Understanding the Great Recession

A special session at the annual meeting of the AAG was devoted to Paul Krugman's Nobel, and what that meant for economic geography. There one of the panelists recalled his encounter with Krugman years ago. The panelist finished his talk at a seminar when he was a visiting professor somewhere in Europe (I forget the name exact location.) It turned out that Krugman was also there at the same time. When it opened up for Q/A, apparently Krugman mocked that the research that the panelist presented was nothing but simple anecdotes for the edification of undergraduates.
That reminded me of the time when I was in graduate school--I came across an essay where the economist Robert Solow had written a damning critique of my adviser's essay. True to my nature, I brought this up with my adviser, who said something like, "oh, where he knocked me on my head?"

I suppose it is rare for a super-genious to be gracious to others. Many others, like Larry Summers, are also notorious for such behaviors. But then, hey, it takes all types of people to make up this planet :-)

In the NYRB, Solow has a critique of Richard Posner's latest book, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression. An interesting review for many reasons. In wrapping up the essay, Solow writes:

The problem is rather that Panglossian ideas about "free markets" encouraged, on one hand, lax regulation, or no regulation, of a potentially unstable financial apparatus and, on the other, the elaboration of compensation mechanisms that positively encouraged risk-taking and short-term opportunism. When the environment was right, as it eventually would be, the disaster hit.

Like I am going to disagree with Solow and get knocked on my head! :-) Seriously, there is nothing to disagree here. In reaching this ending, Solow has lots of wonderful explanations for the crisis, and dissects Posner for sloppiness. It was interesting to note how Solow threaded in Posner's book on Public Intellectuals: A Study of Decline.

In his book on public intellectuals, Posner blames the decline of the species on the universities and their encouragement of specialization. I may be acting out that conflict. Remember that even hairsplitting is not so bad if what is inside the hair turns out to be important.

Ouch! That is the Solow knock on Posner's bald head! Oh, the sentence just before that quote? "his grasp of economic ideas is precarious" . Hilllaaarious .... :-)

So, what is the alternative to sweatshops?

It was in my second year as a grad student at USC that I first interacted with Professor Harry Richardson--I was enrolled in his class.  A fellow student complained about the labor conditions in the maquiladoras.  Harry, who later was my dissertation adviser, asked what the alternatives were if those factories were ordered closed because of conditions that are not ok by our standards.  I can even now picture the class in my mind, and the student who brought up the point had no answer--she seemed kind of stunned that somebody could ask such a question.  Kristof's column on sweatshops essentially is a restatement of Harry's remarks.

Maybe I remember it so well because I think that was the year I know I started losing belief in ultra-left policy alternatives--like many, I too quite seriously sympathized with leftist idea(l)s when I was in India.  Graduate school was the time I read and discussed a whole range of political/economic/philosophical ideas, starting with my roommate, Avu, who was in the doctoral program in the business school.  The facts didn't quite match up with the rhetoric of the left.  Slowly I started drifting towards the middle.

The political journey hasn't ended yet, and for all I know I might hit the reverse gear too.  As of now, and thanks to Camille Paglia, I now have a label to describe myself--a Libertarian Democrat!  (Can't remember where I read it a few years ago, and I can't seem to track it down.  She said that before Kos used that phrase.)