Kieran Healy links to a paper by Pierre-Olivier Gourinchas and Olivier Jeanne in which a calibrated growth accounting model is used to show that the gains from unrestricted capital mobility are likely to be of the order of 1 per cent of GDP. Gains from risk sharing aren’t mentioned but other papers are cited to say that these are of a similar magnitude.

Those who listen to the general pronouncements of economists might be surprised by the modest size of the estimated gains. But for those who have looked at similar exercises in the past there is no surprise here. One of the better-kept secrets of economics is the fact that most studies suggest that the replacement of a typical high-tariff regime (say Australia’s in the 1960s) will yield long run benefits of about 3 per cent of GDP.

Those who raise questions about this point are likely to be brushed off with a reference to supposed dynamic gains, not captured in this ‘static’ analysis. This brings us to an even better-kept secret. These ‘dynamic gains’ have about as much basis in neoclassical economic theory as the Tooth Fairy.

To complicate matters a bit further, there is a theoretically respectable category of dynamic gains, arising from the removal of distortions in intertemporal resource allocation, but these are even more modest than the static gains. In fact, the gains looked at by Gourinchas and Jeanne.

The last line of defence is the idea of X-efficiency, or the ‘cold shower’ effect of competition. As Chicago stalwart George Stigler was the first to point out, this idea is based on the fallacious assumption that additional work effort is costless. This fallacy is hard to kill, but anybody who’s experienced 1990s-style ‘workplace reform’ knows it for what it is. I’ve been hammering away on this point for at least a decade, for example here and here (PDF), but with very little impact.

I’ve been reading Clive Hamilton’s Growth Fetish on which quite a few bloggers have already commented. I agree with some of the points Clive makes and disagree, sometimes strongly, with others. I may do a full length review some time, but for the moment I’ll post a bit at a time.

I’ll start with a point of disagreement. Clive dismisses traditional social democratic concerns with absolute deprivation as being relevant, at most, to those in the bottom 10 per cent of the income distribution.

Taking food as the most basic necessity and the US as the developed country where social democracy has lost most ground, I looked for stats and found this briefing by the US Department of Agriculture. The key finding:

89.3 percent of U.S. households were food secure throughout calendar year 2001. “Food secure” means they had access, at all times, to enough food for an active, healthy life for all household members. The rest (10.7 percent) were food insecure at least some time during the year, meaning that they did not always have access to enough food for active, healthy lives for all household members. In 3.3 percent of all households, one or more household members were hungry at least some time during the year. The remaining 7.4 percent obtained enough food to avoid hunger using a variety of coping strategies such as eating less-varied diets, participating in Federal food assistance programs, or getting emergency food from community food pantries.

The figure is close enough to Clive’s 10 per cent, but this is a one-year snapshot. Since people move into and out of poverty, it’s clear that the proportion of Americans who have problems feeding their families at some time in a given period of say, five years, is well above 10 per cent. And this is using a very tight definition of deprivation at a time when the US economy, though past the absolute peak in 2000, was still doing very well by the standards of the last two decades. I’d say that the traditional social democratic concern with poverty is not yet obsolete.