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Created: 2000-03-05
Last Modified: 2000-03-05
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Growth Economics

J. Bradford DeLong
http://www.j-bradford-delong.net/
delong@econ.berkeley.edu

 


Context:

Brad, you mention the Nordhaus critique. But really. What does it mean that world product was $35 billion in 1700? People lived on pork fat and alcohol and lived on farms. There's no meaningful sense in which a 1999 dollar can be expressed as a 1700 dollar, and vice versa. What were you trying to do with this?


My Comment:

*Lucky* people lived on pork fat and alcohol. Unlucky people lived on rye porridge or rice, and were so undernourished that female ovulation was a sometime thing...

 

When you say: "GDP per worker in 1700 was 1/X of GDP per worker today," you are saying one of seven things:

 

1) If you took what the average worker produced in 1700, stuffed it into a time machine, brought it forward in time to today, and sold it, you would find that it sold for 1/X of what the product of the average worker today sells for.

2) An average person living today would be indifferent--from the standpoint of material well-being alone, mind you--between living today with average income and living in 1700 with X times average income.

3) An average person living today would be indifferent--from the standpoint of material well-being alone, mind you--between living today with 1/X average income and living in 1700 with average income.

4) An average person (in the timeless autonomous liberal individual sense) would be indifferent--from the standpoint of material well-being alone, mind you--between living today with average income and living in 1700 with X times average income.

5) An average person (in the timeless autonomous liberal individual sense) would be indifferent--from the standpoint of material well-being alone, mind you--between living today with 1/X average income and living in 1700 with average income.

6) An average person living in 1700 would be indifferent--from the standpoint of material well-being alone, mind you--between living today with average income and living in 1700 with X times average income.

7) An average person living in 1700 would be indifferent--from the standpoint of material well-being alone, mind you--between living today with 1/X average income and living in 1700 with average income.

 

My *guesses* (because that is what they are) are rough concept #1 guesses.

Concept #2 produces a number larger than concept #1--I think that the number it produces is infinity; the average person today is used to a lot of stuff that was simply not available to anyone in 1700...

Concept #3 produces a number smaller than concept #1--what we today are (comparatively) best at is making luxuries, not true necessities, which remain relatively costly.

I don't know what concepts #4 and #5 produce: I don't know who the timeless autonomous liberal individual is. If I make the (to me natural) assumption that he's someone like me, than the answer is obvious. But I know that that assumption is wrong...

I think that #7 produces the same answer as #3 (whatever it is) because acquired tastes for modern-day conveniences and luxuries are simply not very relevant at such low income levels.

I don't know what I think the answer according to concept #6 is. What would George Washington think of middle-class life in Asbury Park today? One view is that upper classes in the past were psychologically addicted to the sense of personal domination that you got from having lots of servants, dependents, and clients at your beck and call, and that they would profoundly miss that exercise of power: after all, your dishwasher doesn't cringe, bow, and scrape when you command it (although the people that you boss do; and my dishwasher right now is giving off an alarming plasticky smell). As Paul Krugman put it, the major point to the truly wealthy of having wealth is seeing them jump. The other view is that the greatly enlarged technological capabilities of today would overwhelm the reduction in the personal exercise of *herrschaft*--even for someone who had not grown up with telephones and jet airplanes.

One view is that the measurement problems--the conceptual problems--are so overwhelming that all one can say is that we are richer (in a material welfare sense) than those who subsisted on pork fat and bad corn moonshine, but that the qualitative difference is such that we can't even make a quantitative estimate. My view is that we can make a lot of quantitative estimates--a lot of very different quantitative estimates, ranging from a factor of 5 through a factor of infinity--and that trying to think through what these different estimates mean and what assumptions they implicitly make is a way to start the ball rolling for a truly great economic history class...

 

Brad DeLong


Context:

Which is the political economy analogue of the point I was making the
other day about the bourgeois subject: the prosperous "freedom" of
the BS and the imperial hegemon thrive on marginalization and
oppression elsewhere.


