o‐ a ausalit
• U i e sities go e o d a o o fi es of
a ade ia, to e e t al to de elop e t a ati e
• “pe di g su ge, isi g i t a & e t a o ilit
• Qualit gap‐‐i t a a d e t a— e ai s; a d highe
edu atio eeds to adjust to the speed a d atu e
of ha ges a oss the glo e
– U fa o a le: k o ledge e te p ise as pu li good is
o p o ised due to o
e ializatio .
– Fa o a le: potential a ess a d dist i utio
/ /
Centuries of Rise & Fall
• P e ‐ th e tu : Chi a’s i e tio of
gu po de , o pass, p i ti g p ess
•
‐ th e tu : i dust ial e olutio & g eat
di e ge e
th e tu : A e i a e tu
•
st e tu : As e di g Asia….. hose e tu ?
•
Lesso s: self‐dest u t: is o du t of those ithi
the ou t ; e i o e t/ li ate; geog aph ;
ultu e; eligio ; poli ies; i stitutio s
Last 20 Centuries Or So:
Global Growth Share
/ /
Convergences Problems
. Dis uptio i atu al o de s: populatio &
e o o i g o th outpa es the apa it of
atu al s ste s affe ti g the a s hu a
ei gs o ga ize the sel es, ausi g
dist i utio of flo a a d fau a to ha ge
. Te h olog o e ea h & to se e o l a s all
sha e of populatio to li e e o d the ea s
isis & g o i g i e ualit
. C u li g of so e esta lished e o o i
theo ies/ odels
Objectives/
Targets
Policies
Theories/
Models
Data/
Measurements
Side Impacts/
Irrelevant Var
/ /
Interrelationships for Research in Economic Development
Development
Objectives/Targets
Policies
Development
- Import
substitution
Policies
- Industrialization
and
- SOC & urban
Strategies
infrastructure
Objectives
and
GDP growth
Definition
of
Development
Development
Theories/Models
Data/Measurements
Theories
- Big push and
- Stages
of growth, take
Hypotheses
off
- Minimum
requirement
Development
criteriaModels,
- Aggregate
investment
Techniques,
Data Systems
National income
and
accounting
Measurement
of
Performance
Empirical Applications
Post-WW2
I a Azis
Policies
Objectives/Targets
- Integrated rural development
- Comprehensive employment
strategy
- Redistribution w/ growth
- Asset distribution
- Radical collectivist
- GDP growth
- Employment
- Income distribution
- Poverty (“basic needs”)
- External equilibrium
Data/Measurements
Theories/Models
- Rural development
- Informal sector
- Rural-urban migration
- Appropriate technology
- Growth-employment trade off
- Dependency theory
- SOC
- Multiple objectives
- Early forms of CGE (non-SAM)
- Sectoral planning
- National income accounting
- IO Table
- Employment census
- Integrated rural survey
- Informal sector survey
- Demographic survey
I a Azis
1970s
/ /
Objectives/Targets
Policies
• Stabilisation
• External (balance-ofpayments)
equilibrium
• Internal (budgetary and
monetary) equilibrium
• Structural adjustment
• Efficiency
•Stabilisation and structural
adjustment
•Outward orientation
•Reliance on markets
•Privatisation
•Minimisation of role of
government
Theories/Models
Data/Measurements
•Endogenous growth
•Link between trade & growth
•Interrelationships between
human capital & tech transfer
•New institutional economics
and role of institutions
•Interlocking factor markets
•Markets (e.g. outward
orientation vs. Intervention)
•Policy Analysis and
Measurement
•Impact of fiscal & trade policy
•CGE models str adjustment
•Social Accounting Matrix
(SAMs) and whole set of data
shown in 1970s Chart
•Comprehensive
disaggregated
large-scale income
expenditure
household surveys
I a Azis
1980s
Objectives/Targets
Policies
•Extending East Asian miracle
•Continued deregulation
•Improve socio-economic
conditions
•Appropriate financial
regulation
•Good governance/institution
building
•Resurgance of poverty
reduction
•Financial crisis avoidance
•Limiting globalization &
liberalization
Theories/Models
Data/Measurements
•Role of institutions
•Path-dependence & policy
endogeneity
•Monopolistic competition &
role of market & intervention
•Economics of corruption
•Role of social capital
•Sources of growth & TFP
•Growth regression
•CGE modeling on impact of
crisis, policy response &
structural policies
I a Azis
1990s
•Improved Social Accounting
Matrix (SAMs)
•Comprehensive
disaggregated large-scale
income expenditure household
surveys
•Multi-year surveys including
subjective poverty measures
•Demographic & health
surveys
/ /
Objectives/Targets
• “a e o je ti es as i
s Cha t
ith st o ge e phasis o
uestio i g the Washi gto
Co se sus
• MDG: Hu a de elop e t e.g.
