Andy Grove Essay Commentary by Tyler Cowen | Hacker News Reader

Andy Grove Essay Commentary by Tyler Cowen

marginalrevolution.com

34 pointsmhb23 comments

The down-swing in a business cycle is the time for everyone to resurrect their pet anti-trade theories.

Precisely, there has been a habit amongst commentators during period's of recession to trot out the need for protectionism. During the 1980s Japan was the biggest threat, leading to all sorts of political pronouncements and movements, and now it's China.

And the replacement of our manufacturing base by Japan and then China is not an issue?

http://faculty.tamu-commerce.edu/dfunderburk/428/readings/Th...

I don't think it is an issue, plus I'm not sure if it's accurate. Setting aside the automobile industry there are still some extremely successful manufacturing companies in the US.

Eliyahu M. Goldratt wrote an interesting book on the subject in the 1980s.

Defationary collapse of a massive debt bubble != down-swing of the business cycle.

Also, a quick look at just about every economic empire in history shows their decline was always associated with a massive negative trade balance. The theorists seem to ignore this though. If it's not codified in a dazzling formula, it's irrelevant.

Not that I'm for protectionism or anti-globalization, but it's certainly not beyond questioning, reconsidering, and/or re-engineering.

Defationary collapse of a massive debt bubble != down-swing of the business cycle

They look pretty much the same from the perspective of July 2010. What's the big difference?

Routine business cycle downswings don't require over a trillion dollars to prevent the economy from tailspinning into another Great Depression.

If you add up the TARP and all the alphabet soup lending support programs, the stimulus package/s, and Fed's quantitative easing intervention, you're talking well over a trillion dollars, and we're still not out of it yet.

This was a speculative debt bubble followed by the inevitable financial crisis. See Rogoff & Reinhardt. Definitely not part of the business cycle.

The list of 9 over simplified points is not what I'd expect from somebody with Dr. Cowen's background. When I first read the blog I thought, "Really, is some 20 something programmer questioning Grove, cute."

I don't agree with everything Grove has to say either but to dismiss things without analysis is not justified either.

I'll pick on point #3 about "scale, scale, scale". Cowen states that Germany does not have the scale of the USA and is a big exporting success. Germany does have scale in the luxury auto market. See: http://blog.polk.com/blog/new-vehicle-sales/0/0/audi-outpace... Germany also has scale in many other industries it chooses to compete in.

I'd like to have a more in depth discussion with him on Grove's essay. He should at least give it the same amount of analysis and thought that Grove did. This blog post does not do it justice.

A bullet list of reactions/avenues-for-consideration is often Cowen's style. I appreciate the conciseness.

Grove has given this subject more words, not more analysis and thought. And Grove's words are the same as from economic debates of decades ago. That's the real reason that Cowen is parsimonious with his response. Cowen concludes with:

Grove is writing from a time warp in which these debates never happened or never were settled or never something -- I don't know what.

1. Decades is not a long enough time period to know anything in Econ with certainty.

2. Even if it were, the global economy is a highly complex system, subject to change. What was right decades ago may not be today.

3. Economics has a pretty dismal recent record. Most of the theorists coughKrugmancough completely missed the buildup to the biggest economic event in recent history, the financial crisis.

Rather it was the historians like Rogoff & Reinhardt, crisis-experts like Roubini, and shrewd business people and money managers (who make their living putting their money where there mouth is) who foresaw it. Not the theorists.

There are a host of problems with the field of economics, from physics envy to sociology of science, that critics like Taleb and Wilmott have exposing. The field's understanding and credibility is highly suspect.

Grove knows what works, and has proven that his way actually does create jobs. And his point about scale enabling additional innovation beyond the original concept is exactly right. What has Cowen done but get good grades and write about it?

Grove knows how to build a near-monopoly in a single capital-intensive industry with giant returns to scale (and occasional government favors). I wouldn't necessarily trust him with tax policy, trade policy, international relations, or anything related to small or service businesses. I would not want any more of the economy dominated by Intel-like enterprises (funded by investments from his giant government-run 'scaling fund').

And, if you really want jobs in a particular favored strategic industry, shouldn't you penalize scale -- force multiple redundant companies to operate below optimal scale?

Sure, you're penalizing the rest of the economy, burning more resources than necessary for a given level of production, but you do get more people employed in your chosen industry. Just like Grove wants to penalize Asia and world living standards, to reserve for domestic manufacturers a protected market. No, thanks.

Krugman did in fact-along with other economists-predict the housing bubble: http://query.nytimes.com/gst/fullpage.html?res=9507E4D61039F...

Agreed, that was something I'd expect to see from a Glen Beck-ish type pundit.

Another problem is that the econ profession is too informed by and reliant on theory. We know from past history that Grove's prescription (everything but the tarriffs part at least) works.

The jury is still out on the economic theories that have guided the nation's industrial policy for the past ~20 years.

They may have given us lots of cheap stuff faster than we would otherwise have gotten to these price points, but at the cost of a hollowed manufacturing sector and a massive cash outflow.

It is far from clear yet whether those tradeoffs were worth it, yet the Econ profession acts as if the question is settled. It isn't.

Isn't it strange that such a wide gap exists between business people and economists? Possibly the economists get lost in theory. For a business person, the reality of China under valuing its currency is the most important fact to consider when thinking about doing business in Asia. And yet, for an economist like Cowen, its as if the issue doesn't really exist. I also find it odd that Cowen, in different posts on his blog, will sometimes claim that America has a robust economy because its economy is free-market, but then in other posts he complains about the heaviness of government intrusion into the market. This strikes me as inconsistent - either the government is heavy-handed, or the economy is free-market. If he really believes that America is both free market and yet it has an intrusive government, then it seems to me his theories need to allow for the possibility that the economy has a robustness due to some of the intrusions that the government makes. That would be the argument I would make, regarding some of the investments in R&D that the government has made over the decades - not free-market, but good for the economy.

The real problem with Grove's suggestions is that he ignores the issues which led to this economic downturn in the first place: rampant avarice, ignorance and corruption. There can be no meaningful improvement to US fortunes until those issues are substantially corrected.

You talk as if rampant avarice, ignorance and corruption were invented in 2005 and weren't with us during last 150 years of dazzling increases in prosperity.

They weren't operating on the current scale.

Throw in systematic deregulation of all financial safeguards, massive speculation leading to a debt bubble, and then it's obviously a problem.

Seems like the world's run on avarice, ignorance, and corruption for a long time.

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