Classroom: Gross Hall 111

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Monday Wednesday 1:25-2:40

Classroom: Gross Hall 111

Duke University

Fall 2015

William Keech, Instructor


Office: 204C Gross Hall

Office Phone: 919 660-4354

Office Hours: MW 2:40-4:00 and by appointment
The Political Economy of Growth, Stabilization, and Distribution


This course addresses the study of three kinds of national economic performance: the growth of gross domestic product, the stabilization of prices and of financial markets, and the distribution of income and wealth. These are all issues of macroeconomic performance, and they are not independent of each other.

As is elaborated in the schedule of meetings, topics and assignments, the course examines the following questions: Why are some nations rich and others poor? Are financial crises avoidable or inevitable? Does economic growth reduce poverty, increase inequality, or both? What do political and economic institutions have to do with the answers to the above questions? What do geography and culture have to do with them? To what extent are the answers to these questions under human control? What kinds of difference can and do governments make?

This class meets 26 times. A list of dates, topics, detailed assignments and supplementary readings is below.

Course Objectives: to impart information about current understandings and controversies on the topics listed above; to develop skills of critical thinking; to develop skills in identifying interesting questions and translating them into a solid research paper.

Course Requirements: You are expected to do all of the reading assignments, to attend class ready to discuss the assignments, and to write a substantial research paper. Three fifths of your grade will be based on the paper, and two fifths on participation.

Participation: You can’t participate unless you are in class. You will be given two unexcused absences, and otherwise absence will cut into your participation grade.

Questions: You are asked to formulate one question or comment on the readings for each class, whether you attend or not, and these questions will be graded as follows: Satisfactory, Marginal, and Unsatisfactory. Not submitting a question will result in a U grade for that class. You are permitted two grades of U for the semester. After that, one point will be subtracted from your total final grade for each U. I will not be able to respond individually to each question, but if you don’t hear from me, you may assume a “Satisfactory.” Please aim at about 100 words for your questions.

A good question or comment will not be obvious, but will have some subtlety. It may relate the reading at issue to other readings or to general knowledge or conventional wisdom. These questions shall be available to me and to all of the class by 9:00 am on the day of the reading in question. Your participation grade will also be based on the quality and regularity of your oral participation in class.

Research paper: You are asked to write a substantial research paper of approximately 5,000 to 7,000 words. (Four double spaced pages of 12 point type comprise about 1,000 words.) You must negotiate your topic with me, and you are asked to pick a general topic by September 9 (meeting 6). We should begin discussing this as soon as possible.

A prospectus will be due September 23 (meeting 10). This means a title, a problem or issue statement in a paragraph, and an outline in sentences of how you will address the topic.

A first draft will be due October 21 (meeting 17). This first draft will have a title, an abstract, and will flesh out an outline with prose paragraphs. You will make a short presentation to the class between November 2 and 11 (meetings 20-23). The final paper will be due at the beginning of class on November 23, the last day of class. Late papers will lose one letter grade per day, starting then.

Of the 60% of your grade based on the paper, 10% of your total grade will be based on the first draft, and 50% of your total grade will be based on the final paper. You are expected to be in regular communication with me about your paper from the identification of the topic through the time you submit the prospectus, the first draft and up to the final product.

Reading assignments: All readings are available online or through Sakai resources. Journal articles are accessible from on campus with a Duke account, or elsewhere with a VPN. Other online readings will be files assembled by topic in Resources on Sakai, or have their URL below on the Schedule of meetings, topics, and assignments.

Grading: Grading is a matter of judgment that I seek to make as fair and transparent as possible. Here is a rough guide to what I think standards should be.

A: Truly outstanding work with evidence of creativity or originality.

B: Very good work; a solid achievement.

C: Mediocre work. (This is not considered passing for graduate students).

