Musings on: “What the he** do you teach your students, Menzie”

Steven Kopits argues about the relevance of market imperfections, to wit:

What the hell do you teach your students, Menzie? “Well, you know, here’s the theory, but let’s not get carried away with it in real life.”? Why would anyone want to be an economist when the bulk of your views seem to revolve around exceptions to the rule, about presumptions that you are smarter than the market or that markets don’t work?

What do I teach my students? Well, taken literally, I teach them entirely mainstream economics as taught in 2021, and not as it was taught in the 1960’s. If you doubt it, take a look at my teaching page. Am I using crazy textbooks? In PA854 (Macro for public affairs), I use a draft textbook I coauthored with Doug Irwin, but on macro at least not far from Caves/Frankel/Jones. In PA856 (International trade), I use Rob Feenstra and Alan Taylor. In Econ 442 (Macroeconomic Policy) as well as Econ 302 (Intermediate Macro), I used Blanchard’s Macroeconomics. In the latter, I used to use John Taylor‘s (!) textbook. For PA819 (Advanced statistical analysis for public affairs), I used James Stock and Mark Watson’s textbook. I dare anybody to say these are outside of the mainstream.

I think the great virtue of economics training is to know when to apply simple models and when to apply more complicated models. If I want to examine the market for corn, maybe a model of a homogenous good, with full information (in the sense both sides of the transactions have roughly the same information set) is appropriate. If I want to model the market for used cars, maybe I want to use what Steven Kopits thinks is an exception to the rule, namely asymmetric information. I’m pretty sure George Akerlof, in my Ph.D. macro course, didn’t claim asymmetric information pervaded all markets. But perhaps enough markets are so characterized such that we ignore the implications of asymmetric information at our own peril.

Closer to current research, in international finance, we often talk about uncovered interest parity (UIP), the proposition that expected returns on bonds expressed in a common currency are equalized in the absence of barriers to arbitrage. But the joint hypothesis of UIP and rational expectations is one of the most rejected hypotheses in the empirical literature. Well, taking Kopits’s Weltanschauung, we should not teach the rejections of UIP, since it’s “an exception”.

Addendum, 2/9 10:30am Pacific:

Tom Michl brings my attention to an illuminating paper by Bowles and Carlin, Journal of Economic Literature (2020). Well worth a reading.

105 thoughts on “Musings on: “What the he** do you teach your students, Menzie”

  1. Moses Herzog

    It’s VERY rare that, as a person who views education very near to a religion, and believes that everyone deserves to be educated as far as they can be taken, that I have or would ever say a person does not deserve to have their question answered. This post is a very good answer, to parties asking a question, that does not deserve a reply. And that’s the only way I know how to say it.

    I have answered a lot of dumb questions in my life. >98% of them, when earnestly asked, I was more than happy to answer to the best of my abilities.

    1. pgl

      Alas Princeton Stevie pooh would force us to endure even more of his arrogant stupidity. At least Bruce Hall knows when to shut the fu#$ up.

      1. Dr. Dysmalist

        “At least Bruce Hall knows when to shut the fu#$ up.”

        I disagree. He shuts up only after he’s made a fool of himself. To me, that’s too late

        1. pgl

          Yea – you are precisely right. He just once again made him a fool out of himself on this very issue and he goes on and on digging his own hole deeper and deeper.

    2. macroduck


      The question may not deserve an answer, but it does reveal a good bit about the knowledge of the person who posed it.

      In economics, the classic assumptions regarding market structure are demonstrably wrong much of the time. In fact, the study of industrial organization is more or less the study of exceptions to the assumption that firms are price takers with no market power.

      There is, likewise, no evidence the assumptions underlying choice theory are true. The Van Neumann-Morgenstern axioms are valuable because they make the math of decision under risk tractable, not because they are true.

      Long, long ago, I took a social psychology class, and everybody in the class knew the real fun started when the prof said “Now, let’s relax the assumptions.” The clever experimental designs employed to see where behavior deviated from classic assumptions were a gas. Similarly, the idea that economics should be watered down to a few simple stylized rules misses all the fun, while ignoring reality.

      I suspect that much of the right doesn’t actually care much for reality in policy analysis. Simple-minded adherence to the assumptions behind first-year undergrad models is useful to the right-wing agenda. “Exceptions to the rules” are, in reality, recognition that they aren’t rules. They are simplifying assumptions. Once you’ve modelled the world based on those assumptions, deviations in actual behavior from behavior predicted by the model tells you the model is wrong. You relax the assumptions in specific ways to discover how the simple model is wrong in order to develop a more realistic model. Unless you’re a right-wing propagandist, in which case you insist assumptions are rules and simple-minded models are reality.

  2. Barkley Rosser

    Ah ha! I have figured out which book you use that is “crazy” and “outside the mainstream,” Menzie! It is the one you have written!!! (just kidding) 🙂 🙂 🙂

    BTW, my own fave homogeneous good with a near full and symmetric information competitive market for classroom purposes is red spring wheat number 2.

  3. pgl

    Barkley had a thorough take down of the latest incredible stupidity from Princeton Steve. I bet Stevie pooh would be happy at Pepperdine taking macro from that Nobel Prize winner Art Laffer.

    Dani Rodrik would appreciate this:

    ‘I think the great virtue of economics training is to know when to apply simple models and when to apply more complicated models.’

    He calls this navigating models in Economist Rules. I would suggest Stevie try reading it but then it would tick his closed minded rightwing brain off and we would have to endure even more incredibly long winded and dumb rants.

  4. pgl

    I bet Stevie stopped reading international trade with the Ricardian comparative advantage model. Easy to follow and “everyone wins from free trade”. YEA.

    Heckscher–Ohlin is a little more involved so it goes right over Stevie’s limited brain. And that pesky Stolper–Samuelson theorem where free trade might actually lower real wages. Can’t have that reality. After all everyone wins from free trade. Two bit, four bits, six bits, a dollar!

    1. Moses Herzog

      @ Willie
      No more than I have. I’ve pestered Menzie with a lot of elementary questions. You’ve said some erudite things in this blog, which is easier to do when you stick to whatever your knowledge base is. Something “Princeton”Kopits could learn from you.

  5. Steven Kopits

    The paper Menzie linked above uses the term ‘monopsony’ 23 times. Menzie posted the paper because we were debating the topic of monopsony. The simple read of the associated map is that labor markets do not work in the US, that we can dispense with basic economic theory because it does not apply over the majority of the US in terms of geography. The labor market is broken all over the US.

    I believe this is a very radical view, and I believe it is fundamentally wrong. The bar for monopsony is not low and casual, and it high and rigorous. The linked paper, therefore, is either revolutionary in bringing to our attention how little traditional economics is applicable as it exposes the shocking frailty of US labor markets, or it is pure garbage.

    As I pointed out for a single red county, Berkshire County in Massachusetts, on the authors’ map, we can find 300 jobs in retail alone (a subset of minimum wage jobs), using the authors’ data source, more than a dozen employers listed more than 300 jobs in the last seven days, and within 30 miles of the country seat (I think). If this is monopsony, then there is monopsony in US labor markets at every time in every place, and the basic economic theory of free markets mediated by prices is fundamentally wrong.

