Possible Responses to the Refugee Crisis

In an interview I gave to a Swedish newspaper last week, I said that Sweden could consider new responses to the refugee crisis.

My comments were prompted by conversations with several Swedes who remain committed to the principle of helping people in need but are convinced that familiar strategies are not working. They said that some of the refugees who have been admitted into Sweden are frustrated by life on the margin of society. The frustration seems to be particularly acute for young males. Symptoms include concentrated settlement patterns like those in the banlieues of Paris, with higher rates of crime, including gang violence.

The most perceptive comment I heard was that young immigrant men were doing things in Sweden that they never did in their home countries. It was not that they brought a “homegrown a culture of crime or violence” with them. Rather, it was that after they arrived, they adopted a specific culture of the Western developed world, the oppositional culture of the street gang.

My observation was that there are other options besides continuing to do what Sweden has done in the recent past or refusing to do anything at all. As the interviewer notes, I have not yet joined the World Bank and have not had a chance to explore views about the refugee crisis with anyone there.

The reporter, who was admirably precise, says that what the Bank was looking for when it asked me to join was someone who could spur consideration of new ideas. I am not selling any “silver bullet” answers and it was not buying. Our shared commitment is to dispassionate consideration, grounded in evidence and logic, of new possibilities. This commitment springs from an urgent optimism: It is possible for life to be better for everyone on earth.

You can find the original article here:

http://www.dn.se/ekonomi/skapa-en-frizon-for-flyktingar-i-sverige/

Below, I’ve provided a direct cut-and-paste of the text from Google Translate.


Sweden may establish a free zone for refugees where they will be completely self-sufficient. They may in that event live and work there, without any cost for Swedish taxpayers. It suggests Romer, incoming chief economist at the World Bank.

Johan Schück

Paul Romer is a world renowned American economist, has long been expected as the recipient of the Economics Prize Memory of Alfred Nobel.

His major research effort to the theory of endogenous growth, where economic growth is explained by factors such as technological development and increased knowledge.

He also gained a reputation as a debater, with a controversial proposal that will establish financial havens as a way to face overpopulation and migration flows.

One example is Hong Kong – at the time a British crown colony – which received millions of refugees from China and created a high level of prosperity.

Now Paul Romer current as newly appointed chief economist at the World Bank. He has not taken office yet, but does so at the next month.

Therefore, Paul Romer sure to what he has to say is own views, which have not been anchored within the World Bank. But it is clear that there has amassed an ideas man, which according to him was also the bank management’s intention.

The reason Paul Romer’s visit is in place for him to keep a so-called Heckscherföreläsning. It is the Stockholm School of Economics and business think tank Ratio standing invitation.

But it’s in an interview with Dagens Nyheter that he unleashes his ideas:

– The refugee issue is a huge problem, but there are possible solutions. Sweden, a sparsely populated country, would be able to rent a land area of Hong Kong’s size. There could receive millions of people who must support themselves and not have to cost anything.

As a comparison, Hong Kong has an area of at Öland and a population of over seven million.

– It is important then that this free zone shall be counted as an independent unit, with its own laws and rules – not as part of Sweden. Those who live there will not be Swedish citizens, but to live his life completely separate from the rest of society, says Paul Romer.

This means that wages can be lower, longer working hours – and so on. In Sweden should there be strict border control, making it impossible for the free zone inhabitants to move to the other side of the border. They are, quite simply, had to cope financially themselves.

– I have previously suggested that the US might use Guantanamo to such a free zone, instead of so far as detention centers. There are all prerequisites, since it concerns a secluded area of the United States rents of Cuba indefinitely. Those who come there are not counted as Americans, but must live his own life.

Paul Romer’s proposal has sparked debate, but have not met the ear of decision makers. That does not mean he now gets close adviser to World Bank President Jim Yong Kim who is also American.

It has raised concerns about US dominance, especially as Paul Romer’s representatives as chief economist Kaushik Basu from India. He sees no worries:

– I do not represent the United States or its government. My task is to present ideas on how important problems can be solved. Then you have to think freely, without restrictions.