F: Unacceptable.
Normative standards. Two basic normative standards that will be used are sustainability (“meets the needs of the present without compromising the ability of future generations to meet their own needs”), and the Pareto standard (something is Pareto optimal if it is not possible to make someone better off without making someone else worse off,)

Terms and concepts you should become familiar with (if you are not already). For guidance, see Wikipedia, and the New Palgrave Encyclopedia of Economics):

Collective action problems

Collective goods: non-rival, excludable

Decreasing, increasing returns

Median voter

Nash equilibrium

Pareto improvement, Pareto inferior, Pareto optimal


Second best


Meeting 1 8/24 Overview of course

I. The Place of Economic Performance in Human Well-Being

Meeting 2 8/26

Read: Angus Deaton. 2013. The Great Escape: Health, Wealth and the Origins of Inequality. Introduction and Chapter 1 (pp. 1-56). (Sakai resources or: )

Read: Amartya Sen. 2001. Economic Progress and Health. Ch. 17 (pp. 333-45 in David Leon and Gill Walt. 2001. Poverty, Inequality and Health: An International Perspective (Sakai resources)

For further reading:

Daniel Benjamin, et al. 2014. Beyond Happiness and Satisfaction; Toward Well-Being Indices Based on Stated Preferences. American Economic Review 104: 2698-2735.

Jeremy Caradonna. 2014. Sustainability: A History. Introduction, chapters 4 and 7.

Diane Coyle. 2014. GDP: A Brief but Affectionate History

Richard Easterlin. 1980. Birth and Fortune: The Impact of Numbers on Personal Welfare.

Richard Easterlin.

Benjamin Friedman. 2005. The Moral Consequences of Economic Growth.

Carol Graham. 2011. The Pursuit of Happiness: An Economy of Well-Being.

William Keech. 2014. Review of Deaton’s The Great Escape. The Independent Review 19(2): 302-305.

Charles Kenny. 2011. Getting Better: Why Global Development Is Succeeding and How We Can Improve Tte World Even More.

J. Y. Kim, et al. eds. 2000. Dying for Growth: Global Inequality and the Health of the Poor.

David Leon and Gill Walt. 2001. Poverty, Inequality and Health: An International Perspective

Bjorn Lomborg. 2001. The Skeptical Environmentalist. Part II. Measuring Human Welfare, (Sakai resources)

OECD Better Life Index

Dirk Philipsen. 2015. The Little Big Number: How GDP Came to Rule the World and What to Do about It.

Steven Pinker. 2011. The Better Angels of Our Nature: Why Violence Has Declined

Hans Rosling:

Amartya Sen. 1999. Development as Freedom

Joseph Stiglitz, Amartya Sen, John-Paul Fitoussi. 2009. Report by the Commission on the Measurement of Economic Performance and Social Progress. (Executive Summary is on pp. 7-18)

Leslie Paul Thiele. 2013. Sustainability.
UN Human Development Index:

David N. Weil. 2015. A Review of Angus Deaton’s The Great Escape: Health, Wealth, and the Origins of inequality. Journal of Economic Literature 53(1): 102-114.

World Commission on Environment and Development. 1987. Our Common Future

II. The Miracle of Economic Growth

Meeting 3: 8/31 Basics

Read: Angus Maddison. 2006. The World Economy, vol. 1: A Millennial Perspective. Introduction and summary. pp. 19-27. This outstanding background resource is available at the URL below, and at HC21.M285 2006 in the reference room of Perkins Library

Read: William J. Bernstein. 2004. The Birth of Plenty: How the Prosperity of the Modern World Was Created pp. 1-50 (Sakai resources)

For further reading:

Diego Comin, William Easterly, and Erick Gong. 2010. Was the Wealth of Nations Determined in 1000 BC? American Economic Journal: Macroeconomics 2: 65-97.

Jerry Hough and Robin Grier. 2015. The Long Process of Development: Building Markets and States in Pre-industrial England, Spain, and Their Colonies.

Timur Kuran. 2011. The Long Divergence: How Islamic Law Held Back the Middle East

David Landes. 1998. The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor.