    Menzie very casually dispenses with the basic theory and posts front and center a map of which the plain vanilla interpretation is US labor markets don’t work. If Menzie believes that — if this is the lesson he takes to his students, that functioning markets are the exception and not the rule — then I hardly know why he is in the economics rather than sociology.

    1. pgl

      WTF? You are still bloviating your BS? Yes – the paper used a commonly used term in labor economics. Now it strongly made its case on the evidence even noting high market power lowered wages along the supply curve. Now I seriously doubt you have a clue what they were talking about even if everyone who got passed week 1 of Econ 101 (which clearly you did not) understood.

      Look Stevie – we get your sole purpose in life is getting back on Fox and Friends where you can spew your rightwing racist nonsense but I hope you realize that EVERY ONE here have concluded you are dumber than rocks. So relax – we get it. Move on.

    2. pgl

      “within 30 miles of the country seat”

      Yes long commutes to work for a somewhat higher wage have zero monetary costs or opportunity costs of time. Seriously – is your IQ in the single digits or what?

    3. pgl

      “Menzie very casually dispenses with the basic theory and posts front and center a map of which the plain vanilla interpretation is US labor markets don’t work.”

      Did you read the paper or not? The authors did not “casually dispense” with the underlying theory. Now they did carefully explain how market power works in this context. It is too bad it does not fit your little Ivory Tower view of the world where markets are perfectly competitive. But your claim here is a flat out lie … unless your IQ is negative.

      You have gone beyond annoying to down right insulting. Could you find some other place to spew your intellectual garbage as you are wasting our time with the crap.

  6. Moses Herzog

    There you have it folks, Barkley Junior proved right once again. The culprit was a scientist named “Mi NanRike RhiteZhou”. When the other scientists in the lab were looking away he squirted it on his shoes then ran down to the local beer bar and dipped his shoe into a large beer mug. “Mi” then came back 2 weeks later and had the bar regulars blow their nose on some postcards he was sending to New York State. And the rest my friends, is history.

    The breakthrough in forensic science was an emotionally stirring moment, in which Barkley thanked his high school biology teacher who he had not set his eyes on for the last 50 years.

    1. Barkley Rosser


      For the record I have never said that it came from one place or another. I am fine with it not coming from a lab, and this WHO group appears to be convinced that it did not, although they have not provided not publicly about why they came to that conclusion. I fear this may lead to suspicion on the part of many that they were overly influenced by their hosts in coming to this conclusion, although I do not know if that is the case. But the lack of a clear alternative is at best frustrating.

      As it is, the CNBC report I read said that there are “doubts” about their findings because of all the delays, which fits with my forecast that we shall not find out the source because too much time has passed and too much data has disappeared. Indeed, the bottom line is they have not discovered the source and are left with something seriously unsatisfying: that it “probably” came from an intermediate species to humans, not directly from bats, but that intermediate species has not been identified. That would suggest they are back to focusing on the wet market as where it got out, and there apparently were a couple of species sold there that might have served as such an intermediary, since no bats were sold there. I discussed this when this issue was pounded around last year, with your contributions to this discussion to be to declare definite answers while I noted we did not know, but there were (and are) several possibilities

      But that market was shut down with everything cleaned up and taken away, so even if that is the source, we shall almost certainly never know for sure and will probably not be able to determine what the intermediate species was, if iindeed that is what happened. I have never ruled that out. But their evidence for that appears to be all but nonexistent, a leftover since they have decided it was probably not a lab, even though they have provided no clear explanation why they are as convinced of that as they claim to be.

      1. Moses Herzog

        Let’s go to the record, shall we?? One more time for fun, the Barkley Junior laughers’ reel of tape:
        “I do not know about this remark, but the current leading theory is that this did not start from somebody eating a bat (or pangolin) from a Wuhan wet market. Rather now the best evidence suggests that it came from a lab where they were trying to develop a vaccine against bat-induced illnesses, but were careless with health security.”

        Comedy fans wanting more?? OK, OK, anything for those folks still feeling gypped “The Legend of Ron Burgundy Part 3” hasn’t been released yet.
        “It is probably not from a Wuhan seafood market, long the most popular theory. Problem is we are pretty sure it is from bats (possibly pangolins), but bats were not sold at this ‘wet market.’ If it is from there, then somehow a bat infected some animal that was there, but, as its label says, it was a seafood market, not the usual animals bats interact with. As it is, the Chinese have shut it down and thoroughly swabbed the place, so we shall probably not get to know for sure one way or another.”

        NO really, Barkley’s “sourcing” of his “science” info is the best part:
        “A more recent link is at Daily Signal by Fred Lucas from two days ago, .”

        So there you have it folks, the world-renowned biologist Barkley Junior says that “seafood are not the usual animals bats interact with” (Did Barkley think these animals could only transmit virus by sex, or fish having a conversation with bats about the local weather??) I guess Junior doesn’t know animals belonging to different species are sometimes transported together in extremely unhygienic conditions before being eaten. Or they are sometimes butchered using the same tools on the same table top (surface). David Ignatius and the CIA forgot to pass on that little information gem to poor Biologist Barkley. [ if you are rolling around on the floor right now laughing, please be sure to write the taxpayers of Virginia and thank them, hysterically funny comedy is hard to find in the Covid-19 period, and it doesn’t get any better than this. Adam Sandler and Will Ferrell locked up alone in a writer’s room for 2 years solid, couldn’t come close to this kind of side-splitting satire }

      2. Moses Herzog

        Folks, if you’d rather avoid the feeling of going totally F’ing braindead like Barkley Junior’s students feel, roughly 3 weeks into listening to his course lectures, please feel free to avoid the sensation of maggots feeding off the tissue that you used to call your brain cells, and read the following article, which is going to tell you a lot more than David Ignatius’ drinking buddies at the CIA know about a seriously contagious and mutating virus:

        I promise to God, even Fred Lucas at the Daily Signal will forgive you for not clicking his clickbait for the senile~~even Fred knows his “writing” stinks that bad. Worse than bat$hit even.

        1. Barkley Rosser


          None of my remarks said that there was a definite answer one way or the other. The evidence has gone back and forth. With this WHO report it has now moved back towards probably not lab after reports recently saying probably lab. We still do not know the bottom line.

          Two points to keep in mind: 1) there absolutely have been viruses escaping from labs, both in China and the US, so dismissing this as impossible as you have done is stupid and ignorant. 2) There have been massive reports that this WHO group has been blocked on many fronts from being able to investigate this matter fully. We now have a report, with them having apparently talked to unknown people in or associated with the most suspect lab, with that leading to this report. Maybe it is correct and the lab was not the source. But the report has not at all determined the source. They now say it is probably some intermediate animal between bats and humans, since bats not sold at the wet market. From the quotes you have been spending your time as an unemployed person dredging up indeed suggested pangolins as a possibility. But this report does not say and does not know. It remains an undetermined mystery what the source was, and I have since last spring this will be the bottom line.

