Economic Growth II

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So, two days ago I started discussing two different paradigms for economic growth. The first is neo-classical growth, the second is evolutionary economics. I basically asserted that neoclassical growth methods are crap. Well, I should have been a bit more careful. There are situations where they do work and can work well. However, they require a great deal of work to make sure that they actually predict anything. Additionally, they also measure if the economy is going towards or going away from a steady state position.

First, it’s not entirely clear if there is anything as a steady state economy. By steady state I don’t mean no growth at all, it’s more like consistent growth at a specific level. The US supposedly was in a steady state economic condition during the late 90s and early 2000s. However, two recessions, in my opinion, have revealed how flawed this theory of steady state economy is.

So what is neoclassical economics good for? Well, it can be used to predict growth assuming that the economy is capable of absorbing new technologies and innovations. If the economy is able to absorb these and then create manufacturing centers or research centers based on these advancements then the neo-classical growth model can work fairly well. It would work well for most European countries, however, I would still be skeptical of these predictions.

Why? Well, these growth models only capture a part of the economy as I said on Sunday. It also doesn’t predict or deal with changes within the structure of economies. For example, the age of steel was an extremely long lasting period, however, based on neoclassical growth the city of Pittsburgh should not have worried about shifting to a new area.

So what is evolutionary economics then? Well, I’ll get to that tomorrow.

Economic Growth: two paradigms

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So, I talk a lot on here about science, innovation and technologies. I have also mentioned before why innovation is important to economic growth. So, why?  What’s the big deal? Well, simply put, it’s a perspective of economics. There is one major school in Economics, with a few competing schools. I study one of the competing schools, the largest in fact. This branch is referred to as Evolutionary Economics. The traditional type of economics is called NeoClassicalism.

Neoclassical economics is split between micro and macro economics, where at a micro level there will be some demand and some supply and between two people a price agreement will be set based on the factors that go into costs and how many people want the good etc.  Then there’s macro economics which looks at growth at a regional, or country level using terms like gross domestic product (GDP), which I discussed previously. In this post I will focus on macro economics, tomorrow, I will discuss how evolutionary economics at a micro level is different than neoclassical.

GDP measures some very specific things, however, it does not include all economic activity. Despite limitations it currently is the best measure we have for economic activity. Based on the GDP, many different economists have attempted to create theories based on the GDP that will model growth. These started in the mid 50’s with Solow and his model based on savings rates, salaries and previous GDP levels. This model is still the basis for most mainstream economists models. It is a horrible measure as it leaves a huge portion of economic growth as a residual, or as one economist put it “the measure of our ignorance.” This measure is about 75% of the growth.

In 1982 two guys put together the basis of evolutionary economics, which focused on micro level transactions instead of macro level events. However it has been extended to the macro level quite easily. The major argument is based on Schumpeter and that innovation drives economic growth. These economists basically ignore savings and things like that, and focus on knowledge capabilities. They were able to show that technology growth accounts for a massive amount of the economic growth in an economy.

Through these challenges neoclassical economists have adopted something called endogenous growth model. Where technology change is part of the driving force economic change. Before, it was considered an external factor that just happened to the economy. However, there is still a severe limitation to this theory: knowledge is a public good freely available to anyone anywhere. As we all know this is absurd. Basically we can see how this is a failed theory through the discussion I have on the patent system.

I will discuss more of this topic tomorrow.

Further Reading
Neoclassical:
Kuznets, S. (1973), Modern Economic Growth: Findings and Reflections, The American Economic Review, Vol. 63, No. 3 (Jun., 1973), pp. 247-258.
Mankiw, G.N. (1995), The Growth of Nations, Brookings Papers on Economic Activity, Vol. 1995, No. 1, 25th Anniversary Issue, pp. 275-310.


Evolutionary:

Verspagen, B. (2005), Innovation and Economic Growth in J. Fagerberg, D.C. Mowery and R.R. Nelson (eds) Handbook of Innovation, Oxford University Press (I have this and can email it to you if you’re interested)

Silverberg, G. and Verspagen, B. (2005), ‘Evolutionary theorizing on economic growth’ in K. Dopfer (ed.), The Evolutionary Foundations of Economics, available as IIASA Working paper.

NASA

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I’ve gotta say, it’s hard to be a lover of space, NASA and scientific exploration right now. With the end of the shuttle program around the corner, and a new bill to cut a huge amount of funding from NASA (article) things are looking rather down right now. Basically this would kill the James Webb telescope. I think this would be a terrible thing.

Why should we invest? Well, the US prides itself on being number one in everything, even if we aren’t actually number one. Without continuing to push the frontier of research we will fall behind eventually. The article above, or another article mentioned congress killing the Super Collider in Texas, it would have been able to produce the novel results that the Large Hadroc Collider is producing now. The US would be the world leader in particle physics. We are starting to fall behind. Europe is going to be the world leader, and in the future we will be reading articles written by Europeans. We could be excellent teaching centers for particle physics for years to come, but the best of the best will not be in the US.

The same could happen with astronomy. The Hubble Telescope led to over 9,000 scientific papers being published. Yes, that may seem like we were probably spending more money on research than just the money that we spent on Hubble, but remember we were also producing jobs to support those scientists that were writing the papers. The Webb Telescope is going to be significantly more powerful than Hubble. We have had some amazing picture of space and the universe around us because of Hubble. Pictures of the Crab Nebula, Pillars of Creation and the Rose Galaxy. See below.

Top Left Crab Nebula, Right Pillars of Creation Bottom Rose Galaxy

For me, these images instill a feeling of awe and wonder. Through the Hubble we’ve expanded our understanding of how the universe works and how dangerous of a place we live. The rose galaxy, or galaxies, are two galaxies colliding with each other. Our galaxy is actually predicted to collide with the andromeda galaxy in a few million years. We know this because of Hubble.