edu atio a d health,
e io e t
• “DG
• QE & Fi a ial sta ilizatio
• I e ualit %‐ %
Policies
• Ca o li it & t adi g
• Ma aged glo alizatio a d
egio al i teg atio
• P o‐poo g o th
• Ma op ude tial
• Fi a ial i lusio
Theories/Models
Multiple e uili ia
“e o d‐ est fi a ial de egulatio
E doge eit u se & i stitutio
Co t ol a d a do ized
e pe i e ts & age t‐ ased
• Mi o‐ a o si ulatio odels
• Beha io al studies & eu o‐
e o o i s
Data/Measurements
•
•
•
•
• Feed a k & spillo e s i a o‐
elfa e li kages e.g., g o th‐
i e ualit ‐po e t e us
• “ha i g e o o i s suppl ‐fi st,
de sit ‐ o
u it ‐t ust d i e
• Pa el data
• Ma o & Fi s’ ala e sheet
• Mo e detailed apital flo s data
& easu es
• Fi a ial “AM ith o e i o‐
le el household/i di idual data
a d i teg ated FOF
• Beha io ‐fo used & pe eptio
su e s
I a Azis
2000s
Policies
Objectives/Targets
?
?
Theories/Models
Data/Measurements
?
?
21st Century
Global‐Regional‐
National‐Sub‐National
/ /
A. Sources of Flaws (examples)
• Growing interactions & complexity:
un related links
• Amplification, agents’ behavior:
pro‐cyclicality
• )nstitution
Evolving
B. Concepts/Theories/Models
• Methodology
• Evolution of theories/models
Humility
Fi a ial Se to
Bala e Sheet
Real Se to & T ade/
P odu ti ity & E i o e t
?
Fis al
I o e I e uality/
Po e ty
Capital Flo s
Mo eta y
/ /
P e‐GFC
Post‐GFC
* Connectedness: the density of the lines represents all the connections;
thicker lines represent more significant connections among entities
* Post GFC: banks red lines and sovereigns black lines are more
noticeable and have greater reach across the globe R. Merton et.al,
Connectedness for One Country Alone
I a Azis
/ /
Bala ce
Sheet
‐
‐
“ou e: Azis & “hi
Elevated Risks, “p i ge
, Managing
Volatility Spillo e a d Pe siste
Leh
Ma age e t
Accou ti g
a ollapse
E pa d i a iate FO BEKK odel:
e
EU so e eig de t
isis
/ /
/ /
Things to Consider
• Limit of unfettered market, mechanical behavior &
probabilistic.
• Myth of perfect self‐regulating equilibrium &
agents’ behavior K. Arrow: wrong assumption that
agents protect themselves
• Cognitive and emotional factors: psychology &
biology brain evidence far from deductive R.
Solow: “If you don't know what you're doing, for
heaven's sake do it gently”
• Breadth of socio‐political & historical perspective
• Economics’ inability to tame science , e.g., creative
destruction & to make predictions of real major
events, e.g., crisis, new markets, sharing economy
Kuhn & Popper’s unpredictability of scientific
discovery and innovation?
Humility!