          1. pgl

            If it does go to court, let Princeton Steve be the prosecutor. Charges will be dismissed before lunch. Yes – he is that incompetent.

          2. Moses Herzog

            @ Barkley Junior
            One needn’t be “unemployed” to find a plethora of asinine statements and posts by you Barkley Junior:

            Indeed, it would be a full time job, if I had to track them all down, rather than just highlighting about 3% of the inane and laughable things you say. Then, indeed, I would have to take time away from my job. But I will continue on “dredging up” all of the very derisible and plainly false statements you make, as long as you continue to make them. And that will not change however way “I make my daily bread”.

          1. Moses Herzog

            @ Barkley Junior
            Well, the WHO was making their official report, so it’s kind of topical, and it’s important to me that you get proper credit for your vast wisdom. So when the WHO says the chances are infinitesimally small Covid-19 came from a lab, I want to make sure people know that’s in direct contradiction to what you stated more than once~~~with the support of Fred Lucas and CIA lackey Ignatius of course. So people can weigh that in their minds who is more apt to be correct. I’m sure between the WHO and you, people will obviously choose your side, ‘cuz….. uh…… you’re like…… a genius, and stuff.

          2. Barkley Rosser

            It is topical in the news but not on-topic to this thread. The report is duly noted, but you need to note that a lot of independent scientists are not convinced for reasons I noted above. They talked to unknown people at a lab in Wuhan. Who were those people? Were they under an undue influence from the Chinese government? Given that the PRC govt prevented WHO people from talking to anybody there for a long time, it is pretty certain that whatever somebody there said to the WHO people was going to be fully vetted by the PRC government.

            Again, the alternative is basically a joke. It came from an intermediate species? Maybe, but they cannot even name it, and they will never find it. Frankly there have been more viruses escaping from labs in China than have come to humans via an intermediate species. Really.

            Again, my bottom line all along has been we shall not know for sure, and that remains the case now. As already noted, we have reports from various experts going back and forth on this, but this one is not going to be all that definitive given the total lack of transparency, its weak conclusion, and the known level of high pressure put on the visiting team by the PRC government, whose conduct in this investigation has bee mostly pretty awful.

            As it is, you have all along been quite sure that it absolutely could not have come from a lab, even though it is accepted even by the Chinese govt that they have had viruses escape from labs, so this is not something off the wall or impossible. You have indulged in making extensive insulting remarks and rants that have been utterly unjustified. You claim people are laughing, but I think if they are it is at you, ot me, and now many are feeling sorry for you that you must indulge your love/hate attitudes towards your dad’s lectures about education by your off-the-wall sadistic rantings here that are not welcome by our hosts for indeed being off-topic, even if you think it is “topical.”

    2. Barkley Rosser

      BTW, Moses, my knowledge of biology goes well beyond what my high school teacher taught me. I know you resent like hell being reminded of such things, but I have published papers in refereed academic journals on biological issues that have citations as reported on, you know it is coming, Google Scholar.

      As it is, last year and now, I have been carefully cautious about what I have said, and I do not see anything I have said on this topic to be found to be clearly wrong.

      1. Moses Herzog

        @ Barkley Junior
        No, I don’t actually. I know you imagine in your narcissist mind that anyone who disagrees with you must resent you, because for a narcissist everything has to circle back to themselves in some form or fashion. Rather I enjoy getting you to claim your deep knowledge on science as you concurrently tell us Covid-19 came from a science lab. I’m greatly humored by that. And it doesn’t take much effort to get you to self-aggrandize, which when you’re often wrong in your statements, makes the error more fun. It’s like watching Barney Fife discuss how to use a gun.

        1. Barkley Rosser

          For the record, you worthless liar, I never said the virus definitely came from a lab. You are the one who has long insisted that it definitely did not come from a lab, a conclusion even now this WHO team is not going so far as to say. They say “vey unlikely.” That is not “definite.”

          If you keep up this level of just outright lying about what I say, which is reaching Trumpish levels again, I may return to asking that Menzie just outright ban you. Heck they took Trump’s twitter account away.

          You should have accepted that peace offering from me rather than returning to a lot of inaccurate sick ranting.

          1. Moses Herzog

            @ Barkley Junior
            You are welcome to request Menzie ban me, or anyone of your choosing to be banned from this blog. I view Menzie as a fair arbiter as our host. I can think of many things Menzie strongly disagrees with me on. Perhaps including Brexit, he probably strongly wishes I would “tone down” my vulgarity, Tulsi Gabbard’s personal integrity, gender issues, some of Bernie Sanders’ economics stances, MMT and I wager many other things. I am pretty certain I have never requested Menzie to ban you from this blog, and Menzie is welcome to correct me on that point if he knows otherwise. I am willing to let the points of argument and points of fact stand on their own bedrock. Which is one of the reasons I enjoy quoting you back to yourself (with links, because I know what you will claim if I don’t provide those permalinks). I think maybe you may be used to bullying students with their grade and other means if they point out incorrect things you say. I would never accuse anyone of that, but it seems with some professors, that type of behavior is not hard to imagine. However, I do not think that is the point of this blog.

          2. Menzie Chinn Post author

            To whom it may concern: If we want the discussion of the topic I am posting on to remain the center of discussion, I suggest that commenters restrict their comments to those points adjacent to the topic at hand, rather than referring to past comments on other subjects. In this manner, we will have more constructive – and hence less rancorous – exchanges.

            However, if you wish to harp on some subject of your own choosing, then comment away at will. I cannot and will not go through each and every exchange to validate whether assertions are correct or not. I am not paid for monitoring the blog comments (nor am I paid for writing on this blog).

          3. Barkley Rosser


            I know he won’t ban you. But you are out and out lying.


            I shall try not to respond to Moses coming out of nowhere with off-topic thread-jacking attacks on me, which he has admitted he does out of a hateful sadism. I shall simply note what I think you are well aware of and anybody who is a regular here fully knows as well: I almost never introduce off-topic topics here. I do sometimes participate in off-topic threads, including ones initiated by Moses as an attack on me. But I very rarely initiate these and will continue not to do so. I do hope others will follow your appeal, Menzie, and try to keep this stuff to a minimum (I recognize ltr regularly violates this, but at least she introduces lists of empirical data on certain regular ongoing topics rather than out of the blue attacks on participants here).

          4. Menzie Chinn Post author

            Barkley Rosser: Indeed, your comments are usually on the subject of the post, and I am (very) thankful for that. Moreover, your comments are usually responding to the *current* post, as opposed to zooming way back to some past exchange.

