It’s time for Spoiler Alerts to award its annual Albies for the best writing on global political economy over the past calendar year. The Albies are named for the late, great political economist Albert O. Hirschman. Past winners have varied from prestigious university-press books to snarky Twitter feeds. The important thing about an Albie-winning piece of work is that it forces the reader to think about the past, present or future politics of the global economy in a way that can’t be un-thought.
In no particular order, here are the 10 Albie winners for 2016:
1) David H. Autor, David Dorn, and Gordon H. Hanson, “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade” NBER Working Paper 21906, January. Okay, I lied about the “no particular order” thing. If I was giving a single Albie in 2016, this would be the paper to get it. Autor and his co-authors show that China was a large enough economy for its opening to wreak massive distributional effects on the U.S. economy. In short, sectors and localities most affected by import competition from China faced permanent reductions in lifetime income. The sentence “alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences” sounds anodyne. This paper forced those who defend trade liberalization as a rote argument to at least question that assumption. This paper does not refute the case for freer trade, but it strongly suggests that a debate take place.
2) James Manyika, Susan Lund, Jacques Bughin, Jonathan Woetzel, Kalin Stamenov and Dhruv Dhingra, “Digital globalization: The new era of global flows,” McKinsey Global Institute, February. The focus of this paper is ostensibly the rise of cross-border digital flows, but the shocking top-line statistic is the aggregate decline of cross-border transactions since the 2008 financial crisis. In 2007, global flows of goods, services and capital peaked at 53 percent of global output. By 2014, it had declined to 39 percent. It is possible that data flows can compensate for some of this slacking off, but the MGI report offers some grist for the “peak trade” thesis and its concomitant effects on the global political economy.
3) Guglielmo Barone and Sauro Mocetti, “Intergenerational mobility in the very long run: Florence 1427-2011,” Bank of Italy working paper No. 1060, April. There’s been a lot of concern over the past decade about declining income mobility in the United States — i.e., that the station in which one is born exerts a more powerful effect on a person’s lifetime income stream than anything else. Most of these studies compare only two successive generations, however. Barone and Mocetti look at Florentine families with surnames that stretch back to the Renaissance. They find “some evidence of the existence of a glass floor that protects the descendants of the upper class from falling down the economic ladder. These results suggest that the persistence of socioeconomic status in the long run is much higher than previously thought.” For all the creative destruction that capitalism is supposed to wreak, the persistence of income effects from half a millennium ago — due to both economic and political power — makes for some sobering thoughts.
4) Bruce Bueno de Mesquita and Alastair Smith, “Competition and Collaboration in Aid-for-Policy Deals,” International Studies Quarterly, April. Donald Trump wants to broker deals to give the United States better terms in world politics. The problem is that the United States is no longer the only country able to offer deals to smaller states. Bueno de Mesquita and Smith argue that the presence of multiple, competing aid providers undercuts any great power’s ability to use carrots to extract policy concessions. Ironically, if Trump should choose to slash foreign aid because of this dynamic, it would increase the likelihood that China would get favorable policy concessions, because of a decline in competition among donors.
5) Paul Romer, “The Trouble with Macroeconomics,” The American Economist. Romer’s abstract starts, “For more than three decades, macroeconomics has gone backwards.” It becomes more brutal from there. I explained the significance of Romer’s essay on the state of macroeconomics in September. This came out around the time that Romer was hired to be the World Bank’s chief economist, suggesting that it will be extremely difficult for economists to wave away his musings on this topic.
6) Michael Gove’s denunciation of experts, Sky News, June 3, 2016. The link takes you to the full exchange, but here’s the key part:
As I fretted at the time, Gove’s gleeful and politically successful rejection of the expert consensus on Brexit presaged how Americans distrusted their own experts and viewed the economy through a strict partisan lens (I’m not sure that there is an American equivalent of Gove’s comments, though Newt Gingrich comes close). Post-November polling backs this up, reinforcing a preexisting trend in which partisanship is the best single predictor to explain how anyone will approach a highly visible public policy issue.
7) Thomas Wright, “Trump’s 19th Century Foreign Policy,” Politico, Jan. 20/Josh Rogin, “Inside the collapse of Trump’s DC policy shop,” Washington Post, Sept. 8/ Larry Kudlow, “The Trump Transition is Transcendent, But the Economy Needs Attention Now,” National Review, Dec. 23. The combination of these three articles might offer the best take on how Trump will govern — and the answer is “not well.” Wright’s exegesis of Trump’s comments over the past three decades illuminates the president-elect’s zero-sum view of the global economy. Trump might lack information, but he does not lack a coherent worldview, which is a very dangerous combination. Rogin’s story details the utter fiasco that was Trump’s campaign policy shop, suggesting the difficulties that the president-elect might have in trying to convert his own ideas into practice.
Kudlow, a non-economist rumored to be Trump’s chair of the Council of Economic Advisers, symbolizes the quality of advice the president-elect is about to receive. His National Review essay opens with, “President-elect Donald Trump’s transition continues to go smoothly. Better than smoothly. Confidently. More than confidently. Transcendently.” Kudlow goes on to explain that Trump’s Cabinet of plutocrats won’t be a corruption problem because “wealthy folks have no need to steal or engage in corruption.” Speaking truth to power is much rarer than most policy wonks think, but Kudlow’s essay is pretty much the opposite of that.
8) Kenneth Rogoff, “Donald Trump could be good for the economy,” Boston Globe, Dec. 12. If this year has taught me anything, it is how wrong I could be about the future. Everything I have learned in my profession tells me that Donald Trump will be an unmitigated disaster of a president. But that doesn’t guarantee I will be right. At a minimum, the stock market’s post-electoral bounce suggests that maybe the worst won’t happen (or, maybe, that markets are not the political predictors that some believe them to be). Rogoff’s op-ed offers up the most plausible theory for now that a Trump economy can boom: a combination of deregulation, tax cuts, fiscal stimulus, and the unleashing of the private sector’s “animal spirits.” Rogoff allows that this rosy scenario might not come to pass; it would be churlish of me not to acknowledge the possibility that it might.
9) Manuel Funke, Moritz Schularick and Christoph Trebesh, “Going to extremes: Politics after financial crises, 1870–2014,” European Economic Review, September. This paper demonstrates that financial crises are unique in generating greater support for right-leaning populists in ways that normal business-cycle recessions do not, with the post-2008 period serving as one hell of a case study supporting that finding. Their argument for why financial crises spur rightward political shifts is more speculative but nonetheless interesting. See my Post colleague Catherine Rampell’s excellent summary of the paper for more.
10) Max Roser, “Proof that life is getting better for humanity, in 5 charts,” Vox, Dec. 23. The overall tenor of the 2016 Albies is that the Whig theory of history is wrong. Roser’s charts offer an important reminder that despite the doom and gloom that 2016 brought the world, it is doom and gloom from a very high base. In the United States, for example, Donald Trump will be inheriting the strongest economy since George H.W. Bush. The massive two-century improvement in the rest of the world — particularly the quality of life in the poorest portions of the globe — is a miracle that even 2016 cannot erase.