Do you believe in miracles?

Tyler Cowen doesn’t, at least not any more. In a provocative NY Times piece today, Tyler says, “sustained, meteoric growth in emerging economies may no longer be possible”. He points to 4 culprits, Automation, Global Supply Sources, Wider Economic Gaps, & Aging Populations.

There is some interesting academic work on the possibility that eventual global convergence is not a sure thing, even if countries ADOPT ALL THE “RIGHT” POLICIES

Here’s Howitt and Meyer (JMCB 2005), “a country may have only a finite window of opportunity in which to raise its skill levels to those required for R&D, failing which the country will remain trapped in implementation or stagnation even if it adopts the same policies and institutions as the world’s technology leaders.”

Yikes!

Even the ever-green prescription of “free-trade” may lead to divergence rather than convergence.

Here’s Bajona and Kehoe (RED 2010), “In models in which convergence in income levels across closed countries is driven by faster accumulation of a productive factor in the poorer countries, opening these countries to trade can stop convergence and even cause divergence….Divergence can occur for parameter values that would imply convergence in a world of closed economies.

Double Yikes!!

In my own research with Norman Maynard (trans-dimensional Bayesian mixture modelling alert!!), we find that in the 1950s and 1960s and most of the 1970s, there were two distinct groups in the global distribution of cross-country income, and there was a high degree of mobility from the poor to the rich group. Since the second age of globalization began in the 1980s, a new distinct group of super-rich countries has formed, the gaps between the poor group and the richest group have grown, and inter-group upward mobility has become a rarity.

Can I get a triple yikes?

Economics, as ever, is truly the dismal science.