          5. Moses Herzog

            Is Menzie implying he doesn’t like my genius tangential forays?? This is getting offensive. Can I get someone banned for this personal violation?? (that’s a joke, I am not offended)

            Me’s comments have been very good, I like Me’s comments, Now people are attacking me, I, and myself because they hate me. They attack me because they resent me. And I never do anything wrong, all my comments are great. Me wants to know why they attack I !!! People who attack me are violating the rules of this blog when they attack myself, I say. I make only constructive things when I insult others who attack me and rant against me. They hate me, because they said that about me. I have never attacked me once, which if I did attack me, would violate the rules of this blog, I should be banned if I attacked myself, because I, myself, have never attacked me. Really, I hope more people will follow my behavior here, because me always references myself on topic. Thank me for listening.

          6. Menzie Chinn Post author

            Moses Herzog: Per the weblog’s terms of use, as agreed to by me and Jim, use of racist, misogynistic, homophobic language is prohibited, and cause for banning. Being self-referential is not.

            (Heck, if it were, I couldn’t post many of my own posts!)

          7. Moses Herzog

            @ Menzie
            I know I have said some things which were borderline, or which I didn’t consider (but could be considered when reading them) as “racist” or “sexist” so when I first read the first portion of your reply it (genuinely) caused my heart to race a little, because in fact I do treasure commenting on this blog (however it may seem I sometimes semi-abuse that privilege) . Don’t tell the blog hosts though, it gives them way too much power over me.

          8. Barkley Rosser

            Thanks, Menzie. I know this matter is of concern to your co-host as in his last post here JDH made a specific comment asking two individuals not to make so many off-topic comments. He described those individuals as “MH and ltr.”

          9. Moses Herzog

            Respectfully to Professor Hamilton, this is Prof Hamilton’s appeal to me to stay “on topic”:

            You can read my reply to that, underneath Professor Hamilton’s courteous appeal. Very much to Professor Hamilton’s credit (because he is not a bully like those in Harrisonburg, VA) Professor Hamilton allowed my response that the usage of National Guard on a mass scale was related to GDP. His contention may still be otherwise, but he allowed my response. The irony here being, I plead guilty to being off topic a decent amount of the time here~~that was definitely NOT one of them. But for doddering people desperate to “score points”, I guess that must have been some kind of “major victory” worthy of a naked shot of Metamucil.

            I often wonder how guilty I really am on this (relative to others), or do people notice more, because I pay them the courtesy of often labeling the comment “Off-topic” in bold letters in preface to the comment. Remember kids, no good deed ever goes unpunished.

          10. Barkley Rosser

            I must apologize for inaccurately recounting what Jim Hamilton said to Moses and ltr. Indeed, what he said was:

            “Moses and ltr
            This post is about GDP.”

            You followed that by “very respectfully” disagreeing with him about what was relevant and what was not. You then called him “Mr. Hamilton” although later you reverted to “Professor Hamilton” when you expressed your “jealosy” over his “multiples” greater math ability than you have.

            So here you somehow think that he was fine with your commentary because he did not ban you or say anything more, although we know he almost never says anything on threads he initiates beyond his initial post. This was most definitely not a comment approving what you are doing, not remotely.

  7. ltr

    I think the great virtue of economics training is to know when to apply simple models and when to apply more complicated models….

    — Menzie Chinn

    [ Really nice. ]

    1. Moses Herzog

      I also liked “But perhaps enough markets are so characterized such that we ignore the implications of asymmetric information at our own peril.”

      These are the type sentences that I love, and why I used to love reading James Kwak’s writings.

  8. ltr

    February 8, 2021



    Cases   ( 27,700,629)
    Deaths   ( 476,405)


    Cases   ( 10,847,790)
    Deaths   ( 155,195)


    Cases   ( 3,959,784)
    Deaths   ( 112,798)


    Cases   ( 3,341,365)
    Deaths   ( 79,423)


    Cases   ( 2,296,326)
    Deaths   ( 62,597)


    Cases   ( 1,932,145)
    Deaths   ( 166,200)


    Cases   ( 808,120)
    Deaths   ( 20,835)


    Cases   ( 89,706)
    Deaths   ( 4,636)

  9. ltr

    February 8, 2021

    Coronavirus   (Deaths per million)

    UK   ( 1,656)
    US   ( 1,434)
    Mexico   ( 1,281)
    France   ( 1,215)

    Germany   ( 746)
    Canada   ( 549)
    India   ( 112)
    China   ( 3)

    Notice the ratios of deaths to coronavirus cases are 8.6%, 2.8% and 2.4% for Mexico, the United Kingdom and France respectively.

  10. ltr

    February 9, 2021

    Chinese mainland reports no new local COVID-19 cases

    The Chinese mainland reported no new locally transmitted COVID-19 cases for the second day on Monday, data from the National Health Commission (NHC) showed Tuesday.

    Meanwhile, 14 new cases from overseas were recorded on Monday, according to the NHC.

    No new deaths related to COVID-19 were registered and 75 patients were discharged from hospitals.

    A total of 15 new asymptomatic cases were recorded, while 593 asymptomatic patients remained under medical observation.

    The total number of confirmed COVID-19 cases on the Chinese mainland has reached 89,720, and the death toll stands at 4,636.

    Chinese mainland new locally transmitted cases

    Chinese mainland new imported cases

    Chinese mainland new asymptomatic cases

  11. JohnH

    I did a search on the 5 courses offered in Fall 2017. I found two mentions of the word “distribution,” one mention of “inequality,” and no mentions of oligopoly, perhaps the biggest contributor to economic inefficiency these days.

    I would argue that these issues are some of the biggest facing the US economy today, issues which I believe should be a key part of a university education as students strive to become an informed electorate.

    The following describes the problem of oligopoly in rural America today.

    1. pgl

      Oh Lord – did you have to write this incredibly dumb comment just now? Search for Industrial Organization. Oligopoly is discussed a lot.

      Come on man – under a thread where Princeton Steve is trying to deny market power in the labor market. Yes is a rightwing troll that is dumber than rocks.

      But did you have to be the leftwing counterpart dumber than even he might be. GEESH!

      1. JohnH

        Oh well. I searched the same 5 Fall 2017 courses using the term “industrial” and I found none.

        Since this discussion started with a piece on monopsony, I did a search on “monop” to cover both monopoly and monopsony. I found nothing.

        Of further interest is the fact that I looked for the UW Economics Department’s Missions and values statement. I found none, which does not necessary mean that there aren’t any, buried somewhere.

        On a more encouraging note, that the UW School of Public Affairs has its mission and values prominently displayed. It’s vision is to “Evidence-based public policymaking that impacts society’s pressing problems.” I had to assume that the related scourges of inequality and monopoly, oligopoly, and monopsony would be high on the list. In fact I found two courses dealing with inequality

        1. pgl

          Have you ever been in Madison? I doubt it. What are you searching – Menzie’s classes? He teaches macro, international, and econometrics. Not microeconomics. I would ask if you know the difference – but the answer is obviously no.

          Now if you want to suggest that the school where he teaches ignores income distribution and/or market power, maybe he can devote a new blog post calling you as well. Pass the popcorn!

          1. JohnH

            As if the big oligopolies didn’t write a lot of the rules for international trade agreements!

