Some people have contacted me about my assertion that high debt to GDP ratios can become a drag on growth. I realize the controversy around Rogoff and Reinhart and did not reference their numbers. Here is another paper outlining the concern. “The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area.” If you happen to have Dinner Party Economics see page 181 for a more fulsome discussion.
When sorting out the costs and benefits of a project it is important to think about marginal costs and marginal benefits.
For example, the comments I made in the Globe and Mail about oil pipelines is very contingent on the fact that some oil currently goes to ocean tankers by train. This fact changes the analysis of benefits because we must include, as part of the benefits of a pipeline, the decrease in emissions and increased safety of not using trains. Furthermore, oil companies would save transportation costs on trains and gain capacity which are benefits.
On the cost side, we need to know the infrastructure costs of constructing or retrofitting pipelines which seems obvious but also the environmental and safety issues due to a pipeline.
The pipeline decision is not pipelines or nothing but rather pipelines or trains. You need the right margin to get to the right answer.
David and Goliath by Malcolm Gladwell
I am a reader, or at least I use to be, but in the last couple of years I have found it hard to read. It could be that personal matters and writing books made me too jittery to sit and comprehend the written page. Reading became a chore. In order to relax at the end of long day, I switched to the less demanding activity of watching seasons of TV shows (Bones, Suits, White Collar, Newsroom, The Good Wife, Downton Abby, Persons of Interest, to name a few and I do mean a few). Unlike watching TV shows, reading requires a slowing down of the heart rate and the eye speed in order to grasp the material. I couldn’t seem to do it. That is, until I picked up David and Goliath. Then, all the old habits, which made reading such a pleasure, flooded back. I have to say, Gladwell has made me glad read again.
Gladwell writes the way a good preacher preaches. He tells familiar stories but always injects a surprise. He repeats his themes often so you don’t have to take notes to remember them. Finally, he engages the emotions as well as the intellect. I have read all his books and they are all great but this one is special. Even though it isn’t autobiographical, it feels personal–as if he really wants to tell these stories.
Some of those stories include the ideas of economists. Indeed, after reading his body of work, he seems to like to popularize the work of academics. This book covers the research of economists who Gladwell thinks got it right and those he thinks got it wrong. As an economist, I have to say that when we are wrong in our predictions, it isn’t usually the model that is incorrect (ie marginal benefits and marginal costs) but that all of the costs and benefits including externalities weren’t accounted for. (In the real world, this is very easy to do.) Overall, one of Gladwell’s major themes–that disadvantages can actually be helpful–speaks to the economic idea that people are optimizers–doing the best the can with what they’ve got. This book very much has an economic undertone.
He also tells stories which are sympathetic to people who live by faith. I found this refreshing in an intellectual climate that treats religion as ‘fundamentally’ suspect. I am a woman of faith and I felt safe in Gladwell’s presence.
My only criticism of the book is that it ends too abruptly. David and Goliath needed more to finish things off. I kept turning the last page to make sure I hadn’t missed something but it wasn’t there.
I eagerly look forward to Gladwell’s next book both as an economist and a christian.
(We don’t just put up with our limitations; we celebrate them, and then go on to celebrate every strength, every triumph of the truth in you. 2 Corinthians 13:9b)