Tyler Cowen: evaluation

Transcript context

…Right. For the very, very top innovators, there is clearly some externalities. I think the Nordhaus numbers are probably extreme because there’s also a lot of business stealing that’s going on at the top, meaning that when people innovate, they actually take other people’s markets. Google got an amazing value. It’s one of the most valuable companies that human history has ever seen. But some of it came because it actually took the market of other search engines, such as Yahoo or AltaVista. It also created value for its customers, and it’s also been pretty good at capturing that value. But the important thing, again, is those are very exceptional one or two innovations. When you say the average level of schooling increases from 10 to 11, we’re not really capturing that. Some of the people who innovate and capture such values are not the most educated ones, and they’re not educated in the US. One of the great things about US is, actually, we attract those talents, again because of the business environment, because of the institutional environment, as well as the teams that they can form when they come to the US. There’s another paper I’m sure you know, by Casey Mulligan and coauthors, and he even argues maybe having democracy doesn’t matter that much. It affects your political institutions, but if you adjust for demographics, that doesn’t predict your educational spending. If you look at either Chile pre- or post-Pinochet, Spain pre- or post-Franco, other than how politics works, most of the budget doesn’t change much. What do you think of that argument? I think that that’s really off the mark. The early work on democracy — such an important topic, and people were really excited about understanding what democracy does. So they rushed in with the tools that we had available at the time in the 1990s or early 2000s. But you have to be careful. Of course, if you judge whether democracy is successful or not by comparing China to Switzerland, you’re going to get not very meaningful answers. That’s like a chief case of comparing apples and oranges. I have written a couple of papers on this, and the econometrics here really matters for a variety of reasons. You don’t want to compare apples and oranges. You also want to be careful because it turns out that there’s one surefire predictor of when a country democratizes — it’s economic crisis. Dictatorships don’t go often because they decide, well, citizens should rule themselves. They collapse, and they collapse more likely in the midst of severe economic recessions. So you really have to take care of these things. And when you do that, you find two things that are both amazingly robust. One is that democracies grow faster. So when a country democratizes, for another three or four years, it takes time for it to get out of the crisis. Then it starts a much faster growth process. It’s not going to make Nigeria turn into Switzerland, but a country that democratizes adds about 20 to 25 percent more to its GDP per capita. And then the second thing, again, completely the opposite of what you said from Mulligan’s research — one of the most important mechanisms for that seems to be that when you democratize, you tax more, so the taxation, the budgets go up. And you spend more, especially on education and health, so the health of the population improves. Child mortality is one of the things that improves very fast. Primary and secondary enrollment improves a little bit more slowly, but it improves very steadily.…

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