An argument I\’m delighted to use myself

From Tyler Cowen:

Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past.

And…..

Oddly, it is the so-called \”economic right\” — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.

No, no, this \”economic rightist\” is simply overjoyed to accept, even promote, that argument.

For it\’s is saying that the great Post WWII economic expansion was nothing to do with high unionisation rates, Bretton Woods, restrictions upon capital movements, high marginal tax rates, fixed exchange rates or any other of the \”liberal\” or \”social democratic\” (use one for the US, the second for Europe) theories that are so often advanced.

It was driven by the lack of economic growth in 1929-1945, a lack of economic growth which was accompanied by technological and productivity advances. That is, Post WWII growth happened not because of the policies enacted but despite them.

Another way of looking at this: we all know that growth when you\’re well behind the possible technological production frontier is easier than growth when you\’re at it. This is why a poor place like China or India can grow at 8-10%, year after year, for decades even, while mature economies struggle to manage a consistent 2.5-3%.

There was somewhere between none and fuck all economic growth in the US (and many other economies) in the 1929-1945 period. But the production frontier continued to move outwards, indeed, the 30s are one of the all time great decades for both technology and productivity improvements. The 50s to the 80s were simply playing catch up, in the same way that China and India are now.

13 comments on “An argument I\’m delighted to use myself

  1. I find it shocking that we have been exploiting ideas that had been *Previously* discovered. As we all know, we should really be exploiting those ideas which we do not, as yet, know! I look forward to the proper application of time machine technology as recommended by the ‘Left’.

  2. RonTheDon, I don’t know Jones’ research myself, but I read Cowen’s summary as saying that 80% of growth from 1950 to 1993 was due to applying things already discovered in 1950. If so, I think you’ll agree that it’s not an obvious finding and that it’s not obvious which political position comes out looking better (I can think of positives for both sides).

  3. No doubt this is in the book, but how do we know that there weren’t an equal volume of as-yet useless discoveries in the ’80s-’10s that we’ll be able to exploit for economic growth in the next three decades?

  4. Surely you did not mean to say what is typed in the first sentence of the last paragraph of this post.

  5. I think in the 20th century America has been experienced with several new markets for technology and products that can ride out for the next few decades. For example, the electronic industry. From new services of Blue-tooth, Live Streaming, Internet TV, Electronic Books, and more, have opened doors for new and improved markets to arise in the future and stimulate economic growth. The expansion coming from previous ideas still fuels our economy today and it will continue too. Few revolution innovations arise during each decade, but when they do, more revenue is achieved by new markets of providing the product in the most cost effective and improved performance to meet the demands of consumers. I agree that the catch up effect happens with underdeveloped nations, since there is a blueprint already established to follow technological advanced countries such as The United States, The United Kingdom, Japan, Germany, and other 1st world countries. However, what I find what we lack in is not the economic growth of our world through technology, but for the healthy well being of keeping our planet in a safe state.

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  7. GDP in the United States was double its 1929 level by 1945, an annual growth rate of 4.4%. I think you mean 1929-1939.

    Tim adds: No, not really. I’m extremely hesitant to use wartime GDP statistics. I’m just not entirely convinced that making things then blowing them up adds to value creation.

    It’s a bit like the flip side of cleaning up pollution adding to GDP. Yes, we do count it that way, but we’re not including the value destruction of the original pollution.

    I agree with you that that’s the way it’s generally counted: but I’m deeply unconvinced that that’s quite the way to do it. For example, GDP per capita certainly increased 39-45. But would we really say that living standards did?

  8. GDP isn’t a measure of living standards. Also it doesn’t measure things when they are blown up, but when they are made.

    I see what you are sayig but I don’ t think it applies with respect to the idea you are suggesting in this post – surely one of the reasons why the production frontier was so expanded was wartime technology and investment? One book on the Nazi war economy I read recently makes the point that W.Germany (and perhaps Japan’s) success post war was partly because they had (through luck, perhaps) invented many things in the war that turned out to be important in post-war consumer goods.

    Timk adds: Err, yes? That’s rather my point isn’t it? That there was large technological advance pre and during the war which led to hte economic growth after it?

  9. I think perhaps it’s confusing use of terms then. If replaced ‘economic growth’ in your last paragraph with ‘gains in living standards’.

  10. It’s relatively easy to go from making thing and blowing them up, to making things and NOT blowing them up. You just remove the “blow stuff up” step. It’s much harder to go from not making things to making things; adding the “making things” step is a lot harder than removing the “blow stuff up” step.

  11. @dolo

    I think perhaps you are confusing the productive capability of the current (or past economy) with the technological production frontier. Building more factories and both of the changes you mention increase the former, but not the later. Increases in the technological production frontier come from as Tyler Cowen said “the application of previously discovered ideas, combined with heavy additional investment in education and research.”

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