Such was life

Here's a funny anecdote from the economist Kenneth Rogoff about the intellectual climate of the 80s. If there's anything I love, it's irony:

There are more than a few of us in my generation of international economists who still bear the scars of not being able to publish sticky-price papers during the years of new neoclassical repression. I still remember a mid-1980s breakfast with a talented young macroeconomic theorist from Barcelona, who was of the Chicago-Minnesota school. He was a firm believer in the flexible-price Lucas islands model, and spent much of the meal ranting and raving about the inadequacies of the Dornbusch model: "What garbage! Who still writes down models with sticky prices and wages! There are no microfoundations. Why do international economists think that such a model could have any practical relevance? It's just ridiculous!" Eventually the conversation turns and I ask, "So, how are you doing in recruiting? Your university has made a lot of changes." The theorist responds without hesitation: "Oh, it's very hard for Spanish universities to recruit from the rest of the world right now. With the recent depreciation of the exchange rate, our salaries (which remained fixed in nominal terms) have become totally uncompetitive." Such was life.

The anecdote was presented at an IMF research conference lecture about the influence and brilliance of Dornbusch's overshooting model, which is based precisely on sticky prices. You can read the full lecture here.

America, The Teenage Pop Star

Uno de los cuentos más populares de Gabriel García Márquez se llama "Los funerales de la Mamá Grande." Además de tratar, obviamente, los funerales, también incluye una gran crónica del reinado de la Mamá Grande, una figura matriarcal que maneja todo el poder del pueblo. Ella pasa los días en su mecedor de bujico, mientras que su sobrino Nicanor se ocupa con la resonpsabilidad que inevitablemente viene con tanto poder.

Una interpretación de la Mamá Grande es que en ella encontramos una imagen de Colombia: su reinado es una dictadura, su poder viene de herencia, su único trabajo es coleccionar arrendamientos, y, sobre todo, se está muriendo. Es el resumen del sistema de poder agobiante y opresivo de Colombia.

Una línea de pensamiento para entretenerte: Si bien Colombbia se puede caracterizar como una vieja Mamá Grande, cuál imágen escogerías para tu propio país (en mi caso, los EE.UU.)?

Es bastante divertido—y difícil—pretender clavar la esencia de la vida política y social de tu patria con un solo personaje. Pero creo que mi respuesta será: los EE.UU. son como un Teenage Pop Star.

Por un lado, los pop stars, como los EE.UU., tienen mucho glamour, mucha buena fama, mucha popularidad, muchos afanes. Siempre se habla de ellos, siempre llevan las modas más nuevas, tienen los cuerpos más codiciados, las vidas más interesantes. Se piensa que tienen lo mejor de todo (una vez un muchacho argentino me contó que le sorprendió la pobreza que vio en Denver, Colorado, como no esperaba que la encontrara en el "Primer Mundo"); son admirados por muchos (los commentarios que he oído de los argentinos incluyen, por ejemplo, ¡qué estable! ¡qué creativo! ¡qué disciplinado!); y tienen una presencia cultural omnipresente (todo el mundo conoce tanto a los pop stars norteamericanos como la cultura general norteamericana, desde los Simpsons y películas hasta el football y música).

Fíjate que este es el discurso del exterior. Adentro, nosotros ciudadanos no solemos ver el país como un gran milagro sino una larga serie de problemas para enfrentar: una economía temblante, gran recortes en los presupuestos estatales, el terrorismo, la inmigración, la jubilicación de los baby boomers, un sistema de salud terrorífico, y un racismo intransigente, entre otros. Esta "realidad interior" se parece al hecho de que la vida privada de los Teenage Pop Stars es bastante cotidiana. Tendemos a olvidarlo, pero los pop stars son personas también, con las mismas frustraciones, las mismas ambiciones, los mismos deseos, y las mismas preocupaciones que tenemos todos. Igualmente, los EE.UU., por más poderoso que sea, es a la vez sólo un país más.

¡Ya te toca a tí! ¿Cómo describirías a tu país? Deja un commentario con tus ideas.

Orwell and Huxley

This may be a comic strip, but the analysis is very, very, very astute. I think it's right on the money:

http://www.recombinantrecords.net/docs/2009-05-Amusing-Ourselves-to-Death.html

On a related note, I've heard that one of the hardest things to learn in life is when to stop.

Scene from the Subte

I know her lips are pursed, but it still looks like she's puckering up to kiss me. Maybe she would if she had a chance. After all you don't wear leopard print and pumps at 55 for nothing. I try to inch away, but it's rush hour—

—so the best I can do is pivot a little closer to the open window, close my eyes, and submerse myself in the click-clack of subway tracks and the constant screeching of brakes.

Not All Comparative Advantages Are Made Equal

One of the foundations of international trade theory is the old idea of comparative advantage. However, in light of Latin American history, I'd like to make a tweak to it.

Quick overview of comparative advantage
Countries have a certain amount of productive resources (land, labor, capital, etc.) and they use them to produce goods and services. When resources are channeled towards a certain good or service, that means that they can't be used for something else; that is, there's an implicit trade-off every time something is produced. Different countries have different resources and are able to channel them in different ways, which means that different countries give up different amounts of other possible production when they produce the same good. When Country A is able to produce a good without having to give up as much other production as Country B, we say that Country A has a comparative advantage in that good over Country B.

Comparative advantage forms the basis of the argument in favor of trade specialization. Countries should specialize in those things in which they have comparative advantages, and trade for the rest. That way they can have more than what they could have produced individually.

Something's not quite right
After reading about the history of Argentina, and relating it with the history of all the other Latin American countries that tried Import Substitution Industrialization, it's clear that Latin America's experience in specializing in agriculture didn't work out too well for them. Indeed, these countries seem to have been (and, to some extent, still are) rather like leaves tossed about at the mercy of economic winds. At the diplomacy table, they've never had much stature either; rather, it was always the industrial powers that were naming the rules of the game.

Why is it that Latin America found itself in such a weak position? The theory of comparative advantage doesn't give preference to one type of specialization over another. It treats them all as equal. Then why was having a comparative advantage in agriculture such a disadvantage?

Technology and Comparative Advantage
I think the answer to these questions lies in the existence of a technology gap between different types of production.

Some countries are producers of inventions, and some countries are consumers of inventions. For some reason (which I leave to future research) the number of countries that produce inventions has always been small, and the number of countries that rely on those inventions is large. Because the invention-producing countries (currently known as the "developed world," or the "first world") have something that it is rare, and something that the whole world relies on, they gain power. In short, developed countries have a natural monopoly on inventions, and inventions are the most valuable thing humanity has to offer.

To illustrate the point, let's take the case of Argentina and Great Britain in the early 20th century. Great Britain was Argentina's biggest customer of agricultural products, and with the foreign currency that Argentina received in the trade it imported manufactured goods from abroad. Great Britain traded with Argentina because it was convenient; if necessary it could have imported from any other country in the world (because all countries have agriculture), or, at worst, it could have produced its own food. Argentina, however, depended on Great Britain. It needed the foreign currency to buy manufactured goods from Great Britain and the United States, which it wasn't able to produce on its own.

Thus, trading bananas for computers is not an innocent, equal trade; it implicitly signifies a power and dependency relationship.

Conclusion
If economics were only a story about stuff, then the old Ricardian comparative advantage idea would be just fine. But economics is also—and perhaps even more so—a story about power, and that obligates countries to develop the capacity for self-sufficiency.