The refugee issue, in which tens of millions of people need a new home, is one such problem. Global warming is another.

Romer also emphasizes health issues, which is well – especially as World Bank President Jim Yong Kim has a background as a doctor.

Self Romer is optimistic, at least in the long term. According to him, there really are no obstacles to continued economic growth based on technological development and increased knowledge.

– But at the same time there must be decision makers who know what they want and dare to take risks, he points out.

The model is Paul Volker, the US central bank in the 1980s as the tough decisions brought down inflation from double digits and thus created new conditions for the economy.

Letter from an Aspiring Macroeconomist (with response)

Dear Professor Romer,

I am writing you about your recent working paper The Trouble with Macroeconomics that generated lots of reactions.

I have simple question. I am a graduate student in economics. I am going to begin a PhD program in economics next year. I always loved macro, and I will probably specialize myself in this field. My question is:
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Why It Makes Sense for an M.D. to Lead the World Bank

I lived with a surgeon for 25 years. From the decisions Ginny made, I learned that doctors are better than economists at balancing the costs and benefits of delay.

Economists teach that time is money, but we never specify the exchange rate. If delay costs $x per day per person, the total cost scales with the number of people. In my lifetime, the most important lesson economists have learned is that in countries of all sizes–small ones like Singapore, medium-sized ones like South Korea, large ones like China and India–better policy can lift people out of poverty more quickly than we dared hope. Because a billion people still live in extreme poverty, each day of delay in taking full advantage of this lesson imposes a cost that is staggering.

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Everybody wants progress; nobody wants change

Alain Bertaud once told me, ruefully, that he was part of a failed effort at the World Bank to end the implicit subsidy for car trips created by the Bank’s offer of free employee parking. This proposal generated complaints, but that does not mean that it was a bad idea. If Steve Jobs had followed a strategy of avoiding all complaints, my MacBook Pro would still have an optical disk drive. Examples like these suggest a general lesson about cooperation in large groups:

Everyone wants progress.
Nobody wants change.

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Abstraction vs. Radical Specificity

Someone asked “What if Germany ran Detroit?” This kind of what-if-pigs-could-fly question mixes abstraction and specificity in a way that I do not find helpful. What works for me is iterating back and forth between two extremes — abstraction and radical specificity — and avoiding the middle.

At one extreme, I ask abstract questions such as “Could there be gains from trade in government services like the gains from trade in private services?” Then I consider specific questions such as “Could the new authority that was formed to fix the street lights in Detroit sell its services to other cities?”

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Professionalism and the Academic Division of Labor

In my work, I have tried to avoid revealing anything about my personal political beliefs and even worked to obfuscate as necessary. When my father was visible in national politics as a Democrat, it was helpful to have a letterhead appointment at the Hoover Institution.

Although I stay away from the battles of national politics, in my role as an advocate for science as the greatest human institution, I am now drawn into the battles of academic politics. I seem to be the designated nag when Nobel Prize winners disappoint.

Ed Prescott has a new NBER paper (with a co-author I do not know) on monetary policy with negative nominal interest rates. Other economists have written on this topic. None of the work I know in this area is mentioned in Ed’s paper.

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Conditional Optimism about Progress and Climate

Last Friday at the NBER Summer Institute, Martin Stuermer presented a thought provoking paper (written jointly with Gregor Schwerhoff.) It takes an important and puzzling fact seriously, then uses some credible theory to work out the implications of the fact. In the discussion afterwards, a challenge to the paper’s apparent optimism yielded an insight that might have practical implications for ongoing policy debates. It was a wonderful illustration of how science works.

The practical insight is that there are two very different types of optimism. Complacent optimism is the feeling of a child waiting for presents. Conditional optimism is the feeling of a child who is thinking about building a treehouse. “If I get some wood and nails and persuade some other kids to help do the work, we can end up with something really cool.”

What the theory of endogenous technological progress supports is conditional optimism, not complacent optimism. Instead of suggesting that we can relax because policy choices don’t matter, it suggests to the contrary that policy choices are even more important than traditional theory suggests.

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