            And as if the highly concentrated Wall Street banks don’t have a big role to play in implementing monetary policy!

            And yes, I graduated from the University of Wisconsin—Madison with Honors.

        2. Barkley Rosser


          I know they still teach industrial organization at UW-Madison, although maybe not every semester. I have not checked their course offerings recently, but I know there are several members of the dept that specialize in that field.

          When I was in grad school there UW was fairly highly ranked in that field and a lot of people came out with PhDs from there in it, which is why I know people at the Antitrust Division of the DOJ (or did, many are now retiring). UW grads filled the place.

          I did take the two semester grad sequence in it from the late Leonard Weiss, whom Menzie probably knew. He was a very empirically and policy-oriented industrial org economist of the old school, more practical, less emphasis on things like game theory.

          1. JohnH

            Barkley, I have no doubt that there are great courses at UW and other schools.

            The issue I’m raising is priorities. And I don’t see the issue of excess market concentration as having much of a priority in the corporate media, and probably even in academia, though it is almost certainly the source widespread market imperfections and distortions.

          2. Barkley Rosser


            I think there is less focus on this now at UW-Madison, but the “old school” approach to which I referred above that Len Weiss followed has been called the “structure-conduct-performance” approach, initiated by the late Joe Bain, although the late Abba Lerner played an important role in this. At its core was the idea that profits tend to be higher in more highly concentrated industries.

          3. pgl

            “And I don’t see the issue of excess market concentration as having much of a priority in the corporate media, and probably even in academia”

            Mr. Magoo aka JohnH does not see it? Coverage of this in academia as well as the press is everywhere. Be careful crossing the street today lest you get hit by a bus that you cannot see. Can you please cease with this utterly worthless stupidity?

          4. pgl

            “I graduated from the University of Wisconsin—Madison with Honors.”

            He went to UW-Madison? WTF? I know he did not take economics. Does your former school give degrees in Basket Weaving?

    2. Moses Herzog

      @ JohnH
      I’ll tell you something you might find humorous, and many readers of this blog may find humorous. You might file it under “Who has the time??”. But when I am buying a certain product, and let’s say 2-3 different companies are selling the same product and very comparable prices and very comparable quality. You know which product I will buy?? The one which is offered by the smallest sized company. My logic is if I am helping the smallest competitor I might be helping more competitors “stay in the game”. There are other factors, such as which companies employ Union labor. When I buy chocolate and bread I pay close attention to which ones employ union labor. Ghirardelli chocolate for example employs a lot of Union labor as I understand it, even though there is no Union labor label on the packaging. 9 times out of 10 (unless there is a super cheap offering, which happens) I will take Ghirardelli white chocolate over say, Reese’s Cups, which I actually like very much. My life can “go on” without Reese’s Cups (unless as I say they offer them SUPER cheap). And it makes me feel good to support unions. Just something to ponder when you’re shopping. I shop at an employee owned supermarket, which offers its employees better health benefits and working conditions than Wal Mart. Some of you can probably guess where I shop because they do not honor ANY credit cards. That’s quite unusual. You know why?? Stores have to pay exorbitant fees to those credit card companies. The supermarket I go to won’t take credit cards—they skip the CC fees and I get my food cheaper. Not many stores do that. The other stores cater to the white suburb soccer Moms that can’t flip a few twenties out of a checkbook because it’s too “labor intensive”. Fine. They live in their world and I live in mine. I promise you though, when I load up the car on $200 in groceries, my car has more food in it than theirs does. So enjoy that credit card “Karen”. You enjoy that.

      1. JohnH

        Yeah. I favor farmers markets and locally owned restaurants. I try to avoid Amazon and try to identify and order from the companies whose products Amazon distributes. And I avoid the Wall Street banks in favor of credit unions.

        1. Moses Herzog

          @ JohnH
          NCUA~~~you are a wise man. Higher rates on your savings, lower rates on loans, and less service fees.

    1. 2slugbaits

      Wendy Carlin is really aggressive about finding ways to improve economics training. I’ve actually read the 2015 macro textbook that Wendy Carlin co-authored with David Soskice. In that textbook they attempt to take Romer’s IS/MP approach and simplify it into a 3-equation model. Carlin & Soskice also put together an online macro simulator to assist students understand their 3-equation model:

  12. Steven Kopits

    So, let’s return to Pittsfield, Massachusetts, where, per Menzie’s map, employers have a high concentration of market power. Let us consider the pharmacy market.

    In Pittsfield, there are 13 pharmacies listed on Google maps within three miles of the center of town. Most of these are either Walgreens or CVS’s, with five being independent.

    6 Walgreen’s (incl one Rite Aid)
    2 CVS
    2 Stop ‘n Shop
    1 WalMart
    4 independents

    None of the top three or Big Y, an independent, have any job openings of any type on Career Builder right now. So it’s a very, very concentrated market per a static analysis using Career Builder. Almost pure monopsony, to judge by openings listed on Career Builder.

    But let’s take a closer look at Big Y, which has two pharmacies in Pittsfield. Career Builder lists no jobs of any type on offer for Big Y. However, if I look at the company website, there are 17 job openings at one store, and 4 at the other, albeit none in pharmacy per se. (And this leads me to believe that you’ll see help wanted signs on the doors of WalMart, Stop ‘n Shop, CVS, and Walgreen’s, too.)

    Now, Menzie would have it that these, say, seven companies are running a monopsony in Pittsfield, by which he means they are hiring fewer staff than the stores might otherwise require and thereby restraining wages and at the same time targeting fewer sales (at a higher price) than they could otherwise achieve. And they are doing this without collusion. That is, these pharmacies (or integrated pharmacy supermarkets) are implicitly colluding to keep wages below market by hiring fewer people than they need because they know the competition will do the same.

    As a management consultant, I have no idea how one would do this as a management policy. This is so much more complicated and so much more subtle than anything that, say, OPEC does, and even they have trouble with cheating. You would need a lot of information about competitor in-store behavior, processed with some pretty fancy analytics. Anybody selling that software on the market?

    And furthermore, a higher minimum wage should lead to higher employment in a standard monopsony model and at the same time lead to lower selling prices. But the CBO tells us that a $15 min wage would actually cost 1.4 million jobs. So the CBO does not appear to believe in monopsony either. Of course, you can then start using modified monopsony models, but then you have to start arguing a cascade of market failures one after another. It’s nightmarish.

    And this is exactly what I mean about Menzie not believing in the economic theory he is teaching.,-73.2954474,13z/data=!3m1!4b1

    1. pgl

      Stop writing such nonsense and read that 1994 AER paper by Card and Krueger which Menzie asked you to read. You love to talk about people who own fast food joints – even advocating basically slave labor (work extra hours for free which is dare we say it – a crime). But you might note their evidence came from the fast food sector. Even you can’t miss that as it is in the damn title.

      Seriously dude – the Carnival Barkers are now laughing at you.

    2. pgl

      “But the CBO tells us that a $15 min wage would actually cost 1.4 million jobs. So the CBO does not appear to believe in monopsony either.”