Joel Mokyr. 1990. The Lever of Riches: Technological Creativity and Economic Progress

Kenneth Pomeranz. 2000. The Great Divergence: China, Europe and the Making of the Modern World Economy.

Nathan Rosenberg and L.E. Birdzell, Jr. 1986. How the West Grew Rich: The Economic Transformation of the Industrial World.

Meeting 4: 9/2 Growth theories

Read: Philippe Aghion and Peter Howitt. 2009. The Economics of Growth. Introduction: pp 1-18 (in Sakai resources)

Read: David Warsh. 2006. Knowledge and the Wealth of Nations: A Story of Economic Discovery Introduction and chapters 3-4, (especially chapter 4) (Sakai resources)

For further reading:

Daron Acemoglu. 2009. Introduction to Modern Economic Growth

Daron Acemoglu, Simon Johnson, and James A. Robinson. 2005. Institutions as a Fundamental Cause of Long Run Economic Growth. In, Philippe Aghion and Steven N. Durlauf. Handbook of Economic Growth. Volume 1A, ch. 6.

Daron Acemoglu and James A. Robinson. 2006. Economic Backwardness in Political Perspective. American Political Science Review 100(1): 115-131.

William J. Baumol. 2002. The Free Market Innovation Machine

Stephen L. Parente and Edward C. Prescott. 2000. Barriers to Riches

Paul Romer. 1990. Endogenous Technological Change. Journal of Political Economy 88:S71-S102 (October, part 2)

Nancy L. Stokey. 2015. Catching Up and Falling Behind. Journal of Economic Growth 20(1): 1-36.

Meeting 5: 9/7 Growth regressions

Read: Robert J. Barro.1991. Economic Growth in a Cross Section of Countries. Quarterly Journal of Economics 106 (2):407-443.

Read: Ross Levine and David Renelt. 1992. A Sensitivity Analysis of Cross Country Growth Regressions. American Economic Review. 82: 942-963.

Read: Dani Rodrik. 2005. Why We Learn Nothing from Regressing Economic Growth on Policies. (Sakai Resources)

For further reading:

Xavier Sala-i-Martin. 1997. I just ran Two Million Regressions. American Economic Review Papers and Proceedings 87(2): 178-183.

Jonathan Krieckhaus. 2004. The Regime Debate Reconsidered: A Sensitivity Analysis of Democracy’s Effects. British Journal of Political Science. October.

Meeting 6: 9/9 Growth recipes

Read: Dani Rodrik. 2007. One Economics, Many Recipes: Globalization, Institutions and Economic Growth. Introduction, chapters 1, 5, 6. (Sakai resources)

For further reading:

Henry J. Bruton. 1998. A Reconsideration of Import Substitution. Journal of Economic Literature 36(2)903-36

Atul Kohli. 2004. State-Directed Development: State Power and Industrialization in the Global Periphery.

Dani Rodrik. 2014. When Ideas Trump Interests: Preferences, Worldviews, and Policy Innovations. Journal of Economic Perspectives 28(1): 189-208.

Dani Rodrik. 1996. Understanding Economic Policy Reform. Journal of Economic Literature 34(1): 9-41.

John Williamson, “What Washington Means by Policy Reform”

John Williamson. 2012. Is the “Beijing Consensus” Now Dominant? Asia Policy 13: 1-16.

III. Stabilization of Prices and Financial Markets

Meeting 7: 9/14 Stabilization I: Prices and Inflation

Read: Peter Bernholz. 2003. Monetary Regimes and Inflation: History, Economic and Political Relationships. Chapters 1, 2 (Sakai resources)

Read: Marvin Goodfriend 2007. How the World Achieved Consensus on Monetary Policy. Journal of Economic Perspectives Fall, 47-68.

Read: John B. Taylor. 2010. Better Living through Monetary Economics, pp. 319-341 in Siegfried, ed. Better Living through Economics. (Sakai resources)

For further reading:

N. Gregory Mankiw and Matthew Weinzierl. 2011. An Exploration of Optimal Stabilization Policy. Brookings Papers on Economic Activity Spring: 209-249.

