The Millennium Survey: Variable/Institutional Framework Subsystems

JOHN B. DAVIS [*] ABSTRACT. Pryor's Millennium Survey results need to be understood in the context of economists' different economic models appropriate to different institutional frameworks. These variable/institutional framework subsystems in turn may be distinguished according to whether the variables involved exhibit considerable deviation from trend and whether significant institutional change is anticipated. One such subsystem, involving globalization, financial volatility, and income inequality, seems to be relatively independent of a subsystem made up of the domestic economy as a whole. Frederic Pryor's Millennium Survey provides economists' predictions regarding ten major U.S. economic indicators over the next 50 years as well as their assessments regarding whether the predicted changes are likely to produce major changes in economic systems and their supporting institutions. Putting aside for a moment how the ten indicators compare with one another in degree of deviation from current trends and in degree of associated impacts on institutional change, note first that for economists obviously the different indicators/variables enter differently into different economic models, which in turn are often designed to investigate very different kinds of issues. Further, since for most economists institutions are understood to be frameworks in which different economic processes occur, the Survey's various indicators are also likely be associated with very different kinds of institutional change. To illustrate, consider recent debate among economists over how globalization causes increases in U.S. wage (and household income) inequality (e.g., Federal Reserve Bank of Kansas City, 1998). Three of the ten indicators/variables-the prices of raw materials and fuels, levels of air and water pollution, and global warming-are generally not argued to be factors involved in explaining the relationship between globalization and increasing income inequality. Nor does debate over possible institutional change in regard to the globalization-inequality relationship have much connection to debate over possible institutional change regarding, say, global warming. Thus in this case as in others it seems fair to say that Pryor's results really concern economists' opinions about sets of relatively separable issues, and we ought to accordingly approach the Survey results with an eye toward determining how economists distinguish and understand distinct variable/institutional framework subsystems. In this respect, the Survey naturally suggests that we might contrast variable/institutional framework subsystems in which all or most of the included variables exhibit considerable deviation from trend, and in which all or most of the variables are also expected to be associated with significant institutional change, from those subsystems in which neither is the case. Pryor points us towards one such separation when he comments on the unexpected difference between economists' views on volatility in the production and financial spheres. Economists expect little deviation from current trends in production/business cycle volatility, and thus not surprisingly expect relatively little institutional change in this regard. Yet they predict significant deviation from current trend in U.S. financial volatility, and rank financial volatility highly in terms of likely institutional change. Note then, that part of what is involved in financial volatility is the effects of floating exchange rates, and that an important dimension of globalization is international capital flows. In the case of globalization, as with financial volatility, economists expect indicators to deviate significantly from current trends and also produce significant institutional change. Thus we might hypothesize for economists that the processes linking globalization and U. …