Economists are not responsible for all of this growth. I wasn’t able to quickly find counterfactual estimates for the importance of economic theories, but my impression is that several advances in economics have in fact significantly improved economic policy.
Some generators for my being bullish on economic policy:
Some economic historians point to capitalism as one of the key ingredients of the industrial revolution,
Also seems like the US was heavily influenced by Adam Smith and that that influence later proved quite fortunate, but I don’t know the exact part of the book which made me think that.
the fall of mercantalism roughly seeming to line up with industrial revolution,
the industrialization and opening-up of China tightly correlating with Chinese poverty dropping like a rock,
the fact that bad monetary policy stifles growth (see Japan until recently)—therefore, good monetary policy allows growth,
various comments I read in the book about the relationship between openness to trade and real GDP growth,
various comments I read in the book about the state of empirical economics.
I’m open to having overstated the case or missing considerations here or having been a bit sloppy in my reasoning. Those are just some considerations informing my current viewpoint.
I invite you to read my newish post on the Solow-Swan model of growth. After reading it, it will still be unclear how much economic policy has contributed to growth, but the ways that economic policy can help will likely become clearer.
Very broadly speaking, the main ways to grow an economy focus on technological development and capital accumulation. I still need to finish writing the post on endogenous growth theory, but the rough story there is that economic policy can help firms develop technological innovations.
As an interesting epistemic spot check, I’ll ask you a question: how much faster do you think the capitalist economy of the United States grew compared to the Marxist-Leninist Soviet Union?
The answer: GDP per capita grew at roughly equal rates until the 1980s, after which the Soviet Union entered a deep depression. Is that surprising? It might be if you think that growth is a direct function of how capitalist a nation is, or how much a nation listens to the advice Western economists. But that’s not the best model.
Growth depends on a variety of factors, in addition to economic policy: how far a nation is from the economic frontier, the presence of war and organized crime, and exogenous factors like climate and natural resources. There’s some really interesting stuff to learn about in growth economics.
I also like the Solow-Swan model. But if I’m evaluating “how can economic policy help growth?”, I can hardly do that from within an idealized economic model. The question is empirical, or at least empirical work must first support the predictive validity of the theoretical model. So I could have said “Solow-Swan makes intuitive sense, and makes decent predictions”, except I didn’t add it because I hadn’t heard that the latter was true. And I haven’t looked yet, either.
The answer: GDP per capita grew at roughly equal rates until the 1980s, after which the Soviet Union entered a deep depression. Is that surprising? It might be if you think that growth is a direct function of how capitalist a nation is, or how much a nation listens to the advice Western economists.
I guessed about 5x GDP/capita growth in US, both because post-war US was growing extremely quickly, and I hear that Soviet Union policy sucked (but I haven’t looked closely). So I was surprised, but my (implicit) model wasn’t “capitalist->more growth”, it included considerations like “weaker property rights decreases individual incentive to invest, decreasing the Solow steady-state equilibrium output” or “centralized planning leads to huge deadweight loss, misallocated production, and underspecialization.” So I still am surprised and confused.
I also like the Solow-Swan model. But if I’m evaluating “how can economic policy help growth?”, I can hardly do that from within an idealized economic model.
I disagree. Idealized models can help by answering what happens when we intervene on one of the variables. For example, there are policies that can increase the national savings rate, and thus increasing capital accumulation and per capita output (like the 401k). The Solow-Swan model doesn’t directly state how to do this, but you can endogenize the savings rate; the most famous attempt is the Ramsey–Cass–Koopmans model, which shows how households make tradeoffs between savings and consumption, and helps us see we might intervene to affect the savings rate.
my (implicit) model wasn’t “capitalist->more growth”, it included considerations like “weaker property rights decreases individual incentive to invest
FWIW, I think “strong property rights” is the defining feature of what most people consider “capitalism” so I don’t see these as separate models.
I think there was an opportunity for the USSR to grow faster, on par with other countries that leapfrogged it since the 60s. Maybe it’s not about capitalism vs socialism, but still has to do with economic issues, like the oil curse.
I agree that there are other factors. As I wrote:
Some generators for my being bullish on economic policy:
Some economic historians point to capitalism as one of the key ingredients of the industrial revolution,
Also seems like the US was heavily influenced by Adam Smith and that that influence later proved quite fortunate, but I don’t know the exact part of the book which made me think that.
the fall of mercantalism roughly seeming to line up with industrial revolution,
the industrialization and opening-up of China tightly correlating with Chinese poverty dropping like a rock,
the fact that bad monetary policy stifles growth (see Japan until recently)—therefore, good monetary policy allows growth,
various comments I read in the book about the relationship between openness to trade and real GDP growth,
various comments I read in the book about the state of empirical economics.
I’m open to having overstated the case or missing considerations here or having been a bit sloppy in my reasoning. Those are just some considerations informing my current viewpoint.
I invite you to read my newish post on the Solow-Swan model of growth. After reading it, it will still be unclear how much economic policy has contributed to growth, but the ways that economic policy can help will likely become clearer.
Very broadly speaking, the main ways to grow an economy focus on technological development and capital accumulation. I still need to finish writing the post on endogenous growth theory, but the rough story there is that economic policy can help firms develop technological innovations.
As an interesting epistemic spot check, I’ll ask you a question: how much faster do you think the capitalist economy of the United States grew compared to the Marxist-Leninist Soviet Union?
The answer: GDP per capita grew at roughly equal rates until the 1980s, after which the Soviet Union entered a deep depression. Is that surprising? It might be if you think that growth is a direct function of how capitalist a nation is, or how much a nation listens to the advice Western economists. But that’s not the best model.
Growth depends on a variety of factors, in addition to economic policy: how far a nation is from the economic frontier, the presence of war and organized crime, and exogenous factors like climate and natural resources. There’s some really interesting stuff to learn about in growth economics.
I also like the Solow-Swan model. But if I’m evaluating “how can economic policy help growth?”, I can hardly do that from within an idealized economic model. The question is empirical, or at least empirical work must first support the predictive validity of the theoretical model. So I could have said “Solow-Swan makes intuitive sense, and makes decent predictions”, except I didn’t add it because I hadn’t heard that the latter was true. And I haven’t looked yet, either.
I guessed about 5x GDP/capita growth in US, both because post-war US was growing extremely quickly, and I hear that Soviet Union policy sucked (but I haven’t looked closely). So I was surprised, but my (implicit) model wasn’t “capitalist->more growth”, it included considerations like “weaker property rights decreases individual incentive to invest, decreasing the Solow steady-state equilibrium output” or “centralized planning leads to huge deadweight loss, misallocated production, and underspecialization.” So I still am surprised and confused.
I disagree. Idealized models can help by answering what happens when we intervene on one of the variables. For example, there are policies that can increase the national savings rate, and thus increasing capital accumulation and per capita output (like the 401k). The Solow-Swan model doesn’t directly state how to do this, but you can endogenize the savings rate; the most famous attempt is the Ramsey–Cass–Koopmans model, which shows how households make tradeoffs between savings and consumption, and helps us see we might intervene to affect the savings rate.
FWIW, I think “strong property rights” is the defining feature of what most people consider “capitalism” so I don’t see these as separate models.
I think there was an opportunity for the USSR to grow faster, on par with other countries that leapfrogged it since the 60s. Maybe it’s not about capitalism vs socialism, but still has to do with economic issues, like the oil curse.