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What have we learned about economic growth
Not as much as you think. Here is Charles Kenny's closer:
In short, the last six years has not changed the basic conclusion that the growth literature has taught us much less about how to get rich than it has about who is already rich. There is nothing particularly new in recent growth theory, but perhaps that is no surprise because there is remarkably little new in growth, either – the rich today are by and large those who were rich yesterday. That there might not be a holy grail of growth policy, however, is no reason for people of economic faith to stop looking, so no doubt the next six years will see another 13,000 articles on the subject to review.
Posted by Tyler Cowen on December 27, 2007 at 05:45 AM in Economics | Permalink
Comments
"..there is remarkably little new in growth." ? Remarkable conclusion when a greater number of people and a greater proportion of humanity is ceasing to be poor than at any time in history. That might even have a little to do with such exiguous theory as we have developed; but not very much.
When I look at China and India today, I am reminded of the period when the USA - then the richerst and most technically advanced economy in the world - grew at those rates; the Second Woprld War. In 1946/7, sensible economic policy stopped the collapse of demand: but what put the brakes on growth seemed to be that we switched the vested interests back on.
So, to put my long standing hunch about how and when growth occurs in a testable form:
"Economic growth can always be relied upon to gather momentum when three conditions are met:
- there is at least a fair degree of security of person and property,
- there is at least a modest degree of education spread in the population,
- vested interests in the status quo are have relatively little political leverage."
Throughout most of history, this combination of conditions occurred rarely, and when it did occur usually created vested interests which stopped the process. In the political and social conditions of 18th and 19th century Britain and the USA, enough of those with vested interests also aquired interests in the growth process, so enabling the world to escape from the trap. Nowadays, a major driver of growth is political fear of domination by rich foreign countries. This is the force which has led governments, from Meiji Japan onewards, to suppress the vested interests that could block economic growth. Wherer that suppression is administratively very effective -e.g. in China and Singapore - growth becomes staggering. However, where the growth process is taking root in a political dynamic, as may be happening in India, the ability to avoid blocking by new vested interests may ultimately prove far longer lasting.
I doubt if loss of hegemony over the next 20 or 30 years will give the USA sufficient incentive to suppress its' burden of vested interests, but it will be interesting to see what effect the threat of Asian world dominance thereafter has on US growth. I suspect it may prove even more stsrtling than the present rates of growth in Asia.
Posted by: Diversity at Dec 27, 2007 7:10:02 AM
My prediction is that Greg Clark's Farewell to Alms will be the start of a new trend for explaining growth by taking much more note of genetic differences between national populations - especially the way genes affect intelligence and personality.
It will be a hassle for economists to learn human biology - but there are probably rich pickings for those who make the effort.
This kind of population genetics seems to me the most exciting growth area in psychology and human biology - as described in Nicholas Wade's Before the Dawn and blogs such as GNXP and Steve Sailer.
Posted by: BGC at Dec 27, 2007 7:15:17 AM
"explaining growth (through) genetic differences...." I disagree. See Gladwell here: http://www.gladwell.com/2007/2007_12_17_c_iq.html, and suggest a reading of Diamond's "Guns, Germs, and Steel," which makes a very strong case for national predestination based on natural resources.
Posted by: Doug Blair at Dec 27, 2007 8:53:02 AM
What utter nonsense: What the authors mean is that there is nothing politically correct that correlates with growth.
It is glaringly obvious that economic liberty correlates with growth - compare north and south korea, taiwan and China, Maoist China and the China in which it is glorious to get rich, India of the license raj and globalist India.
There is also evidence for the role of race and IQ. Compare white ruled Zimbabwe with black ruled Zimbabwe. You cannot blame Mugabe on a legacy of racism. The problem is that Mugabe's government is a stupid government full of stupid people which has systematically transferred control of assets from people competent to use them to people incompetent to use them. Of course, since there is substantial overlap in the bell curve between blacks and whites, a black country with economic liberty and secure property rights would eventually wind up with assets in the hands of people competent to use them - but those people would with disturbing frequency be the local equivalent of Jews, which leads to the election of the local equivalent of Hitler, as discussed in "World on Fire". Thus in a place where there are substantial IQ disparities between readily identifiable groups, and an important high IQ group is a minority, liberty and secure property rights are incompatible with democracy. Indeed, one could argue that Germany today only functions because it is not entirely democratic. Nazis are forbidden to organize and campaign, and there are disturbing signs that were they permitted to organize and campaign, they would do disturbingly well, as they did when they were permitted.
Posted by: James A. Donald at Dec 27, 2007 3:55:43 PM
I don't disagree that liberty helps growth, but the cited proof for a connection between race and IQ is deeply flawed. Zimbabwe is simply evidence that Mugabe is corrupt. Claiming that as evidence of black mental inferiority is on par with using Ceauscu's rule as proof that Romanians are idiots.
Posted by: Doug Blair at Dec 27, 2007 4:39:47 PM
Yes, liberty correlates with growth - what a revelation! Unfortunately, your comments about Zimbabwe and Germany seem based mostly on ignorant speculation. Most Germans abhor Nazism and fascism, and it's appeal to a fringe would not significantly change the political process. In addition, there is no identifiable minority group driving growth in Germany. And cultural identifiers can be just as useful for discriminating against people as racial ones. For example, in Japan I believe the descendants of people who worked with corpses and tanning are considered outcasts. The caste system in India is another example. So basically, your comments about race and IQ are complete bunk, apart from the idea that an economically advantaged minority can often lead to political instability and repression.
Posted by: Greg at Dec 28, 2007 7:37:53 AM
I agree with "Diversity"'s 3 factors.
Assuming those preconditions are met, the main variables that create wealth are time and rate of return on investment. That very small changes in percentage growth result in huge changes over long periods of time could explain the confounding nature of the problem. It is very difficult to discern statistical meaning from very small differences today that will have huge ramifications many years in the future.
Posted by: Andrew at Dec 28, 2007 12:58:01 PM
Instead of throwing themselves into the learning of human biology and genetics, perhaps economists should study a little bit more sociology and history, two social sciences that show with a good corpus of evidences that what we would tend to see as genetic differences are mostly historically constructed. See the famous comparison between the Jewish Americans in the beginning of the 20th century and the Chinese Americans now : their success (especially academic success) is not due to some kind of superior gene, but to the fact that Jewish culture and Chinese culture both value education highly.
It's becoming trendy to come up with some genetic factor to explain differences in growth, when very often the explanation is historical and cultural.
To me, the main explanation for economic growth lays in institutions, and also familial structures (see the works of Alan Macfarlane on the influence of the nuclear family model on economic growth in 18th century England.)The problem is that one cannot just copy-paste institutions from one country to another. That might explain a good deal of the problems of Africa. Asia, on the other hand, has an old history of commercial and financial institutions.
PS: even if Max Weber is old fashioned, and even if most of the things he said were just not true, we still have a lot to dig up in his works (at least in the methodology.)
As the French sometimes say: "là où il y a du gène, il n'y a pas de plaisir." Comprenne qui peut.
Posted by: Zino Zince at Dec 28, 2007 5:18:36 PM
The problem is that Mugabe's government is a stupid government full of stupid people
Mugabe got a Masters in Economics from LSE. Where did you, if any?
Posted by: JSK at Dec 28, 2007 6:12:18 PM
Actually, Mugabe got a Bachelor's in econ from the University of London by correspondence while in prison. He got 5 additional degrees from the U. of South Africa (also by correspondence while in prison, I believe). A little different than a Masters at LSE.
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