      You could not have read what the CBO actually wrote as this is Bruce Hall’s line. And yes Bruce is almost as bad as you are in terms of being dishonest plus incredibly stupid.

      On the summary page, it expresses a range which includes no effect. On the summary page, it notes that raising the minimum wage to $12 had almost no employment effect.

      Of course anyone who actually finished freshman economics (which you clearly did not) would know a modest increase in a wage floor could raise employment as it approximated the D = S intersection but then further increases could lower employment along the demand curve.

      I would ask you to pause and THINK. But I have figured out a long time ago – you are incapable of thinking. Just reactive BSing.

        1. Menzie Chinn Post author

          Steven Kopits: (1) Median is 1 mn reduction. You should also read Dube’s analysis (at end of post) of why the numbers are so much larger than in the 2019 CBO report.

          1. pgl

            I get Steve is reading impaired so here is what EPI wrote:

            ‘We believe that the CBO’s assumptions on the scale of job loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate. The median employment effect of the minimum wage across studies of low-wage workers is essentially zero, according to a 2019 review of the evidence.3 Another recent review found that the median employment effect on workers directly affected by the minimum wage is less than half the size of what CBO assumed in its 2019 analysis.4 CBO’s exaggerated job loss assumptions account for 80% of the total increase in mandatory outlays.5’

            EPI footnotes a lot of relevant literature as does Dube. Of course closed minded Stevie is not going to read that either.

          2. Menzie Chinn Post author

            Steven Kopits: Gee, have I ever said CBO was always right? I think I’ve noted the challenges of estimating potential GDP, and that CBO probably does it as well as anybody else using the production function approach. Similarly, when CBO provides an estimate of job impact associated with changing the minimum wage, I give that estimate credence, but I also ask what might be problematic in the approach.

        2. pgl

          I asked you to READ the entire report and more accurately convey what it said. And this is your lame response? Lord – you are beyond stupid.

        3. pgl

          “Steven Kopits
          February 9, 2021 at 1:00 pm
          So now the CBO is wrong, but they know how to calculate potential GDP?”

          No – you cherry picked and misrepresented what the CBO wrote. But hey – act like an internet troll as that is what you are.

    3. Steven Kopits

      Some definitions of market failure:

      “In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value.[1] Market failures can be viewed as scenarios where individuals’ pursuit of pure self-interest leads to results that are not efficient– that can be improved upon from the societal point of view.[2][3] The first known use of the term by economists was in 1958,[4] but the concept has been traced back to the Victorian philosopher Henry Sidgwick.[5] Market failures are often associated with public goods,[6] time-inconsistent preferences,[7] information asymmetries,[8] non-competitive markets, principal–agent problems, or externalities.[9]”

      “Market failure occurs when there is a state of disequilibrium in the market due to market distortion. It takes place when the quantity of goods or services supplied is not equal to the quantity of goods or services demanded. Some of the distortions that may affect the free market may include monopoly power, price limits, minimum wage requirements, and government regulations.

      “Market control occurs when either the buyer or the seller possesses the power to determine the price of goods or services in a market. The power prevents the natural forces of demand and supply from setting the prices of goods in the market.

      “On the demand side, the buyers possess the power to control the prices of goods if the market only comprises a single large buyer (monopsony) or a few large buyers (oligopsony). If there is only a single or a handful of large buyers, the buyers may exercise their dominance by colluding to set the price at which they are willing to buy the products from the producers. The practice prevents the market from equating the supply of goods and services to their demand.”

      “Market failure, failure of a market to deliver an optimal result. In particular, the economic theory of market failure seeks to account for inefficient outcomes in markets that otherwise conform to the assumptions about markets held by neoclassical economics (i.e., markets that feature perfect competition, symmetrical information, and completeness). When failure happens, less welfare is created than could be created given the available resources. The social task then becomes to correct the failure. [This includes monopolies.]

      “A famous theorem in economics states that a competitive enterprise economy will produce the largest possible income from a given stock of resources. No real economy meets the exact conditions of the theorem, and all real economies will fall short of the ideal economy—a difference called “market failure.” ”

      Based on what I can find on the internet, “market failure” and “market imperfection” are used reasonably interchangeably. Market imperfection is sometimes listed as a subset of market failure. Monopoly, and by extension monopsony, is generally listed as a market failure.

      Here’s one example,of%20many%20US%20companies%20that%20Wal-Mart%20is%20causing.

      Here is another one.
      “Monopsony is a potential cause of labour market failure. ”,of%20many%20US%20companies%20that%20Wal-Mart%20is%20causing.

      And another one.
      “This represents market failure.”

      But monopoly and monopsony are also described as market imperfections. Importantly, these tend to pair together. A single buyer of a factor implies a single seller of the producers involved employing that factor. Typical examples are power plants for coal, or healthcare staff for a dominant hospital. This condition collapses for unskilled labor, which largely conforms to minimum wage labor. For example, a cashier at our supermarket today works as a receptionist at a doctor’s office. Of course, even here there are distinctions, for example, language skills and physical capabilities But a generic clerk or stock boy working at WalMart could almost certainly fulfill the same function at CVS, or pump gas at Valero, or wash cars, cut grass or deliver newspapers.

      So call it an imperfection, call it a failure. Charges of monopsony at the minimum wage level are ridiculous either way.

      1. pgl

        Cutting and pasting terms that you do not have a clue what they really means is not exactly a convincing position. Is there is a reason you continue to act like the dumbest internet troll ever? Oh wait – you are the dumbest internet troll ever. Never mind!

      2. Barkley Rosser


        I was going to comment on your first post on this thread, but I will do it here.

        It looks like both Menzie and pgl have reason tro complain about your lack of knowledge of industrial organization, with pgl indeed citing some of my posts here on this, which you seem to have studiously ignored. For starters, “market failure” is not “market imperfection,” and here you are going at it again. You continue to play this weird game of either markets are competitive and thus understood by “economic theory” or they are not and thus apparently pure monopsony and therefore not understandable by economic theory.

        Well, first of all, economic theory does provide models for pure monopsony, although that is not what we see in general.

        Second, the reality is much more widely these intermediate forms you continue to pretend do not exist, various forms of oligopoly on the sellers’ side or oligopsony on the buyers’ side. And for most of these forms there are also theoretical economic models.

        indeed, possibly the very first economic model to use calculus was of oligopoly, specifically the duopoly (two firm) model studied by Augustin A. Cournot in 1838. It provides a profit-maximizing solution for both firms that is intermediate between the pure monopoly case and the pure competition case. It is also an early and special example of a Nash equilibrium in game theory, now the dominant theoretical aproach to industrial organization.

        Have you really never studied or understood any of this, Steven? Reallyl?

        1. Steven Kopits

          So you think the manager of the local Stop ‘n Shop is thinking about Nash equilibria when they are posting a ‘help wanted’ ad? You really think that? These are people who have had my loyalty card for twenty years and still can’t figure out how to make me a compelling offer. I recently had a strange charge on my card and called up the company because I had no receipt or recollection of a given purchase. And the customer service person said that she could not see the transactions or my loyalty card history, because they were only visible in the store. Can you believe that? You think these rocket scientists know from monopsony? My god, they can’t even package coffee the way I want it.

