All posts by Dr. Dani Rodrik

Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy

Innovation Is Not Enough

Rodrik-e1357149035508Dr. Dani Rodrik  is the Ford Foundation Professor of International Political Economy at the Harvard Kennedy School. He has published widely in the areas of international economics, economic development, and political economy.

We seem to be living in an accelerated age of revolutionary technological breakthroughs. Barely a day passes without the announcement of some major new development in artificial intelligence, biotechnology, digitization, or automation. Yet those who are supposed to know where it is all taking us can’t make up their minds.

At one end of the spectrum are the techno-optimists, who believe we are on the cusp of a new era in which the world’s living standards will rise more rapidly than ever. At the other end are the techno-pessimists, who see disappointing productivity statistics and argue that the new technologies’ economy-wide benefits will remain limited. Then there are those – the techno-worriers? – who agree with the optimists about the scale and scope of innovation but fret about the adverse implications for employment or equity.

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Greek Elections, Democracy, Political Trilemma, and all that

Rodrik-e1357149035508

Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy.

Consider the following scenario. After a victory by the left-wing Syriza party, Greece’s new government announces that it wants to renegotiate the terms of its agreement with the International Monetary Fund and the European Union. German Chancellor Angela Merkel sticks to her guns and says that Greece must abide by the existing conditions.

Fearing that a financial collapse is imminent, Greek depositors rush for the exit. This time, the European Central Bank refuses to come to the rescue and Greek banks are starved of cash. The Greek government institutes capital controls and is ultimately forced to issue drachmas in order to supply domestic liquidity.

With Greece out of the eurozone, all eyes turn to Spain. Germany and others are at first adamant that they will do whatever it takes to prevent a similar bank run there. The Spanish government announces additional fiscal cuts and structural reforms. Bolstered by funds from the European Stability Mechanism, Spain remains financially afloat for several months.

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Good And Bad Inequality

Rodrik-e1357149035508Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy.

In the pantheon of economic theories, the tradeoff between equality and efficiency used to occupy an exalted position. The American economist Arthur Okun, whose classic work on the topic is called Equality and Efficiency: The Big Tradeoff, believed that public policies revolved around managing the tension between those two values. As recently as 2007, when New York University economist Thomas Sargent, addressing the graduating class at the University of California, Berkeley, summarized the wisdom of economics in 12 short principles, the tradeoff was among them.

The belief that boosting equality requires sacrificing economic efficiency is grounded in one of the most cherished ideas in economics: incentives. Firms and individuals need the prospect of higher incomes to save, invest, work hard, and innovate. If taxation of profitable firms and rich households blunts those prospects, the result is reduced effort and lower economic growth. Communist countries, where egalitarian experiments led to economic disaster, long served as “Exhibit A” in the case against redistributive policies.

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How The Rich Rule US Democracy

Rodrik-e1357149035508Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy.

It is hardly news that the rich have more political power than the poor, even in democratic countries where everyone gets a single vote in elections. But two political scientists, Martin Gilens of Princeton University and Benjamin Page of Northwestern University, have recently produced some stark findings for the United States that have dramatic implications for the functioning of democracy – in the US and elsewhere.

The authors’ research builds on prior work by Gilens, who painstakingly collected public-opinion polls on nearly 2,000 policy questions from 1981 to 2002. The pair then examined whether America’s federal government adopted the policy in question within four years of the survey, and tracked how closely the outcome matched the preferences of voters at different points of the income distribution.

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The Tyranny of Political Economy

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Dr. Dani Rodrik is the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He has published widely in the areas of international economics, economic development, and political economy.

There was a time when we economists steered clear of politics. We viewed our job as describing how market economies work, when they fail, and how well-designed policies can enhance efficiency. We analyzed trade-offs between competing objectives (say, equity versus efficiency), and prescribed policies to meet desired economic outcomes, including redistribution. It was up to politicians to take our advice (or not), and to bureaucrats to implement it

Then some of us became more ambitious. Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!), we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. ………………………………….

……………………………Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits.

…………Why are so many industries closed off to real competition? Because politicians are in the pockets of the incumbents who reap the rents. Why do governments erect barriers to international trade? Because the beneficiaries of trade protection are concentrated and politically influential, while consumers are diffuse and disorganized. Why do political elites block reforms that would spur economic growth and development?  Because growth and development would undermine their hold on political power. Why are there financial crises? Because banks capture the policy making process so that they can take excessive risks at the expense of the general public.

……………………. If politicians’ behavior is determined by the vested interests to which they are beholden, economists’ advocacy of policy reforms is bound to fall on deaf ears. The more complete our social science, the more irrelevant our policy analysis………..

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