We are also starting to realize that what we’re learning at the particle level may interact with the origins of the universe. For example, string/M theory also is a theory about how the universe was started. We need to be able to keep seeing back in time to understand how these theories interact with each other.

Controversies IV – Vaccines

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Today I learned something interesting. A guy who does Judo with me told me that in France there are concerns over Hep B shots and Multiple Sclerosis. Apparently, this is based on a discredited publication and health authorities have not been able to convince the French to begin taking the vaccines again. This is of serious concern for me, because he also mentioned that the vaccination rate was something like 30% or so.

In some ways France is lucky, because the vaccine isn’t as serious as the vaccine people are rejecting in the US. They are rejecting MMR (Measles Mumps and Rubella), which are highly contagious. What can we learn from these two cases?

First, it is extremely difficult to overcome personal beliefs on scientific evidence. In both cases many different studies have been conducted to verify the safety of the vaccines. In the US, the connection was completely debunked. The Journal the Lancet it is the UK medical journal, actually went so far to retract the article. It was a flawed study where there were only 12 patients, they were unwilling included and the author was also being paid. There were many cases of ethical violations and the guy isn’t even allowed to practice medicine in the UK any more. He now works in the US. So, despite mountains of evidence to the contrary people still believe these findings.

Second, we learned that it’s not only conservatives, or a segment of the population that is uneducated that hold these anti-science beliefs. The topics I’ve talked about have focused primarily on that group. This controversy is with the liberal well educated group of people living in California. They have celebrity spokespeople and many of these people are engineers or some other scientifically based  profession. These people should know better.

What are the risks if we don’t vaccinate though? Well, vaccination works through protection of the herd. Everyone needs to be protected in the “herd” otherwise everyone is at risk. Well, that just sounds like a scare tactic. Ok, yes a bit, however vaccines don’t always work. You could have gotten vaccinated for MMR and it didn’t actually give you the anti-bodies you needed. It’s difficult to test for these things and expensive. Not something you’d want to subject a small child to. So, lets say that unknown to you, your child’s vaccine didn’t work, and another kid in class was intentionally unvaccinated. He some how comes across measles and comes to school with it. Your child could become ill, as well as any other person in the school that the vaccination didn’t work for or intentionally wasn’t vaccinated.

Ok, let’s say you’re right, why is Autism increasing? Well, partially we’ve changed the standards for what fits autism over time. In the past only people like Rainman would have been considered autistic, now there’s a well defined spectrum that includes a lot more types of behaviors. Other reasons may be from who are having children together. A recent study (WSJ summary) showed that Eindhoven has a significantly higher rate of autism than two other areas where there are many less technology jobs, thus less engineers and scientists. This also would indicate a possible reason why Silicon Valley might also have a higher rate than other places in the US. This does need additional research to compare regions in the US to regions like this and others around the world.

In conclusion, just because you believe non-scientific things does not mean you are stupid. There are a lot of changes in scientific literature. However, we need to develop techniques to educate people and convince them that the new data is right and that there is not some grand plot to make some one money (anti-vac think its the pharmaceutical companies lying) or destroy our economy (anti-climate change thing it’s a conspiracy to destroy the US economy). These groups are increasing risk to everyone. We need to as a general public, figure out a way to address these problems.

Further Reading:
http://www.wired.com/wiredscience/2008/01/california-stud/
http://www.wired.com/magazine/2009/10/ff_waronscience/

Controversies III – Evolution

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So, we have some ideas for how to deal with climate change. Will they work? I don’t know. I hope my friends that read my last post will discuss will educate themselves on climate change and work to talk with their friends about it. Also, let me know if you do and how it goes!

How do we deal with evolution though? This one is a lot trickier, not that dealing with climate change is easy (but I think my idea is a step in the right direction). People who are much smarter than I am have been attempting to tackle this one for some time, including Richard Dawkins who is extremely knowledgeable about the topic. He wrote a fantastic book about evolution called “The greatest show on Earth” where he discusses each of the “counter” claims of ID (Intelligent design) advocates.

However, in some ways this is even besides the point. The major issue is that people are trying to remove evolution from the classroom. This is the biggest problem. This would destroy our capabilities to compete in the future in biomedical applications.

Why are people trying to fight evolution? Well, they feel that it will drive people to atheism. This isn’t true. There are many people that have figured out ways to reconcile their religious beliefs with evolution. The biggest problem is that it directly contradicts the bible. Which in the US there is a growing minority that take the bible literally. The next issue is the growing minority that falsely claim the US is a “Christian Nation” which this CNN contributor debunks.

It appears that we need to not just worry about scientific accuracy but also historical. For it is impossible to really understand the “controversy” without understanding the context that it is being framed within. Without this claimed backdrop there would be no basis under which to fight having evolution in school classes. Evolution is not a religion. With the pope accepting it, it’s as much of a part of catholicism as it is part of secular humanism or part of the accepted scientific facts of an atheist. Since the supporters of ID place the argument within this framework though we must first refute the framework of a christian nation and from there we can show that it is impossible to teach ID in school while evolution must be taught in school.

Additional ponderable thoughts:
“Nothing in Biology Makes Sense Except in the Light of Evolution” is a 1973 essay by the evolutionary biologist and Russian Orthodox Christian Theodosius Dobzhansky, criticising anti-evolution creationism and espousing theistic evolution. The essay was first published in the American Biology Teacher, volume 35, pages 125-129. (Wikipedia)


We teach our vets, doctors, nurses and pharmacists biology. Without a clear understanding of biology from a young age the quality of our healthcare can only go down. As a country we will not be able to stay on top of the life sciences research and pharmaceutical production.


If we fail to education our students on biology how do we keep up, and how to we keep our economy running?