My Comment:

No one can dispute that, historically, in the past strong capitalist economic growth at the world economy's industrial core has structured domination and oppression at the periphery. Before the rise of the Netherlands and its strong demand for grain, it just wasn't worthwhile for Polish nobles to chase down peasants and enserf them. Before the rise of strong British demand for the high-value mind-altering products--coffee, tobacco, sugar--of the Americas, it just wasn't worth the trouble to buy guns, sail to Africa, sell the guns for slaves, take the slaves back across the Atlantic, whip them, and set them to work.

Strong external demand for the things that an elite's subjects can make is one of the principal things that can make the elite turn up the screws of exploitation.

Does this mean that unfreedom at the periphery is functional for capitalism at the core? I would say clearly not. The OECD gains enormously more from trade with high-wage Taiwan than with low-wage Vietnam, even though the rate of surplus-value is much higher in the latter (with all of the apparatus of the Communist Party of Vietnam to act as proxy gang boss). A bunch of the surplus extracted by the CPVN is consumed in the industrial core--but the imperial hegemon would thrive even more if there were less marginalization and oppression. Generated by, yes; functional for, no.

Do the "deaths in Indonesia need to be attributed to liberal U.S. capitalism"? To the U.S. national security state, perhaps. But even there you have to construct a counterfactual picture of what the succession to Sukarno would have been like: rule by the PKI is scary to think about. And don't overestimate how much control the imperial center has over its clients: it's not fair to attribute to Leonid Brezhnev responsibility for the crimes of the Dergue in Ethiopia, or for the ethnic cleansing conducted against Vietnamese citizens of Chinese descent in the late 1970s.

It was Schumpeter I think (and also Norman Angell) who first pointed out the severe disjunction between the thoughts of generals and diplomats (who saw political control over territory and resources as the source of wealth, prosperity, and power) and traders and industrialists (who saw productivity, comparative advantage, and open markets--the ability to trade what is cheap here for what is cheap there--as the sources of wealth, prosperity, and power).


Context:

>Well. If I'm correctly informed, people in the stone thru viking age
>(around 3000 BC - 1000 AD) used a lot less time for necessities
>than we do. I heard two to four hours a day for life sustaining
>activities. And they didn't have to sit in a car during rush hour :)
>They had lots more of leisure time. This is one of the reasons we find
>treasures of nicely worked art, and around this part of the world
>(Sweden) we have runestones.


My Comment:

It depends where and when...

For people moving up from the south and settling Europe, advancing as the glacier front retreated at the end of the last ice age, life might have been quite leisurely (if a bit reindeer-meat intensive). But elsewhere (and later on) things were probably different.

Rick Steckel of Ohio State, for example, has tracked the height of adult male American Indians from about 10,000 BC to 1500--and has found a steady decline from an average of 5'7" to about 5'0". He interprets this as humans (with stone age technology) filling their niche, and going from an economy-ecology of abundance with very good nutrition (the 5'7" guys) to an economy-ecology at the edge of malnutrition (the 5'0" guys). If you are only getting enough nutrition to get an adult male to 5'0", you're probably pretty hungry (or deficiency-hungry) a lot of the time, and hence probably spending a lot of time looking for extra food.

Moreover, the invention of agriculture looks like a wonderful thing for kings and priests (lots denser politicians to rule--and once they have fields they can't run away from your thugs-with-spears very well, and so you can impose "taxes") but a horrible thing for the rest (more boring work; longer hours; worse nutrition because of the reliance on staple crops, et cetera.

Here fifteen miles east of San Francisco the dominant food of the pre-Columbian Indians you used to live here was... the acorn. Lots of oak trees--thirty, including some 400 year-old 60-foot tall 80-foot canopy ones within 100 yards of my house (and I'm allergic to them, and they're pollinating right now [pause for antihistamine])--and if you leach the acorns for eight hours and then pound them into flour and mix with water, you can eat the results. There are also blackberry bushes a hundred yards up the creek: I can gather about two pints an hour (with some being very sweet and some not: the other fauna in the area are pretty aggressive about eating the ripe ones) at a cost of three big scratches and one painful puncture.

I don't envy the Indians who used to live around here very much. I suppose I wouldn't have to worry about it: had I been born among them I would probably have died very much--if I'm this allergic to oak pollen what would eating acorns do to me in a culture with no antihistamines?

