Bob Lucas, Nobel Laureate and professor of economics at the University of Chicago talks about wealth and poverty, what affects living standards around the world and over time, the causes of business cycles and the role of the money in our economy. Along the way, he talks about Jane Jacobs, immigration, and Milton Friedman's influence on his career.
While much of this book is graduate-level economics with a lot of math, there are many insights along the way for the everyday reader. A very accessible introduction to Lucas's thoughts on growth is his essay, "The Industrial Revolution: Past and Future", Federal Reserve Bank of Minneapolis, 2003 Annual Report.
What are the stylized facts of economic growth? International differences in living standards. "Once you start thinking about them, it's hard to think about anything else." Gaps in levels, growth rates. Modern growth theory, Robert Solow. Planning vs. natural tendencies. Was it just more capital per person? Law of diminishing returns. Barriers to capital flow? Poverty is declining.
Is it all physical capital? How about human capital, skill, knowledge, technology. William Easterly. International training and movement of ideas, face-to-face contact. Lectures on Economic Growth, Jane Jacobs, innovation. Liberty Shipyards example.
International level. Chicken example: High opportunity cost to the time of U.S. farmers contributes to more productive chickens in the U.S. Hallway painting, traditional agriculture didn't portray a picture of ongoing living standards. Higher living standards happen in cities, not via feudal agriculture. "Economic growth is always associated with a movement out of agriculture and into the city environment."
Why does someone crossing border from Mexico to the U.S. with no extra skills suddenly earn more? What they are doing is cooperating in human capital, and that complementarity is paid for. Also: How many people compete with you at your level? Emigration offers opportunities to get paid for skills less-valued elsewhere. High school education in receiving country vs. dynamic contributions.
What are the growth puzzles we still don't understand and that will be worked on in next ten years? Ricardo, Malthus pointed to fertility. But that's transitioning.
Business cycles, macroeconomics, monetary policy. "The importance of financial matters is badly overemphasized." What have we learned about role of money? Kydland, Prescott, role of monetary instability matters but is low relative to real shocks. Monetary instability adds to the problem; but the underlying instabilities are probably non-monetary (real) factors. Anticipated vs. unanticipated changes. Monetary policy is accepted universally as the source of inflation. However, while bad monetary policy contributes to recessions, it isn't the only cause. Now that we understand that, the head of the Fed guides us better. Greenspan, Bernanke, heads of other Central Banks all get it that their job is to not screw up what has been learned by economists since the 1970s. Why isn't Friedman's question of controlling the money supply versus targeting interest rates talked about any more? "Bankers have always talked about interest rates--that's their living." Economists are even now allowed to work at U.S. Treasury! Health insurance. Economists are now consulted by policy-makers, Presidents, and Central Banks worldwide.
Milton Friedman's influence on Lucas. Friedman as an inspiring classroom teacher. Other great teachers: Arnold Harberger on taxation. Zvi Griliches. Greg Lewis, labor economist. History and economics as influences in Lucas's career. Studying the early days of the industrial revolution is tying that back together now.