“Science”
Approach
Alternative
Approach
Subjective
Perception & Judgment
about the case/situation
I a J Azis
Decision making
Science
Measurement:
Theory & Models
Objective
/ /
On University
• Too u h dis ussio s o a ki g & a editatio . Yet, the
a e ot a elia le a dsti k of p og ess i edu atio a d p o e
to ga i g. Top u i e sities esta lished & se ed so ial eeds
efo e a hi g out to est of the ou t a d the o ld.
• The e idea of the u i e sit is a i defi a le agg egatio
of ideas a d i fo atio , of hu a it a d easo , of
i agi atio a d a al sis: a eposito of k o ledge, a ho e
fo i stitutio alized i uisiti e ess; a a etake of the
a etake s of the futu e
• I a ou t ies, i ludi g de eloped ou t ies, toda ’s
highe edu atio is ad ift a d u e tai a out its a , ith
i o ies a d o t adi tio s: “lo / et og essed affo da ilit ,
a essi ilit a d ualit ; Questio a le o t i utio to
s ie tifi p og ess a d so iet ; U happ o stitue ies
Unhappy Constituents?
• Pa e ts & stude ts: st esses & te sio s of gai i g ad issio
a ade ia st i ed to agg a ate, allo p epa ato i stitutio s‐
o sulta ts to g o ith p i e; high osts & tuitio
• Stude ts: get u e gaged o o e u de ed tea he s, as the
latte tu i to o t a to s ho de ote the ti e to thei
o esea h. Not k o i g tea he e ough to ask
• Tea he : u de paid, la k of e efits health a e , a
ultiple jo s, a d o dis etio a i o e fo esea h a d
o fe e es Ha u i e sit ’s t o ost alua le assets!
• U i e sity: a e pushed to i ease size of appli a t pools, less
i depe de e. Wealthie s hools ha e the lu u to
e pe i e t e o d apa it a d e ulated othe s
• So iety: ot ead g aduates i a ket pla es is at h a d
fo fu the s ie tifi ad a e e t
/ /
On Teaching (e.g., Economics)
• Lea a dis ipli e o e tl the fi st ti e tha ha e to u lea it
a d o e t it su se ue tl . It is e t e el diffi ult to u lea
so ethi g o e o e is so ialized i to a epti g the ai te ets
of the dis ipli e ithout lea i g the ualifi atio s.
• Topi s like fi a ial i sta ilit , p ospe t theo , satisfi i g,
elati e i o e, o as
et i i fo atio a e ot so
o pli ated a d a e e plai ed easil at the
le el.
Negle ti g the disto ts e o o i theo that stude ts thi k
f ee a kets a o k pe fe tl ell ithout go e
e tal
o e sight a d egulatio , pe fe tl o petiti e odel ith
pe fe t i fo atio ithout u e tai t
• P o le : E o
is o ei ed as to p epa e stude ts fo
i te ediate theo ou ses. Yet, ajo it do ’t take othe
e o o i s ou ses so e e e posed to o e ua ed e sio
of the dis ipli e a d a e the efo e i do t i ated fo the est of
thei li es fo i g toda ’s i telle tual li ate
On Research
• U i e sities to fu d esea h i te all is a e. Added/sha ed
ost paid f o o sou es & othe s tuitio fills the gap?
• Co
oditizatio diffe e t f o o
e ializatio of highe
edu atio , o lo ge o atio . A hie e e t is ased o
isi ilit a d e te al statu e, a d a ade ia’s see i g
elu ta e, i eptitude a d ultu e of o te t e t satisfied
ith o o ditio u i dful of othe s . Yet, the ke is d i e
to e el fo itself a d to o e o e othe s’
• Use of u i uitous, e ulous, u h a used te e elle e
edu es pote tial fo o igi alit a d self‐a a e ess
• Highe edu atio eeds to ala e: esea h a d tea hi g,
s ie tifi p og ess a d a ket eeds;
ua tit ‐ ualit ‐
e uit o ‐li e‐li e ou ses . Most of all, keep links to society
/ /
Humility…..
Courage…..
