Friday, February 25, 2011
Pg 147-148
Finally, we are understanding how growth overcomes diminishing returns, by technology growth. All the other important figures in economics understood that technology was important but it is said that Solow put their thoughts into modern calculus. This model became the blueprints for the Cold War, out grow the Soviet Union with technical advances. Growth had now been fit into the Keynesian model and Solow became disinterested and turned his attention elsewhere, helping the government with Cold War issues. Soon he began working on what would become know as the Phillips Curve, which is the theory that inflation and unemployment are linked. "Fine-tuning" the economy soon became a primary focus of polices which lead to the Kennedy tax cuts in 1964.
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B for Sue for grammatical problems.
ReplyDeleteThere's an aphorism about "ignoring the moose in the room". It means that you are studiously ignoring something big and important.
Now, think about the graphs we've shown in class about the behavior of the log of real GDP through time. Growth swamps everything.
And yet, Solow moved away from research on growth to focus on business cycles.
This persisted for decades: I spent the first 20 years of my economics education (undergraduate, graduate, and post-graduate) worrying about business cycles too - because that's what everyone worried about!
In the meantime, growth kept erasing the significance of business cycles.
Warsh doesn't call it such, but there's a second underground river here. Growth matters, but it surfaced briefly in the late 50's and 60's only to disappear again.