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February 09, 2005

Growth/Macro Luncheon Seminar: 20050209

I just gave a talk on:

Marc Melitz (2003), "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica 71:6 (November).

It's a very nice and well-done paper. It's also a paper at war with itself. Melitz tries to be:

The problem is that the first requirement is at war with the rest, so at the end of the day Melitz has not made as much progress as I would wish he had.

"And this is different from every other macro/growth paper how, exactly?" asks a Labor graduate student. Good question.

Chang-Tai Hsieh recommends:

Alwyn Young (1993), "Substitution and Complementarity in Endogenous Innovation," Quarterly Journal of Economics 108:3 (August), pp. 775-807.

Posted by DeLong at February 9, 2005 01:32 PM

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Tractable, GE, and Heterogeneity are like the Trilemma of Economic Modeling. You can have two of them and still make sense but if you have all three you wind up, as you put it, at war with yourself.
Hmmm, now I'm interested in how Melitz pulls it off.

Posted by: radek at February 9, 2005 08:17 PM

Brad there is a systematic and cynical attempt to distort the argument that you and Krugman are putting forth. You are showing the economic assumptions that produce crisis are inconsistent with the numbers required to return 6.5%. This is being twisted to assert that you accept those assumptions and that any scheme which restores 6.5% refutes your argument.

I don't know how you are going to counter-argue. My suggestion would be outright assault on Intermediate Cost by comparing it with numbers in other Bush reports. It would be interesting to have someone insert the growth numbers from the Bush budget into the Trustees tables.

I believe that stocks can return 6.5% driven by the US economy. But that requires total abandonment of every number in Intermediate Cost and accepting Low Cost as a baseline. And I am not seeing the downside risk. That data set is as official as Intermediate Cost and the numbers in it are more than reachable.

In the end the argument is going to boil down to "If we reach Low Cost numbers, the Trust Fund is fully funded. We are exceeding Low Cost, everyone predicts we will exceed it in 2005, and privatizers have a difficult task defending the numbers in the out years". Shift the debate to Low Cost. Start with a baseline of fully funded Trust Fund. Then let them try to assault.

Posted by: Bruce Webb at February 10, 2005 07:29 AM

Posted by: at March 14, 2005 10:45 PM

Posted by: at March 14, 2005 10:46 PM

Posted by: at March 14, 2005 10:47 PM

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