Robert J. Samuelson. 2008. The Great Inflation and its Aftermath: The Past and Future of American Affluence.

Meeting 8: 9/16 Stabilization II: Hyperinflation

Read: Stanley Fischer, et al. 2002. Modern Hyper- and High Inflations. Journal of Economic Literature 40:837-880.

For further reading:

Steve Hanke and Alex Kwok. 2009. On the measurement of Zimbabwe’s Hyperinflation. Cato Journal 29: 353-364.

Koech, Janet. 2011. Hyperinflation in Zambia. Dallas Federal Reserve Bank. Globalization and Monetary Policy. Annual Report. 2-11 Pt 

Thomas J. Sargent. 1986. The Ends of Four Big Inflations. In Sargent, Rational Expectations and Inflation.

Meeting 9: 9/21 Stabilization III: The Recent Financial Crisis

Read: Charles Calomiris and Stephen Haber. 2014. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Chapter 1 (Sakai resources)

Read: Martin Wolf. 2014. The Shifts and the Shocks: What We’ve Learned – And Still Have to Learn – From the Financial Crisis. Pp. xv-44.

Optional: Michael Kumhof, et al. 2015. Inequality, Leverage and Crises. American Economic Review 105 (3): 1217-1245. (This paper links the financial crisis to income inequality. Pp. 1217-1226 will be assigned in Section IV.)

Prospectus due September 23

Meeting 10: 9/23 Stabilization III continued.

Read: Martin Wolf. 2014. The Shifts and the Shocks: What We’ve Learned – And Still Have to Learn – From the Financial Crisis. Pp. 112-148.

For further reading:

Anat Admati and Martin Hellwig. 2013. The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It

Alan S. Blinder. 2014. After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

Francois Bourguignon and Thierry Verdier. 2000. Oligarchy, Democracy and Growth. Journal of Development Economics 62; 286-313.

Matthieu Bussiere, et al. 2013. The financial crisis: Lessons for international economics. American Economic Journal: Macroeconomics 5: 75-84.

Juan Cruces and Christoph Trebesch. 2013. Sovereign defaults: The price of haircuts. American Economic Journal: Macroeconomics 5: 85-117.

Barry Eichengreen. 2015, Hall of Mirrors: The Great Depression, The Great Recession, and the Uses – and Misuses – of History.

Simon Johnson and James Kwak. 2010. 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

Atif Mian and Amir Sufi. 2014. House of Debt: How They (and You) Caused the Great Recession and How We Can Prevent it from Happening Again

Raghuram Rajan. 2010. Fault Lines: How Hidden Fractures Still Threaten the World Economy

Carmen Reinhart and Kenneth Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly

Robert Shiller. 2012. Finance and the Good Society

David Skeel. 2011. The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences

Symposium on the bailouts of 2007-2009. 2015. Journal of Economic Perspectives. 29(2): 3-122.

IV. The Distribution of Income and Wealth

Meeting 11: 9/28 Concepts, measures; Is there an optimal distribution of income and wealth?

Read: Branko Milanovic, 2005. Worlds Apart: Measuring International and Global Inequality Introduction, chapters 1-3 (Sakai resources)

Read: Michael Norton and Dan Ariely. 2011. Building a Better America – One Wealth Quintile at a Time. Perspectives on Psychological Science 6:9-12.

Meeting 12: 9/30 A major new contribution

Read: Thomas Piketty. 2014. Capital in the Twenty-First Century. Introduction (Sakai resources)

Read: Daron Acemoglu and James A. Robinson. 2015. The Rise and Decline of General Laws of Capitalism. Journal of Economic Perspectives 29 (1): 3-28.

For further reading on Piketty:

Branko Milanovic. 2014. The Return of “Patrimonial Capitalism”: A Review of Thomas Piketty’s Capital in the Twenty-First Century. Journal of Economic Literature 52(2): 519-534

Randall Holcombe. 2014. Review of Piketty. Public Choice 160(3, 4):551-557.