….Empathy
Economics &
Moving Targets
I a J Azis ija @ o ell.edu
Basic Premises
• E o o i g o th a e li ked to k o ledge
p odu tio , ad a ed skills, a d isi g de a d fo
highe edu atio t o‐ a ausalit
• U i e sities go e o d a o o fi es of
a ade ia, to e e t al to de elop e t a ati e
• “pe di g su ge, isi g i t a & e t a o ilit
• Qualit gap‐‐i t a a d e t a— e ai s; a d highe
edu atio eeds to adjust to the speed a d atu e
of ha ges a oss the glo e
– U fa o a le: k o ledge e te p ise as pu li good is
o p o ised due to o
e ializatio .
– Fa o a le: potential a ess a d dist i utio
/ /
Centuries of Rise & Fall
• P e ‐ th e tu : Chi a’s i e tio of
gu po de , o pass, p i ti g p ess
•
‐ th e tu : i dust ial e olutio & g eat
di e ge e
th e tu : A e i a e tu
•
st e tu : As e di g Asia….. hose e tu ?
•
Lesso s: self‐dest u t: is o du t of those ithi
the ou t ; e i o e t/ li ate; geog aph ;
ultu e; eligio ; poli ies; i stitutio s
Last 20 Centuries Or So:
Global Growth Share
/ /
Convergences Problems
. Dis uptio i atu al o de s: populatio &
e o o i g o th outpa es the apa it of
atu al s ste s affe ti g the a s hu a
ei gs o ga ize the sel es, ausi g
dist i utio of flo a a d fau a to ha ge
. Te h olog o e ea h & to se e o l a s all
sha e of populatio to li e e o d the ea s
isis & g o i g i e ualit
. C u li g of so e esta lished e o o i
theo ies/ odels
Objectives/
Targets
Policies
Theories/
Models
Data/
Measurements
Side Impacts/
Irrelevant Var
/ /
Interrelationships for Research in Economic Development
Development
Objectives/Targets
Policies
Development
- Import
substitution
Policies
- Industrialization
and
- SOC & urban
Strategies
infrastructure
Objectives
and
GDP growth
Definition
of
Development
Development
Theories/Models
Data/Measurements
Theories
- Big push and
- Stages
of growth, take
Hypotheses
off
- Minimum
requirement
Development
criteriaModels,
- Aggregate
investment
Techniques,
Data Systems
National income
and
accounting
Measurement
of
Performance
Empirical Applications
Post-WW2
I a Azis
Policies
Objectives/Targets
- Integrated rural development
- Comprehensive employment
strategy
- Redistribution w/ growth
- Asset distribution
- Radical collectivist
- GDP growth
- Employment
- Income distribution
- Poverty (“basic needs”)
- External equilibrium
Data/Measurements
Theories/Models
- Rural development
- Informal sector
- Rural-urban migration
- Appropriate technology
- Growth-employment trade off
- Dependency theory
- SOC
- Multiple objectives
- Early forms of CGE (non-SAM)
- Sectoral planning
- National income accounting
- IO Table
- Employment census
- Integrated rural survey
- Informal sector survey
- Demographic survey
I a Azis
1970s
/ /
Objectives/Targets
Policies
• Stabilisation
• External (balance-ofpayments)
equilibrium
• Internal (budgetary and
monetary) equilibrium
• Structural adjustment
• Efficiency
•Stabilisation and structural
adjustment
•Outward orientation
•Reliance on markets
•Privatisation
•Minimisation of role of
government
Theories/Models
Data/Measurements
•Endogenous growth
•Link between trade & growth
•Interrelationships between
human capital & tech transfer
•New institutional economics
and role of institutions
•Interlocking factor markets
•Markets (e.g. outward
orientation vs. Intervention)
•Policy Analysis and
Measurement
•Impact of fiscal & trade policy
•CGE models str adjustment
•Social Accounting Matrix
(SAMs) and whole set of data
shown in 1970s Chart
•Comprehensive
disaggregated
large-scale income
expenditure
household surveys
I a Azis
1980s
Objectives/Targets
Policies
•Extending East Asian miracle
•Continued deregulation
•Improve socio-economic
conditions
•Appropriate financial
regulation
•Good governance/institution
building
•Resurgance of poverty
reduction
•Financial crisis avoidance
•Limiting globalization &
liberalization
Theories/Models
Data/Measurements
•Role of institutions
•Path-dependence & policy
endogeneity
•Monopolistic competition &
role of market & intervention
•Economics of corruption
•Role of social capital
•Sources of growth & TFP
•Growth regression
•CGE modeling on impact of
crisis, policy response &
structural policies
I a Azis
1990s
•Improved Social Accounting
Matrix (SAMs)
•Comprehensive
disaggregated large-scale
income expenditure household
surveys
•Multi-year surveys including
subjective poverty measures
•Demographic & health
surveys
/ /
Objectives/Targets
• “a e o je ti es as i
s Cha t
ith st o ge e phasis o
uestio i g the Washi gto
Co se sus
• MDG: Hu a de elop e t e.g.
