WHY ECONOMIES GROW: The Forces That Shape Prosperity and How We Can Get Them Working Again by Jeffrey Madrick Basic Books, $26.00
JEFFREY MADRICK'S Why Economies Grow is a short work with a big ambition: Debunk de·bunk
tr.v. de·bunked, de·bunk·ing, de·bunks
To expose or ridicule the falseness, sham, or exaggerated claims of: debunk a supposed miracle drug. mainstream economics about the best way to promote faster economic growth. Most economists believe that the key to higher growth is more capital, better-trained workers and, most powerful of all, a steady stream of economic innovation. For Madrick, a country's economic development depends less on capital, labor, and new ideas "New Ideas" is the debut single by Scottish New Wave/Indie Rock act The Dykeenies. It was first released as a Double A-side with "Will It Happen Tonight?" on July 17, 2006. The band also recorded a video for the track. than on how large its market is and how consolidated its industries are. Large and growing markets, he argues, produce economies of scale, and only when industries achieve such scale economies can more capital, labor, and new ideas produce faster growth. In the work's final analysis, the point of this novel thesis is not really to revise economic thinking, but to justify the return of big government spending Government spending or government expenditure consists of government purchases, which can be financed by seigniorage, taxes, or government borrowing. It is considered to be one of the major components of gross domestic product. that can pump up the market and promote those economies of scale.
"The American experience American Experience (sometimes abbreviated AmEx) is a television program airing on the PBS network in the United States. The program airs documentaries about important or interesting events and people in American history, many of which have won impressive ," he writes, "is the clearest example of the influence of large and growing markets on economic development" The book's strongest suit is a recounting of 19th and early 20th century economic history that reminds us that America's economic success is unimaginable without a vast and open domestic market that spurred business to develop new forms of production and distribution. The power of a large and growing market to drive economic progress is also useful to keep in mind when considering the rapid ongoing development of China and India.
Market size matters, but it hardly explains everything. Brazil and Russia with their vast domestic markets have repeatedly stumbled on the path of economic development, and nations with small internal markets flourished in Europe in the 18th and 19th centuries and in Southeast Asia Southeast Asia, region of Asia (1990 est. pop. 442,500,000), c.1,740,000 sq mi (4,506,600 sq km), bounded roughly by the Indian subcontinent on the west, China on the north, and the Pacific Ocean on the east. in the late 20th century. So Madrick concedes that a strong economy needs capital, broad literacy and education, sound political and economic institutions, and much else. The point of focusing on the extent of a country's domestic market is to move his argument from an exposition on how economies develop to his own explanation for why economies grow.
The analysis of growth presented here is at once novel and nostalgic. As large markets drive economic development over decades, so strong market demand is said to drive growth year to year in a very particular way: by spurring firms to achieve vast economies of scale in the production of standardized products for those markets. For the author, the paradigm of sound growth is the 1950s, when everyone in the vast American market drove a Chevy or a Ford, bought the same cereals, wore the same grey flannel suits--and the economy grew faster than in any decade since.
To make this case and rehabilitate demand-driven economic policy, Madrick must not only refute conservative dogma on the primacy of capital and tax cuts, he must also discredit the neoliberal ne·o·lib·er·al·ism
A political movement beginning in the 1960s that blends traditional liberal concerns for social justice with an emphasis on economic growth.
ne approach based on innovation and fiscal discipline. Here, the argument has to contend with the consensus of modern macroeconomics macroeconomics
Study of the entire economy in terms of the total amount of goods and services produced, total income earned, level of employment of productive resources, and general behaviour of prices. about what makes a modern economy grow. This consensus begins simply enough: The economy grows when the quantity or quality of its capital and labor increases, or the ways in which they are combined improve. When more people work or we invest more capital, GDP GDP (guanosine diphosphate): see guanine. should rise; when workers' average skills improve or businesses use capital more efficiently, the economy should expand faster. When managers come up with' better ways to organize their workplaces and nm their firms, or innovators invent new ways of using labor and capital, growth should accelerate.