Richard Salsman, 2015. Piketty’s Rickety Assault on Capital. The Objective Standard (Spring): 32-52, especially 34-35. See also Graetz and Shapiro in “further reading on distribution” below.

Meeting 13 10/5 Consequences of inequality

Read: Weining Koh, 2014. The Impact of Income Inequality on Growth: Updates and Extensions (Sakai resources)

Michael Kumhof, Romain Ranciere, and Pablo Winant. 2015. Inequality, Leverage, and Crises. American Economic Review 105(3): 1217-1245. (Pp. 1217-1226)

See also: Raghuram Rajan. 2010. Fault Lines: How Hidden Fractures Still Threaten the World Economy.

Meeting 14: 10/7 Poverty

Read: David Dollar and Art Kraay. 2013. Growth Still Is Good for the Poor.

Read: David Dollar. 2007. Poverty, inequality and social disparities during China’s economic reform.

For further reading on distribution:

Daron Acemoglu and James A. Robinson. 2001. Inefficient Redistribution. American Political Science Review 95(3): 649-61.

Anthony B. Atkinson. 2015. Inequality: What Can Be Done?

Carles Boix.2015. Political Order and Inequality: Their Foundations and Their Consequences for Human Welfare

Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. 2014. Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility. American Economic Review 104(5): 141-147.

Andrew W. Dobelstein. 2015. Poverty in the United States: Developing Social Welfare Policy for the Twenty-First Century.

David Dollar. 2007. Poverty, inequality and social disparities during China’s economic reform.

Boris Gershman. 2014. The Two Sides of Envy. Journal of Economic Growth 19:407-438

Michael J. Graetz amd Ian Shapiro. 2005. Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth

Jonathan Krieckhaus et al. 2014. Economic Inequality and Democratic Support. Journal of Politics 76: 139-51.

Christoph Lakner and Branko Milanovic. 2013. Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession. World Bank Policy Research Working Paper 6719

Branko Milanovic, 2011. The Haves and the Have-Nots Vignettes 1.9, 2.2, 2.3 (Sakai resources)

Lant Pritchett. 1997. Divergence, Big Time. Journal of Economic Perspectives 2: (Issue 3 Summer), 3-17.

Stephen J. Rose. 2015. The False Claim that Inequality Rose During the Great Recession.

Xavier Sala-i-Martin. 2005. The World Distribution of Income: Falling Poverty and… Convergence, Period. QJE

Amartya Sen. 1992. Inequality Reexamined

Michael Walzer. 1983. Spheres of Justice: A Defense of Pluralism and Equality

No meeting 10/12: Fall Break

V. Case Studies: China

Meeting 15: 10/14 China

Read: Barry Naughton. 2010. China’s Distinctive System: Can It Be a Model for Others? Journal of Contemporary China 19: 437-460. (Sakai resources)

Read: Sam Baker. 2014. Counterexample or Confirmation: China’s Economic Rise and the Washington Consensus. (Sakai Resources)

See also: Edmund Malesky and Jonathan London. 2014. The Political Economy of Development in China and Vietnam. Annual Review of Political Science 17: 395-419.

Meetings 16: 10/19 China, cont.

Read: Chenggang Xu. 2011. The Fundamental Institutions of China’s Reforms and Development. Journal of Economic Literature 49: 1076-1151. (parts 1-3, 4-7)

Meeting 17: 10/21 China, cont.

Read: Justin Yifu Lin. 2012. Demystifying the Chinese Economy. chapters 4-6. (Sakai resources)

Meeting 18: 10/26 China, cont.

Read: Barry Naughton. 2007. The Chinese Economy: Transitions and Growth. chapters 10, 12. (Sakai resources)

For further reading on China:

Loren Brandt, et al. 2014. From Divergence to Convergence: Reevaluating the History Behind China’s Economic Boom. Journal of Economic Literature 52(1): 45-123.

Ronald Coase and Ning Wang. 2012. How China Became Capitalist.

