Robert Lucas on Economic Growth and Distribution
Spending this lovely Sunday afternoon on the deck catching up on some reading (and getting axious about my Pistons getting blown out by the Lakers tonight), and came across this outstanding essay by Nobel Economist Robert Lucas (in the 2003 Minneapolis Fed Annual Report) on the industrial revolution and economic growth. There's a lot to chew on here, and it's very readable to non-economists. I'd be particularly interested in the response to it by my historian colleagues here and over at Cliopatria. Lucas focuses on the role of economic growth in leading to a demographic transition. More precisely, industrialization raises the returns to human capital, which, in turn, encourages families to invest more in the quality of their children than the quantity (an old Gary Becker point). The result of this is the levelling off of population growth at the same time annual rates of production growth begin to increase.
It is that combination that leads to the remarkable increases in per capita income we've seen in the last 50 to 100 years. Lucas points out that it is characteristic of non-developing countries that they respond to ehanced production technologies by having more children, not fewer. It is only when the industrial revolution comes along and provides serious opportunities to enhance the return to human capital, which pre-industrial technological advances normally didn't, that the response is fewer children, and an upsurge in per capita income.
I reprint Lucas's last paragraph here, because I think he makes a point often overlooked by those who write about these issues:
Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.
Couldn't have said it better myself.
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Jonathan Dresner - 6/6/2004
Ignoring that last paragraph, because it's wrong....
The question of the value of the quality of human capital is interesting, mostly because it cuts both ways. The demographic transition may unravel (may have already unraveled in some places) when deskilled jobs become more common and important than skilled jobs.