Following the work of Robert Solow Robert Merton "Bob" Solow (born August 23, 1924) is an American economist particularly known for his work on the theory of economic growth. He was awarded the John Bates Clark Medal (in 1961) and the 1987 Nobel Prize in Economics. (who received the Nobel Prize Nobel Prize, award given for outstanding achievement in physics, chemistry, physiology or medicine, peace, or literature. The awards were established by the will of Alfred Nobel, who left a fund to provide annual prizes in the five areas listed above. for his effort) and Edward Denison This article is about British philanthropist. For U.S. Representative, see Edward E. Denison.
Edward Denison (1840-1870) was a British philanthropist, known for his self-denying benevolent labours in the East End of London. , most economists also agree on the relative importance of these factors. The media trumpeting the New Economy in the late 1990s went overboard, but economics supports their basic case: Solow, Denison, and others found that innovation in its various forms is the most important factor in U.S. productivity growth. At least 34 percent of U.S. growth from 1929 to 1982, for example, can be traced to the development of new products and processes; new ways of financing, marketing, and distributing goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. ; and new approaches to organizing and running a business. Innovation matters so much because it affords the economy a way of escaping the law of diminishing returns law of diminishing returns
The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.
Noun 1. that otherwise would inexorably reduce the punch from simply adding more capital or labor.
Innovation plays the largest part, but only a part. The increasing numbers of workers and hours they work can account for 25 percent of growth over those years, and another 16 percent can be traced to workers' increased skills. After that comes the conservatives' favorite: Increases in the capital stock of equipment, factories, offices, and so on, explain 12 percent of the growth of those 53 years. A number of other factors also matter, including Madrick's favorite: Economies of scale realized by businesses with the emergence of regional and national markets can explain about 11 percent of growth. The economy's better use of labor has yielded a comparable effect, principally in women moving from household work to offices and Southern agricultural workers moving to industrial jobs in the North and Midwest.
Why Economies Grow never directly challenges this economic canon. Instead, it tries to recast re·cast
tr.v. re·cast, re·cast·ing, re·casts
1. To mold again: recast a bell.
2. the various factors as mainly consequences of growing demand. New technologies, new ways of marketing and distributing goods, and so on, all matter; but they are said to come about to meet the demand of expanding markets. The economic payoff for Madrick comes when the mass employment of these innovations produces new economies of scale.
This view requires some imaginative reinterpretations of recent economic developments. The productivity slowdown of the 1970s and 1980s is said to reflect not just the usual suspects like inflation and labor-force changes, but the rise of consumer demand for specialized products. This new era of "consumer choice" fragmented the mass market for standardized goods, producing countless niche markets that could never achieve real economies of scale. Similarly, we owe much of the productivity resurgence of the latter 1990s not to the efficient application of information technology (IT), but to a revival of a traditional mass market in standardized versions of IT products, with the attendant economies of scale for their producers.
In the end, the analysis lacks, well, any proof. But Madrick's point is not to provide data or evidence, but to shift our economic thinking away from factors like innovation and skilled labor, and back to the demand side of the economy. That provides the basis for his own agenda for prosperity: To keep domestic market demand growing, we need ongoing budget deficits to finance public investment, a higher minimum wage, expanded job programs, pensions and healthcare for all workers, more income support and training for the unemployed and so on, and on.
The question is: Without a lot of innovation, is the American market for traditional liberalism large enough to sustain its continued development?
ROBERT SHAPIRO This article is about the lawyer. For the economist, see Robert J. Shapiro.
Robert Leslie Shapiro (born September 2, 1942 in Plainfield, New Jersey), is a high-profile attorney who is most notable for being part of the defense team which successfully defended , a fellow at the Brookings Institution Brookings Institution, at Washington, D.C.; chartered 1927 as a consolidation of the Institute for Government Research (est. 1916), the Institute of Economics (est. 1922), and the Robert S. Brookings Graduate School of Economics and Government (est. 1924). and a columnist for Slate, directs the economic consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee
business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a Sonecon.