For public and private decision makers, there were three papers presented at Jackson Hole that are worth a read because they focus on the core issues facing all of us as we plan our strategy going forward.
Do Emerging Markets Ever Emerge?Dani Rodrik, in his paper “The Future of Economic Convergence” presents a challenge to conventional wisdom of investors and business strategists who believe in the inevitable emergence of emerging market countries. Rodrik makes the point that “convergence is anything but automatic” (savings/investment differences are not guarantees), and instead it is conditional on specific policies and institutional arrangements that have been hard to identify and implement.
Success in the structural transformation of these economies is “typically the result of “messy and unconventional interventions.” Rodrik argues that “high growth remains episodic. Sustained convergence is likely to remain restricted to a relatively small number of countries.” This paper is a needed challenge to the conventional wisdom that many emerging markets have emerged. Perhaps some is a better adjective than many in this case.
Who Regulates the Regulators?Ross Levine, in his paper “Regulating Finance and Regulators to Promote Growth,” highlights several results. First, a point we have made for many years, is that finance exerts a profound impact on growth and that, contrary to many talking heads, financial innovation is crucial for sustained growth and that improvements in finance disproportionately help the poor.
Levine argues that “increasing regulatory power tends to damage financial systems unless there are extraordinarily effective institutional mechanisms for governing regulatory agencies. Few countries have these.” Levine emphasizes the effect that regulatory policies and institutions have on incentives. In the post-Great Recession world, the conventional focus on more and more regulation should be re-examined in terms of the context of the benefits/costs of such regulation and whether such regulation is an inhibitor and not a promoter of economic growth.
Health Care: Inefficiencies Create OpportunitiesIn “Aspirin, Angioplasty and Proton Beam Therapy: The Economics of Smarter Health Care Spending”, Katherine Baicker and Amitabh Chandra focus on one of the main driving forces altering resource allocation in the United States, as well as a driving force in the federal and state budget issues that we have today. The authors focus on two types of inefficiencies—1) productive, which considers the problem of getting as much health care as possible per dollar; and 2) allocative efficiency, which focuses on the issue of devoting the right amount to health care versus other goods.
The authors make two interesting points that should be remembered in public debates. First, rising health care spending is a problem only if it is inefficient and for these authors the belief is that we can be more productively efficient. Second, slowing spending and increasing value is a difficult task. This paper, like its subject, is worth a thoughtful read.