edu atio a d health,
e io e t
• “DG
• QE & Fi a ial sta ilizatio
• I e ualit %‐ %
Policies
• Ca o li it & t adi g
• Ma aged glo alizatio a d
egio al i teg atio
• P o‐poo g o th
• Ma op ude tial
• Fi a ial i lusio
Theories/Models
Multiple e uili ia
“e o d‐ est fi a ial de egulatio
E doge eit u se & i stitutio
Co t ol a d a do ized
e pe i e ts & age t‐ ased
• Mi o‐ a o si ulatio odels
• Beha io al studies & eu o‐
e o o i s
Data/Measurements
•
•
•
•
• Feed a k & spillo e s i a o‐
elfa e li kages e.g., g o th‐
i e ualit ‐po e t e us
• “ha i g e o o i s suppl ‐fi st,
de sit ‐ o
u it ‐t ust d i e
• Pa el data
• Ma o & Fi s’ ala e sheet
• Mo e detailed apital flo s data
& easu es
• Fi a ial “AM ith o e i o‐
le el household/i di idual data
a d i teg ated FOF
• Beha io ‐fo used & pe eptio
su e s
I a Azis
2000s
Policies
Objectives/Targets
?
?
Theories/Models
Data/Measurements
?
?
21st Century
Global‐Regional‐
National‐Sub‐National
/ /
A. Sources of Flaws (examples)
• Growing interactions & complexity:
un related links
• Amplification, agents’ behavior:
pro‐cyclicality
• )nstitution
Evolving
B. Concepts/Theories/Models
• Methodology
• Evolution of theories/models
Humility
Fi a ial Se to
Bala e Sheet
Real Se to & T ade/
P odu ti ity & E i o e t
?
Fis al
I o e I e uality/
Po e ty
Capital Flo s
Mo eta y
/ /
P e‐GFC
Post‐GFC
* Connectedness: the density of the lines represents all the connections;
thicker lines represent more significant connections among entities
* Post GFC: banks red lines and sovereigns black lines are more
noticeable and have greater reach across the globe R. Merton et.al,
Connectedness for One Country Alone
I a Azis
/ /
Bala ce
Sheet
‐
‐
“ou e: Azis & “hi
Elevated Risks, “p i ge
, Managing
Volatility Spillo e a d Pe siste
Leh
Ma age e t
Accou ti g
a ollapse
E pa d i a iate FO BEKK odel:
e
EU so e eig de t
isis
/ /
/ /
Things to Consider
• Limit of unfettered market, mechanical behavior &
probabilistic.
• Myth of perfect self‐regulating equilibrium &
agents’ behavior K. Arrow: wrong assumption that
agents protect themselves
• Cognitive and emotional factors: psychology &
biology brain evidence far from deductive R.
Solow: “If you don't know what you're doing, for
heaven's sake do it gently”
• Breadth of socio‐political & historical perspective
• Economics’ inability to tame science , e.g., creative
destruction & to make predictions of real major
events, e.g., crisis, new markets, sharing economy
Kuhn & Popper’s unpredictability of scientific
discovery and innovation?
Humility!
