Monday, May 30, 2016

Noah Smith has very low standards

Noah Smith made a ridiculous claim and insists that he is correct. But he does not stop there. For some reason, he chooses to blow it all up by exaggerating the differences in our positions.

To review, Smith asserted “incredible progress in poor countries” over last 30 years. Doubtless, there has been progress over the last three decades. After all, countries do generally grow. But incredible? Progress was generally more slow in comparison to, say, the 1960s and 70s. To be sure, some countries have done well. India– a Smith favorite— grew at an average annualized rate of 4.6 percent per capita between 1985 and 2015. And sure, there are a lot of poor people in India. But I do not consider this “incredibly” fast growth in comparison to 1960-80. The Penn World Tables show countries growing at least 4.6 percent per-capita per year between 1960 and 1980: Spain, Malawi, Tunisia, Portugal, Malaysia, Brazil, Greece, Thailand, Cyprus, Korea, Hong Kong, Japan, Gabon, Taiwan, Singapore, Malta, Botswana, and Romania.

Maybe every single one of these countries simply caught up following a period of poor growth yet no such claim may be made regarding India. Maybe I just have higher standards for incredulity. I find Botswana growing 8 percent per year a bit more impressive.

Smith did look at papers I suggested— which indicates that since 1980 there has slowdown in many indicators of progress across all income levels. But then he moves the goalposts, writing about per-capita GDP growth
By [CEPR’s] measure, the 2000-2010 decade exceeds or ties the supposed golden age of the 60s and 70s, for all but the top income quintile.
[T]he graph clearly shows that Rosnick is wrong, and the recent unprecedented progress of global poor countries is not just a China story. Case closed.
No doubt, growth has resumed for a period. And had Smith originally asserted that poor countries enjoyed a decade of growth close to that of middle-income countries in the 1960s and 1970s, I could hardly argue. But again, we are looking for “incredible” growth over three decades— not one. Twenty years of growth one percentage point below is not made-up for by a decade half a percentage point of growth above. Hardly “unprecedented” is growth in recent decades.

I argued that truly “incredible” growth over the last few decades comes from China, rather than “poor countries” in general. Yes, China has a large share of the world’s poor, but it is still not kosher to attribute to “poor countries” what may be specific to one country. Haiti’s poor can take little comfort in China’s success. Still, between 1985 and 2015, China sustained 8.6 percent per-capita growth and now produce 12 times per person than 30 years ago. Assuming the poor in China benefitted anywhere near as well as per-capita output might suggest, we are talking about tremendous gains to very large numbers of people with who had precious little. I will return to the question of poverty later.

First, however, I would like to address Smith’s complaint that CEPR’s several reports are deficient because they averaged countries rather than people. We use countries because that is the unit of observation, and we do not want to say countries generally improved performance if Chinese policymakers did something right while the IMF pushed terrible policies on the most vulnerable. Even Smith used “countries” and not “people.” Perhaps this was just a miscommunication on his part. Twitter is not always the clearest of communication channels.

But I am willing to humor Smith on this point. What happens if we weight real per-capita GDP growth by population and create a worldwide index?

Figure 1: World Growth in per-capita GDP
Sources: Penn World Tables (1950-2011), IMF World Economic Outlook (2011-) including IMF projections

Indeed! Population-weighted growth has accelerated rather than declined. However, my argument is that this is driven by growth in China, which obviously does weight strongly. Has population-weighted growth outside China accelerated?

Figure 2: World (less China) Growth in per-capita GDP
Sources: Penn World Tables (1950-2011), IMF World Economic Outlook (2011-) including IMF projections

Oops. No evidence for “incredible” growth here.

Figure 3: Without China, A Shortfall in World Growth Relative to Trend
Sources: Penn World Tables (1950-2011), IMF World Economic Outlook (2011-) including IMF projections

Yes, we see some catch-up in the 2010s– catch-up which has not as of yet continued past the period examined in CEPR’s paper on the subject. Of course, this mixes higher and lower-income countries. So maybe this is a golden age of poor-country development. Or not. But it is clear that population weights matter because of China rather than because of poor people. Which is nothing new.

It seems to me that not only is Smith willing to stand by data which in no way supports his case but he is easily impressed as well. More on that in the next post.

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