          I think these guys put out help wanted signs and hope they get employees. If they can’t, they will eventually raise the offered wage. I think that’s about as sophisticated as it gets in the min wage segment. I think they spend a lot of time managing employee turnover and shift scheduling. And it’s done by people earning $40,000-$60,000 per year who aren’t particularly well educated and don’t particularly care for their job that much.

          How’s that for industrial theory?

          1. Barkley Rosser


            The thing about economic theory is that it may well be relevant even if agents following it have no idea they are doing so. Go back to the plain old competitive case, do farmers planting red spring wheat number 2 in North Dakota setting their production to precisely set their marginal cost equal to price because they learned that is the profit maximizing thing to do in a college econ course? Of course, not, but it remains the case that the farmers who succeed in doing so (and we know from many studies most do not precisely know their marginal costs) will make more profits than those who do not. Over time these things work themselves out.

            I have no idea what is going on at your local store or what the market structure is there. But in fact I bet that whoever is running that store knows how many other stores of the sort like his are nearby and probably roughly how they are doing and how they are hiring, which is the issue at hand here, not some personal problem you had with some bungling by some employee at the store.


          2. Steven Kopits

            Monopsony policy is quite tricky, Barkley. You can’t just hang out a help wanted sign. You have to consider the impact of hiring decisions on wages and the impact on the competitive behavior of other actors, who are presumed to be mimicking your behavior. Everyone has an incentive to defect, of course, because you can increase sales by hiring more people and reducing prices, which is what monopsony theory says. It’s dancing on a knife’s edge.

            You can’t have monopsonistic behavior without implicit collusion, else your competitors will hire a few more guys, reduce prices and eat your market share. It has essentially the same requirements are a cartel.

          3. Barkley Rosser


            You can if you are indeed a pure monopsonist. But as you now pose things, you are finally admitting and entering the world of the multiple oligopoly/oligopsony models, with indeed how these firms interact and think about each other’s behavior determining which of those multiple models is the relevant one, which can change over time in a given market. Of course thinking in these terms is what drags in game theory, which as I noted has been lurking around all this since 1838, but has taken over IO in more recent decades through people like Selten, Tirole, and Milgrom, which is why the sort of thing that the late Leonard Weiss did that probably JohnH would admire has become “old school” IO.

        2. pgl

          “So you think the manager of the local Stop ‘n Shop is thinking about Nash equilibria when they are posting a ‘help wanted’ ad? ”

          Seriously – Stevie is THIS incredibly stupid. He has no clue what the word economics even means.

          I guess when a kid is given ice cream he cannot enjoy it as he is not thinking about maximizing utility. The stupidity burns with Princeton Stevie pooh.

      3. Dr. Dysmalist

        “But a generic clerk or stock boy working at WalMart could almost certainly fulfill the same function at CVS, or pump gas at Valero, or wash cars, cut grass or deliver newspapers.”

        You’re referring to the labor supply; monopsony describes the labor supply side of the market. Econ 101 fail.

        You seem to think that no market failure occurs unless there is a state of pure monopoly (or oligopoly with collusion, i.e., a cartel), or pure monopsony (or oligopsony with collusion). Tell me, do you only have a water heater failure if it explodes, or do you also have a water heater failure if the tank develops a small leak, or if the heating element heats more slowly, or if sediment builds up and reduces the capacity of the heater?

        By your standard, the fact that you have any hot or warm water at all means that the system is working well, there is no need for a repair or replacement, and in fact, you should loudly proclaim that repair or replacement would be unwarranted interference with the operation of that water heater. May I suggest that your family would strongly disagree?

        Just because you can quote from various non-authoritative sources which vary somewhat in their accuracy and completeness does not mean that you have understood the topic, let alone that you understand what the practitioners of the field mean when they use those terms.

        What you are refusing to understand is that ‘market failure’ and ‘market imperfection’ are a matter of degrees, not absolute polarity. When we’re referring to a polar case, we say so. Those terms don’t mean what you want them to mean at this moment in time, their meanings have been perfected over decades of use by the actual experts on the subject. Learn those meanings before you use the terms.

        BTW, one thing I cannot fathom is how you can be an effective “management consultant” without understanding market failure. It seems to me that if a client is in a perfectly competitive market on both output and input sides, there is very little a consultant can offer.

        Also BTW, it’s long past time you learned the First Rule of Holes: When you find yourself in a hole, for Pete’s sake stop digging.

        1. Steven Kopits

          Oh no, Doctor Diz.

          I am not talking about supply, I am talking about the conditions for monopsonistic behavior, which calls for employing less than the socially optimal amount of labor and a wage lower than market. But if you have generic labor with dozens of employment options, you’re either going to pay market or lack employees. That’s the point.

          I suppose you could have, say, two employers in a town far removed from anywhere, but even then, are things that easy? People have automobiles and are known to drive long distances for work. It’s not that hard to relocate to another part of the country. It’s hard to have monopsony without monopoly, else P=MC, ie, you can’t set your price above market. But you need more: also no material competitors for your factors of production. For certain types of skilled labor, that might be true. But for unskilled min wage labor, that’s a pretty high bar.

          But why don’t you give me a real life example of monopsony in minimum wage labor. If you think it exists, show us.

          And this:

          “I cannot fathom is how you can be an effective “management consultant” without understanding market failure. It seems to me that if a client is in a perfectly competitive market on both output and input sides, there is very little a consultant can offer.”

          You actually know nothing about consulting, do you?

          1. pgl

            You may know how to bilk clients for your worthless gibberish but you clearly know nothing about economics. Not even the freshman economics basics.

        2. pgl

          “Oh no, Doctor Diz.

          I am not talking about supply, I am talking about the conditions for monopsonistic behavior”

          Yes Princeton Steve is this stupid. Never mind the rest of his garbled meaningless nonsense, he does not even get the basics.

        3. Steven Kopits

          Monopsony does not describe the supply of labor; it describes one version of the demand for labor. Single buyer: that’s what monopsony is.

          1. pgl

            You keep proving you are totally clueless. The demand curve describes the collective actions of many modest size employees who compare the value of marginal product of labor to the market wage, they cannot individually influence.

            In the presence of monopsony power where one firm can lower the wage rate by hiring less ALONG THE LABOR SUPPLY CURVE. There isn’t a demand curve calculus here but rather the marginal revenue products, which differs from the value of marginal product.

            Even a freshman taking economics gets this but you do not because you are too arrogant to learn a damn thing. Now go make nice to your preK teacher and learn to count to 10.