By contrast... in downtown Oakland today by the harbor they were selling strawberries. Ripe strawberries. Two-inch-long strawberries. Sweet strawberries. Ten pints for $3.00--about six minutes worth of work. About one-fiftieth the time cost per berry (and the berries are better, and no painful puncture wounds: the most painful thing about the office last week was trying (unsuccessfully) to persuade the departmental administrator that I could be trusted to use the new xerox machine without breaking it).

Civilization is good. I only wish I could order some twenty-fifth century to go along with this vintage of twentieth-century...

 

Brad DeLong


Context:

The works of Coase and Cheung cited in The Economist article do indeed leave the abstract theories of public goods and externality intact. The importance of the works cited in The Economist, however, is that they demonstrate that these theories ought to be judged against real events--against history...


My Comment:

Am I the only person who does not understand Coase's argument in his "lighthouse" paper?

I thought that Coase was trying to argue that--contra Pigou--lighthouse services, even though a public good, were successfully provided in England by a private company--Trinity House.

But Coase's argument seemed to me to have a big problem. The relationship between the ship's pilot and Trinity House was not that of a customer free to purchase or not purchase a service from a private corporation. The relationship was that of a subject paying taxes to a government: if you didn't pay Trinity House, then the Royal Marines would confiscate your ship and throw you in gaol.

The fact that Trinity House's system of political governance was different from that of a standard government agency in interesting ways (indeed, Joseph Stiglitz led a charge in the mid-1990s to try to set up something similar with the FAA today) does not change the relation between ship pilots and Trinity House from a "state" to a "market" relationship. Coase's article seemed to me at least to provide a springboard for an interesting discussion of federalism, but to be completely irrelevant to any discussion of the private provision of public goods.

I also found myself mystified by what I take to be Liebowitz and Margolies's principal argument.

As I understood it, they say that:

--the evidence that a Dvorak keyboard is better than Qwerty is suspect.
--in fact, we don't know that the Dvorak keyboard is any better than Qwerty.
--hence the market worked.

But I think that this argument deconstructs itself. I believe that Liebowitz and Margolies are correct in their claim that we don't know which keyboard would be better. But that doesn't mean that the market "worked." By now--more than 100 years after the invention of the keyboard as we know it--any sensible and efficient social resource planning and allocation mechanism for establishing standards would have collected the information we need to know what the most efficient keyboard layout is, and whether we should switch.

Our--market--social resource planning and allocation mechanism has not done so.

Therefore it is inefficient: there is an important piece of information that we should have--the relative efficiency of keyboard layouts--that we don't. The market has let us down.

In my view, L&M have trapped themselves. The more they undermine the case for the superiority of Dvorak, the more they undermine any claim that the market gathers and processes information about what standards would be efficient. The more they claim that the market is an efficient mechanism for gathering and processing information about standards, the more trustworthy does the information we do have that suggests the superiority of Dvorak appear to become.

So I find myself thinking that Liebowitz and Margolies have deconstructed themselves: they can sustain their case that we don't know that Dvorak is more efficient only be conceding the broader point that the market is pretty lousy at providing incentives for people to evaluate the relative utility of different standards.

 

Brad DeLong


Context:

But if our output is 30X not 6X that of a 100 years ago, doesn't that mean that output and thus (roughly) the standard of living 100 years ago was one fifth of what was previously thought...presumably pretty impossible?

If I remember properly, one of the arguments against the idea that productivity growth was much understated from 1973 on, was that if you adjusted 1945-1973 figures up in the same way you did 1973 to present figures, 1945 output/living standard would be impossibly low.

As you know, the recent adjustment to output/productivity figures really goes back only to 1978...and this is explicitly the case for that fairly major part of the adjustment that is based on new measures of price increase. The failure to adjust before 1978 really is obviously a big problem in knowing how to interpret the adjusted growth figures after 1978.

Any thoughts?


Good question. I think that the answer is to throw up one's hands and say that the index number problem keeps there from being *one* single summary number.

Are the large estimates of the rate of economic growth and improvement in material welfare over the past century that I come up with credible? I think that the answer is both yes and no...