Yasheng Huang. 2012. Capitalism with Chinese Characteristics.

Nara Dillon and William Keech 2014. Review of Coase and Wang in Public Choice 158: 289-291.

Melanie Manion. 2009. Corruption by Design: Building Clean Government in Mainland China and Hong Kong

Victor Nee and Sonja Opper. 2012. Capitalism from Below: Markets and Institutional Change in China

Susan Shirk. 1993. The Political Logic of Economic Reform in China

Kellee Tsai. 2007. Capitalism without Democracy: The Private Sector in Contemporary China.

Andrew Wedeman. 2003. From Mao to Market: Rent-Seeking, Local Protectionism, and Marketization in China.

Andrew Wedeman. 2012. Double Paradox: Rapid Growth and Rising Corruption in China

Quianfan Zhang. 2012. The Constitution of China: A Contextual Analysis

Weiying Zhang. 2015. The Logic of the Market: An Insider’s View of Chinese Economic Reform

Not this time: Chile

Read: Vittorio Corbo, Leonardo Hernandez and Fernando Parro 2005. “Institutions, Economic Policies and Growth: Lessons from the Chilean Experience.” Working Paper No. 317. Central Bank of Chile

Sebastian Edwards. 2010. Left Behind: Latin America and the False Promises of Populism. Ch. 5. Chile, Latin America’s Brightest Star. (Sakai resources)

For further reading:

Andres Solimano. 2012. Chile and the Neoliberal Trap: The Post Pinochet Era Ch. 4 Economic growth and macroeconomic performance under Concertación (Sakai resources)

VI. Hypotheses, Explanations, and Topics

Meeting 19: 10/28 Some fundamentals

Read: Daron Acemoglu and James A. Robinson. 2012. Why Nations Fail. Preface, Chapters 1-3, especially Chapter 2. (Sakai Resources)

Read: Francis Fukuyama. 2014. Political Order and Political Decay. Chapter 15. Geography

Read: Peter B. Henry and Conrad Miller. 2009. Institutions versus Policies: A Tale of Two Islands. American Economic Review 99(2): 261-267.

Meeting 20 11/2 presentations

Meeting 21 11/4 presentations

Meeting 22 11/9 presentations

Meeting 23 11/11 presentations

Meeting 24: 11/16 More fundamentals

Read: Mancur Olson, Jr. 1993. Dictatorship, Democracy, and Development. American Political Science Review 87: 567-76.

Read: Dani Rodrik. 2014. When ideas trump interests: Preferences, Worldviews, and Policy Innovations. Journal of Economic Perspectives. 28: (Winter) 189-208.

Meeting 25: 11/18 Is there one best set of institutions for all conditions?

Read: Halvor Mehlum, et al. 2006. Institutions and the Resource Curse. Economic Journal 116: 1-20.

Read: Jonathan Hanson. 2014. Forging and Taming Leviathan: State Capacity, Constraints on Rulers, and Development. International Studies Quarterly. June 2014. 380-392

See also Daniel Yergin. 1991. The Prize: The Epic Quest for Oil, Money and Power

Meeting 26: 11/23 Reprise

Reprise on questions on goals of the course (page 1 of this document).

Some books on the political economy of development of broad scope

Daron Acemoglu and James A. Robinson. 2006. The Economic Origins of Dictatorship and Democracy

Daron Acemoglu and James A. Robinson. 2012. Why Nations Fail

Timothy Besley and Torsten Perssson. 2011. Pillars of Prosperity: The Political Economies of Development Clusters.

Francis Fukuyama. 2011. The Origins of Political Order: From Prehuman Times to the French Revolutio.

Francis Fukuyama. 2014. Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy

Jerry Hough and Robin Grier. 2015. The Long Process of Development; Building Markets and States in Pre-Industrial England, Spain, and Their Colonies.

Douglass North, John Wallis, and Barry Weingast. 2009. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History

Douglass North, et al. eds. 2012. In the Shadow of Violence: Politics, Economics and the Problem of Development.

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