  13. ltr

    January 30, 2021

    Africa’s Manufacturing Puzzle: Evidence from Tanzanian and Ethiopian Firms
    By Xinshen Diao, Mia Ellis, Margaret McMillan and Dani Rodrik


    Recent growth accelerations in Africa are characterized by increasing productivity in agriculture, a declining share of the labor force employed in agriculture and declining productivity in modern sectors such as manufacturing. To shed light on this puzzle, we disaggregate firms in the manufacturing sector by size using two newly created panels of manufacturing firms, one for Tanzania covering 2008-2016 and one for Ethiopia covering 1996-2017. Our analysis reveals a dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. We suggest the poor employment performance of large firms is related to use of capital-intensive techniques associated with global trends in technology.

    [ An important paper.

    China has been emphasizing technology deepening or productivity enhancement from agriculture to “modern” sectors. Technical education and infrastructure development absorbs labor even in a year such as 2020. ]

  14. ltr

    February 8, 2021

    Poor countries’ technology dilemma
    By Dani Rodrik

    Economic development relies on the creation of more productive jobs for an ever-rising share of the workforce. Traditionally, it was industrialization that enabled poor countries to embark on this transformation. Factory work may not have been glorious, but it enabled farmers to become blue-collar workers, transforming the economy and society as a result.

    Many low-income countries in Africa and elsewhere hope to travel a similar path in the future. While none necessarily expects success on the scale of China and the East Asian tigers before it, industrialization and integration into global value chains are viewed as essential for achieving rapid economic growth – or restoring it after the COVID-19 pandemic – and creating a large number of jobs for Africa’s young population.

    Prior to the pandemic, African countries had already achieved some success in industrialization. Ethiopia has established an export-oriented garment and footwear sector, with help from Chinese and European investors. Tanzania has built a more resource-intensive manufacturing sector focused on serving domestic and regional markets. Recent research suggests that the premature de-industrialization to which the continent had been subject may have been halted or even reversed after the early 2000s.

    There’s a rub, however, in Africa’s manufacturing renaissance. Even where industrialization is putting down deeper roots, few good jobs have been created in the more modern, formal, and productive manufacturing branches.

    In fact, the number of formal jobs has been stagnant, with the bulk of the increase in manufacturing employment coming from small, informal enterprises. This experience stands in stark contrast with that of the rapid industrializers of East Asia, such as China’s Taiwan region (during the 1960s and 1970s) or Vietnam (more recently), where the growth of manufacturing employment was concentrated in formal enterprises.

    The paradox is deepened when we look behind the aggregate numbers. In new research, * Margaret McMillan of Tufts University, Xinshen Diao and Mia Ellis of the International Food Policy Research Institute and I have found a striking dichotomy in the performance of large versus smaller firms.

    In both Ethiopia and Tanzania, larger firms exhibit superior productivity performance but do not expand employment much, while small firms absorb labor but do not experience much productivity growth. The result is that these economies create few good jobs, while the benefits of productivity enhancements remain limited to a very small segment of manufacturing.

    Conventional explanations cannot account for this dichotomy. A poor business environment might explain low job creation but not the rapid productivity growth within the same firms.

    African wages are often thought to be high relative to productivity, but we find that payrolls’ share in total value added is exceedingly low in both Tanzania and Ethiopia, suggesting that labor costs are unlikely to be a constraint. Moreover, low business dynamism is belied by the very high rates of entry and exit we observe in manufacturing.

    One important feature of larger manufacturing firms that may help account for the paradox is that they are excessively capital-intensive. In low-income countries such as Ethiopia and Tanzania, workers are plentiful and capital (machinery and equipment) is scarce and hence expensive. Standard economic theory predicts that production in such circumstances would be tilted toward more labor-intensive techniques.

    Yet we find large firms in the manufacturing sectors of Tanzania and Ethiopia to be significantly more capital-intensive than these countries’ income levels or factor endowments would suggest. In fact, these firms are as capital-intensive as firms in the Czech Republic, even though the latter is roughly ten times as capital-rich as Tanzania and Ethiopia.

    It might seem irrational for businesses to use so much capital (along with complementary inputs such as skilled labor) in countries where the underlying comparative advantage is an abundance of less-skilled workers. But it is not clear they have much choice. Manufacturing technologies have become progressively more capital- and skill-intensive over time, responding to the factor prices in the major advanced economies.

    Technologies from the 1950s or 1960s may have been more labor-intensive, but they will not help African firms compete in world markets today. And technologies used in global value chains appear to be particularly biased against unskilled labor.

    This leaves African economies in a bind. Their manufacturing firms can either become more productive and competitive, or they can generate more jobs. Doing both at the same time seems very difficult, if not impossible.


    Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government.

    1. ltr

      The terrific essay by Rodrik continues at the reference link….

      Dani Rodrik is describing an important development problem in Ethiopia and Tanzania, but extending much beyond. Chinese planners have been aware of the labor absorption problem for years and have a solution that still allows for an increasing emphasis on technology deepening. Branko Milanovic has also recognized the problem and, as I do, speaks of Belt and Road infrastructure formation emphasis as a solution. Milanovic likens the desired effect of the Belt and Road Imitative to that of the Marshall Plan in Europe.

  15. pgl

    A bit off topic but we may need comic relief. Google:

    “Switzerland aims to make tax system more competative”

    This will take you to a rather boring discussion on MNE Tax but let me summarize the gist (besides noting the author spelled competitive incorrectly).

    We all know Switzerland is a bit of a tax haven that attracts multinationals and invites transfer pricing abuse. But there are other tax havens to the Swiss government wants to further reduce effective taxation on income derived from intangible assets. Yes the rich get richer and the poor have babies. Even if the rich flunked 1st grade spelling.

    1. Dr. Dysmalist

      “Even if the rich flunked 1st grade spelling.”

      Oh, PGL! You’re being so unfair! IIRC, “competitive” was one of my spelling words in 3rd grade, although after a half-century, my memory may be faulty 😉

      1. pgl

        After some loss by the IRS in a controversial valuation case, their economist wrote a piece complaining that the lawyers for the hi tech multinationals get away with junk economics. He was write but the attorney who won the case decided to write some smear piece called Economists Say the Darndest playing on the Art Linkletter classic show. Except these two arrogant bozo lawyers thought the show host was named Art Linklater. I grew up adoring this show and its host which these two clowns could not even get his damn name right. I guess their law firm did not have Google:,of%20kids'%20answers%20to%20Linkletter's%20shrewdly%20crafted%20questions.

    1. pgl

      Castor closed with a lie. Here is the Constitutional provision he cherry picked:

      Article I, section 3, clause 7 provides further that “judgment in cases of impeachment shall not extend further than to removal from office, and disqualification to hold and enjoy any office of honor, trust or profit under the United States.”, and disqualification to hold and enjoy any office of honor, trust or profit under the United States.”

      But that is not what he said. “judgment in cases of impeachment shall not extend further than to removal from office”. Followed by “that’s it”.

      Is lying to the Senate grounds for disbarment from the practice of law?

      1. pgl

        Laurence Tribe call this cherry picking lying. Oh gee – that is really harsh as we see that both Bruce Hall and Steve Koptis do the same type of cherry picking routinely. Are they liars? Yes they are!

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