Continuing Conversation... Robert Solow on Growth and the State of Economics

EconTalk Extra
by Amy Willis
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Robert Solow on Growth and the... Daron Acemoglu on Inequality, ...

Nobel laureate and emeritus professor at MIT Robert Solow sat down with EconTalk host Russ Roberts this week to discuss growth theory and the challenges of macroeconomics.

Now let's hear from you. Use the prompts below for comments here at EconTalk, or use them to start your own conversations offline. We love to hear from you.


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Going Deeper:

1. When describing his work in growth theory, Solow insists that we must think about the "varying capital intensity of growth." What does he mean by this, and what does it suggest about varying economies' potential for growth?

2. How does Solow describe endogenous growth theory (the work of Paul Romer)? What is Solow's assessment of Romer's work?


Going Deeper:

3. Roberts challenges Solow's contention in a piece for Econ Journal Watch that "Milton Friedman was bad for economics." How does Solow reply, and to what extent do you agree with him?

4. Solow suggests that there are three primary reasons why macroeconomics today is so characterized by disagreement. What are these three reasons, and how effectively do they describe the state of modern macroeconomics?


Extra Credit:

5. What does Solow regard as John Maynard Keynes' most significant contribution to economics? Roberts responds that there is a different, more important, question that must be asked about the work of Keynes. Summarize the positions of each, and explain with whom you are in greater agreement, and why.

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COMMENTS (8 to date)
Greg G writes:

regarding #5

Solow regards Keynes' main contribution as being the refutation of Say's Law with the discovery that aggregate demand can fall short of aggregate supply for extended periods.

Robert's does not accept that Say's Law has ben refuted. He claims of economists that "they didn't think it (Say's Law) worked instantly."

But it appears that at least one did - and a crucial one at that for this argument. From the first paragraph of the Wikipedia page on Say's Law is this quote from Say:

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.[1]"

For Roberts the most important question about Keynes' work is whether or not empirical evidence can show that government borrowing and spending can fix an economy with an alleged shortage of aggregate demand.

Robert suggests it can't. Solow believes it can. Interestingly and encouragingly both agree why proof is so hard to come by which is the topic of question #4 here.

In my opinion Solow had the best of this exchange. The American economy suffered at least seven depressions or panics before the publication of Keynes "General Theory" that were worse than any that came after it when more Keynesian policies were instituted.

Greg G writes:

regarding #4

This was my favorite part of the discussion. Solow says that agreement in macroeconomics is hard to come by because the problems are very complex, the stakes are very high, and there are a lot of interest groups working through the political system to muddy the waters.

He also adds that, because the economy changes over time, the right answers change - just in case the problem wasn't hard enough already.

I thought this was a great answer to why macro is so hard and I believe Russ did too.

Greg G writes:

regarding #3

On this one, I think Russ easily had the better of the argument.

Solow felt that Milton was too much of an ideologue and caused too much diversion into unproductive philosophical disputes. He also seems to find something unseemly about Milton "marketing" his ideas so aggressively. There was a vague suggestion that a real truth seeker would not do this.

That struck me as either naive or disingenuous. Anyone hoping to advance an idea or affect policy should be competing in the marketplace of ideas. We need competition in the intellectual and academic arena just like we need it in the economy and we should be able to expect a great economist to know that and to know why.

Lio writes:

@ Greg G

regarding #5

"Solow regards Keynes' main contribution as being the refutation of Say's Law"

And he's wrong!

“Robert's does not accept that Say's Law has ben refuted.”

And he's completely right!

I strongly recommend you to read "Say's Law and the Keynesian Revolution" by Steven Kates, to have a clear understanding of what Say’s law means and what it doesn’t mean. Keynes voluntarily misrepresented it to better refute it in his General Theory. In fact, if this law is valid, then the whole Keynesian edifice collapses and Keynes knew that. In my opinion, Say's law still stands and has never really been refuted.

Greg G writes:

Lio,

I looked at that book on Amazon but it costs $49 which is to high for me to purchase given what I know about the economics of book selling.

I am not an economist or an expert on Say's Law. I am open to the idea that I should learn more about it. So I read this at the Library of Economics and Liberty from "The Concise Encyclopedia of Economics":

>---"Say had the long run in mind. Certainly the long-run version is correct. Given enough time, supply does create its own demand. There can be no long-run glut of goods.

But Say also said that even in the short run there could be no overproduction of goods relative to demand. It was this short-run version that thomas robert malthus attacked in the nineteenth century and john maynard keynes attacked in the twentieth. They were right to attack it."

It seems to me that Say's Law is a bit like the Anthropic Principle or the idea of Natural Rights. It comes in so many different strong and weak versions that almost anyone can find one he agrees with but that others feel is the wrong one.


[Quote is from Jean-Baptiste Say, Biography, CEE, on Econlib. Of possible relevance to this discussion, see also the paragraphs on J. B. Say in Economics as a Coordination Problem, by Gerald P. O'Driscoll, Jr.--Econlib Ed.]

Greg G writes:

regarding #1

But only regarding the question a little since I don't feel like I understand growth theory all that well yet. So then, more in the spirit of continuing the conversation than answering the question, I was struck by Solow's suggestion that demographics and technology affect growth more than we think.

That seems right to me. Of course, if some things affect growth more than we think, then other things must affect it less than we think. What could they be? I nominate government policy.

I am not saying policy doesn't matter, just that it matters a lot less than we think. Obviously sufficiently bad policy can strangle growth. But growth can also emerge through shockingly bad policy. Think of the Soviet Union. Despite some of the worst economic and political policies in human history, in two generations they fully industrialized and defeated Nazi Germany while doing it.

Or think of Japan and Europe today. Maybe demographics is the main challenge to growth. It's a lot harder to sell more stuff to fewer people than it is to sell more stuff to more people to frame the issue in non-technical terms.

Amy Willis writes:

Hi, all, Great discussion re: Say's Law...I can;t help but link to the EconStories rap videos...The second one, especially.

There's also an EconTalk episode with Papola, and another Econlib bio of Say.

Greg G writes:

And, as Keynes pointed out so memorably, different people can have quite different opinions on what constitutes "the long run."

Thanks for posting the link to the rap video Amy. I enjoyed watching it again. I discovered Econtalk by following the links from that video which I thought was amazingly well done and a very fair treatment of the issues.

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