A credible answer to the question of how much material prosperity has multiplied over the twentieth century might look like the answer to one of the following two thought experiments:

* Take a household with income per capita today equal to the economy-wide average. What multiple of average income per capita a century ago would be required for that household to feel equally well-off in a material sense, if it were transported back in time?

* Take a household with income per capita a century ago equal to the economy-wide average then. What fraction of average income per capita today would be required for that household to feel equally well-off in a material sense, if it were transported forward in time?

However, these two questions will not have identical--or even close--answers. It is clear that the answer to the first question suggests a very large increase in material prosperity over the past century. Given the absence in 1890 of modern innoculations, modern antibiotics, and other technologies of the past century, it is hard to argue that anything less than an astronomical income back in 1890 could compensate. J.P. Morgan could not go to the movies, or watch football on television. He has no VCR. To travel from New York to Italy took a week, not a night. Was he better off in a material welfare sense than an average inhabitant of the U.S. today? Perhaps, but it is not clear. The answer to the first question is very large indeed.

Personally I have no problem at all with the first answer's conclusion that Historical Statistics vastly understates growth: put me back in 1890 with *any* income and I would not be happy. I would want, first, health insurance: the ability to go to the doctor and be treated with late-twentieth-century medicines. Franklin Delano Roosevelt was crippled by polio. Nathan Meyer Rothschild­the richest man in the world in the first half of the nineteenth century­died of an infected abscess. Without antibiotic and adrenaline shots I would now be dead of childhood pneumonia. The second thing I would want would be utility hookups: electricity and gas, central heating, and consumer appliances. The third thing I want to buy is access to information: audio and video broadcasts, recorded music, computing power, and access to databases.

None of these were available at any price back in 1890.

I could substitute other purchases for some. I could not buy a washing machine, but I could (and would) hire a live-in laundress to do the household's washing. I could not buy airplane tickets; I could make sure that when I did travel by long distance train and boat I could do so first class, so that even though travel churned up enormous amounts of time it would be time spent relatively pleasantly. But I could do nothing for medical care. And I could do nothing for access to information, communications, and entertainment technology save to leave the children home with the servants and go to the opera and the theater every other week. How much are the central heating, electric lights, fluoridated toothpaste, electric toaster ovens, clothes-washing machines, dishwashers, synthetic fiber-blend clothes, radios, intercontinental telephones, xerox machines, notebook computers, automobiles, and steel-framed skyscrapers that I have used so far today worth­and it is only 10 A.M.?

I would not be satisfied with my attempts to substitute using late nineteenth century technology. First of all, I would be dead. Second a very large chunk of my-high-material standard of living is the broad range of commodities newly-invented over the course of the past century that I can choose to purchase, and that I do use because they give me capabilities that were simply not possible a century ago.

By contrast, the answer to the second question suggests a smaller increase in material prosperity--perhaps a factor of ten. Someone with an income of $5,000 a year in the U.S. today has much better access to medical care and mass entertainment than a middle-class household of a century ago, and better transportation and clothing. He or she has better winter vegetables, but perhaps a worse overall diet. And he or she has worse housing, worse access to non mass-media forms of entertainment, and a much lower ability to purchase goods that are currently fashionable. The comparison of the poor today with the middle class of a century ago produces an estimate of the pace of economic growth not too dissimilar from that produced by Historical Statistics. The comparison of the middle class today with the rich of a century ago produces an estimate that is much much larger. So how much economic growth is worth to you depends on where you sit: for those near the bottom of the income distribution in industrial economies growth looks much less impressive, in large part because many of the new commodities invented over the past century are of no use if you cannot afford them.

And here is where your question comes in. The thirty-fold multiplication of wealth is predicated on one's being in the middle- or upper-middle class, and being able to take advantage of the inventions of the past century. But take the $30,000 or so a year median wage and divide it by 30, and you have trouble getting enough calories to survive--there is no money to purchase any of the goods that embody the new technological capabilities.

You can ask (a) how much richer is the upper middle class today than the poor today? (b) how much richer are the poor today than the poor of a century ago? (c) how much richer were the upper middle class a century ago then the poor or a century ago? and (d) how much richer is the upper middle class today than the upper middle class of a century ago? The answers to these four questions are not consistent because of the index number problem...

 

Brad DeLong


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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
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