Book Review: The Data Detective by Tim Harford – IMF F&D

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Bibliographic details

• Authors: ANDREW BERG
• Published: March 1, 2021

Overview

• Reviewer: ANDREW BERG, deputy director, IMF Institute for Capacity Development.
• Publication: F&D Magazine, Growing Pains; March 2021.
• Read time indicator: Less than a minute(0 words) Read.
• Reviewed book: The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations by Philippe Aghion, Céline Antonin, and Simon Bunel.
• Book details as presented: Belknap Press, Cambridge, MA, 2021, 400 pp., $35.00.

Core arguments and framing

• The dominant neoclassical paradigm leaves a “black box” labelled “total factor productivity” that governs how inputs become output.
• The authors' research program opens that black box through the lens of “creative destruction,” in the tradition of Joseph Schumpeter.
• Growth is driven by entrepreneurs who innovate, creating new goods and raising productivity while destroying existing jobs and firms.
• The paradigm emphasizes:
  • Export markets rewarding the most innovative firms.
  • Imports and foreign direct investment bringing new ideas and competitive pressure.
  • Vibrant financial markets supplying capital to successful new firms.
  • A green technological revolution as the appropriate response to climate change.
• On inequality: Much inequality is presented as a necessary or even desirable price for incentivizing innovation.
• On recent history: Sustained productivity growth has increased well-being since the industrial revolution, and growth in China, India, and other developing economies has contributed to a fall in global inequality.

Policy implications and recommendations

• Governments should:
  • Protect patents.
  • Avoid excessive taxation.
  • Insure the losers from the destructive part of creative destruction.
  • Accompany flexible labor markets with “active” labor market policies to help people find new jobs.
  • Support basic research.
  • Avoid being co-opted by yesterday’s innovators trying to entrench their position, which is easier in a democracy.

Open questions and caveats highlighted by the reviewer

• Are “flexitarian” labor market policies truly adequate to address the losers from creative destruction?
• Is China facing a “middle-income trap” of failed transition to innovation-led growth, due in part to an imbalance between the state, the market, and civil society, as the book suggests?
• The book aims to point readers in a direction rather than answer every question; metaphors (e.g., “invisible hand” vs. “creative destruction”) shape how policy and problems are understood.

Published in F&D Magazine, March 2021.

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