Friday, February 25, 2011
The Residual and Its Critics p. 141-145
This section of the book introduces the first non-hasty model of Keynesian economics. This model was created by Robert Solow. An interesting point in the background of Mr. Solow was the push into mathematics. I'm not sure if after WWII was the first real push of mathematics into economic models or not, but the author mentions the importance of mathematics in Solow's model. A key improvement to Mr. Solow's model that hadn't been seen before was the shift from fixed capital/output to a variable function that allowed substitution. The model he came up with is Y=A(t)F(K,L) which means that output is a function of labor and capital multiplied by the rate of growth of knowledge. It was assumed that knowledge was to "grow steadily, naturally, with the passage of time." p.145
Subscribe to:
Post Comments (Atom)
A for Basil.
ReplyDeleteSolow is a Keynesian, but Solow's growth model is not a Keynesian model. As a a matter of fact, just saying "growth model" automatically conjures a vision in economists that is decidedly un-Keynesian.
The "push" for mathematics is an odd thing. Everyone is against it until the math shows something they hadn't envisioned. Then they change their minds. This is a big problem with technically oriented fields: our K-12 math education is getting weaker, while those fields are getting harder to master without math. This is why there aren't many undergraduates who are ever able to publish in top economics journals (Greg Mankiw and Francis Lui are the exceptions to that rule).
Also, in the equation, it isn't "multiplied by the rate of growth of knowledge" but rather "multiplied by the level of knowledge".
Solow's model included some critical features: 1) diminishing marginal products of both K and L, 2) constant returns to scale, and 3) a role for technological progress.
However, the technological progress that Solow envisioned was exogenous. This puts the model squarely in the Marshallian tradition: positive external effects can be important, but the model can't speak to where they actually come from. Wouldn't it be nice if it did?
Extra credit for the first person to explain what sclerotic means, and why Warsh used it in this section?
It was somewhat difficult to find the definition of sclerotic as Wash used it in the book. The best I could find was a political and medical definition; and, I assume it could relate to both. The first definition deals with the “inability or reluctance to adapt or compromise”. The second definition concerns a hardening of tissue from overgrowth or excess of old tissue.
ReplyDeleteWash used sclerotic to describe Harvard’s economic program in the 1940’s and their reluctance to adapt to Keynesian ideas. Harvard could have also become hardened to these new ideas because of overgrowth or old tissue in the form of professors unwilling to change.