“Science”
Approach
Alternative
Approach
Subjective
Perception & Judgment
about the case/situation
I a J Azis
Decision making
Science
Measurement:
Theory & Models
Objective
/ /
On University
• Too u h dis ussio s o a ki g & a editatio . Yet, the
a e ot a elia le a dsti k of p og ess i edu atio a d p o e
to ga i g. Top u i e sities esta lished & se ed so ial eeds
efo e a hi g out to est of the ou t a d the o ld.
• The e idea of the u i e sit is a i defi a le agg egatio
of ideas a d i fo atio , of hu a it a d easo , of
i agi atio a d a al sis: a eposito of k o ledge, a ho e
fo i stitutio alized i uisiti e ess; a a etake of the
a etake s of the futu e
• I a ou t ies, i ludi g de eloped ou t ies, toda ’s
highe edu atio is ad ift a d u e tai a out its a , ith
i o ies a d o t adi tio s: “lo / et og essed affo da ilit ,
a essi ilit a d ualit ; Questio a le o t i utio to
s ie tifi p og ess a d so iet ; U happ o stitue ies
Unhappy Constituents?
• Pa e ts & stude ts: st esses & te sio s of gai i g ad issio
a ade ia st i ed to agg a ate, allo p epa ato i stitutio s‐
o sulta ts to g o ith p i e; high osts & tuitio
• Stude ts: get u e gaged o o e u de ed tea he s, as the
latte tu i to o t a to s ho de ote the ti e to thei
o esea h. Not k o i g tea he e ough to ask
• Tea he : u de paid, la k of e efits health a e , a
ultiple jo s, a d o dis etio a i o e fo esea h a d
o fe e es Ha u i e sit ’s t o ost alua le assets!
• U i e sity: a e pushed to i ease size of appli a t pools, less
i depe de e. Wealthie s hools ha e the lu u to
e pe i e t e o d apa it a d e ulated othe s
• So iety: ot ead g aduates i a ket pla es is at h a d
fo fu the s ie tifi ad a e e t
/ /
On Teaching (e.g., Economics)
• Lea a dis ipli e o e tl the fi st ti e tha ha e to u lea it
a d o e t it su se ue tl . It is e t e el diffi ult to u lea
so ethi g o e o e is so ialized i to a epti g the ai te ets
of the dis ipli e ithout lea i g the ualifi atio s.
• Topi s like fi a ial i sta ilit , p ospe t theo , satisfi i g,
elati e i o e, o as
et i i fo atio a e ot so
o pli ated a d a e e plai ed easil at the
le el.
Negle ti g the disto ts e o o i theo that stude ts thi k
f ee a kets a o k pe fe tl ell ithout go e
e tal
o e sight a d egulatio , pe fe tl o petiti e odel ith
pe fe t i fo atio ithout u e tai t
• P o le : E o
is o ei ed as to p epa e stude ts fo
i te ediate theo ou ses. Yet, ajo it do ’t take othe
e o o i s ou ses so e e e posed to o e ua ed e sio
of the dis ipli e a d a e the efo e i do t i ated fo the est of
thei li es fo i g toda ’s i telle tual li ate
On Research
• U i e sities to fu d esea h i te all is a e. Added/sha ed
ost paid f o o sou es & othe s tuitio fills the gap?
• Co
oditizatio diffe e t f o o
e ializatio of highe
edu atio , o lo ge o atio . A hie e e t is ased o
isi ilit a d e te al statu e, a d a ade ia’s see i g
elu ta e, i eptitude a d ultu e of o te t e t satisfied
ith o o ditio u i dful of othe s . Yet, the ke is d i e
to e el fo itself a d to o e o e othe s’
• Use of u i uitous, e ulous, u h a used te e elle e
edu es pote tial fo o igi alit a d self‐a a e ess
• Highe edu atio eeds to ala e: esea h a d tea hi g,
s ie tifi p og ess a d a ket eeds;
ua tit ‐ ualit ‐
e uit o ‐li e‐li e ou ses . Most of all, keep links to society
/ /
Humility…..
Courage…..
….Empathy