NOTES
Introduction
1. The Swedish economist Knut Wicksell did pioneering work on matters of capital formation, primarily saving and investment, most of it contained in his treatise Interest and Prices published in 1898 in the German edition Geldzins und Guterpreise (Jena: G. Fischer, 1898). Joseph Schumpeter’s landmark work on economic growth was his 1911 / 12 treatise in German, Theorie der Wirtschaftlichen Entwicklung (Vienna: Duncker and Humblot, 1911 / 12), and the much later English translation, The Theory of Economic Development (Cambridge, MA: Harvard University Press, 1934). (German was the second language of economics from the 1890s, when the German economy was in full bloom, to the 1920s, when the economy was weak and scholarship was in decline.)
Arthur Cecil Pigou was a leading figure in the building of the Cambridge School of Economics, “where everything from the demand and supply curve to macroeconomics was invented,” to quote personal correspondence from Antara Haldar received December 13, 2018. Among his principal books are The Economics of Welfare (London: Macmillan, 1920), Industrial Fluctuations (London: Macmillan, 1927), and A Study in Public Finance (London: Macmillan, 1928). An extraordinary contributor to several fields, Frank Ramsey is now recognized mainly for his seminal paper, “A Mathematical Theory of Saving,” Economic Journal 38, no. 152 (December 1928): 543–559, though he also pioneered the theory of optimal taxation.
Paul Samuelson’s conceptual work ranged from his “revealed preference” introduced in his first paper on welfare economics, “Welfare Economics and International Trade,” American Economic Review 28, no. 2 (June 1938): 261–266; and his ideas on convergence to equilibrium in “The Stability of Equilibrium,” Econometrica 9, no. 2 (April 1941): 97–120; to his “factor price frontier” introduced in “Parable and Realism in Capital Theory: The Surrogate Production Function,” Review of Economic Studies 29, no. 3 (June 1962): 193–206; his seminal work on overlapping generations in “An Exact Consumption Loan Model of Interest with or without the Social Contrivance of Money,” Journal of Political Economy 66, no. 6 (December 1958): 467–482; and his concept of a continuum of goods in R. Dornbusch, S. Fischer, and P. A. Samuelson, “Comparative Advantage, Trade and Payments in a Ricardian Model with a Continuum of Goods,” American Economic Review 67, no. 5 (December 1977): 823–839.
There were others who made basic contributions to the neoclassical edifice, some of the most important being Gustav Cassel, J. B. Clark, Irving Fisher, J. R. Hicks, and Kenneth J. Arrow. Note also that the body of neoclassical theory introduced here is not fundamentally monetary, so there are no references to advances in monetary economics.
This neoclassical framework was broadened to the open economy by Bertil Ohlin’s work on trade, Interregional and International Trade (Cambridge, MA: Harvard University Press, 1933) and “Mechanisms and Objectives of Exchange Control,” American Economic Review 27, no. 1 (March 1937): 141–150; papers on factor prices by Paul Samuelson, notably Wolfgang F. Stolper and Paul Samuelson, “Protection and Real Wages,” Review of Economic Studies 9, no. 1 (November 1941): 58–73, and Paul Samuelson, “International Trade and Equalisation of Factor Prices,” Economic Journal 58, no. 230 (June 1948): 163–184; the paper by Robert A. Mundell, “The Pure Theory of International Trade,” American Economic Review 50, no. 1 (March 1960): 67–110; and others.
2. Many applications and extensions of the intertemporal framework appeared in the 1960s and succeeding decades, among them Edmund Phelps, “The Golden Rule of Accumulation,” American Economic Review 51, no. 4 (September 1961): 638–643; Franco Modigliani, “Long-Run Implications of Alterative Fiscal Policies and the Burden of the National Debt,” Economic Journal 71, no. 284 (December 1961): 730–755; Robert E. Lucas and Leonard A. Rapping, “Real Wages, Employment and Inflation,” Journal of Political Economy 77, no. 5 (September-October 1969): 721–754; Janusz Ordover, “Distributive Justice and Optimal Taxation,” Journal of Public Economics 5, no. 1–2 (January-February 1976): 139–160; Carl Shapiro and Joseph Stiglitz, “Equilibrium Unemployment as a Discipline Device,” American Economic Review 74, no. 3 (June 1984): 433–444; and Phelps, Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest and Assets, with Hian Teck Hoon, George Kanaginis, and Gylfi Zoega (Cambridge, MA: Harvard University Press, 1994).
3. Their books were both started in 1915 and delayed by WWI. See Frank H. Knight, Risk, Uncertainty and Profit (Boston: Houghton Mifflin, 1921); and John Maynard Keynes, A Treatise on Probability (London: Macmillan, 1921). In his later book The General Theory of Employment, Interest and Money (London: Macmillan, 1936), Keynes wrote of firms and speculators endeavoring to gauge the “average opinion” prevailing in the markets. This discussion of “what average opinion expects the average opinion to be” and, further, “what average opinion expects average opinion to be” is on p. 156.
4. The latter book by Keynes is General Theory of Employment. Keynes later observed that following a drop of demand in a town or country, workers might not leave, owing to each worker’s speculation that the other workers will move away—a lack of coordination among the workers. See The Collected Writings of John Maynard Keynes, vol. 14, The General Theory and After, pt. 2, Defence and Development, ed. Donald Moggridge (London: Macmillan, 1973).
5. Perhaps the earliest use of the term standard to describe the state of economics in the past several decades is in Roman Frydman and Michael Goldberg, Beyond Mechanical Markets: Asset Price Swings, Risk, and the Role of the State (Princeton, NJ: Princeton University Press, 2011), 199.
6. See Robert M. Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (February 1956): 65–94.
7. Some models are interpreted as describing an endogenous source of self-sustained growth—one governed or governable by society. For example, several economists have formed hypotheses about the influence of education on technical progress. The paper by Richard R. Nelson and Edmund Phelps, “Investment in Humans, Technological Diffusion and Economic Growth,” American Economic Review 56, no. 1/2 (March 1966): 69–75, proposes that education is “important to those functions requiring adaptation to change” (69) and thus helps to speed the diffusion of innovations. But this model does not imply that a higher education level would generate a sustained steepening of the growth path—only a one-time shift.
8. In the textbook growth models, the long-run grown rate is equal to the rate of technical progress. Although far from essential in this book, the following algebra may be worth adding. For convenience, let Λ denote the level of total factor productivity and λ denote its growth rate. In this notation, the long-run growth rate of total output would be equal to λ if there were to be no further capital accumulation. It would be equal to λ times a “multiplier,” given by the reciprocal of labor’s share, if there were to be investment to keep capital growing as fast as output. Nevertheless, technical progress remains the sine qua non for long-run growth.
For many years, there had been a belief among economic historians that capital formation was somehow a larger contributor to productivity growth than was technological progress. That belief came under discussion in several papers beginning in 1956. See, for example, Benton F. Massell, “Capital Formation and Technological Change in United States Manufacturing,” Review of Economics and Statistics 42, no. 2 (May 1960): 182–188; Robert M. Solow, “Investment and Technical Progress,” in Mathematical Methods in the Social Sciences, ed. K. Arrow, S. Karlin, and P. Suppes (Stanford, CA: Stanford University Press, 1960), 89–104; and Edmund Phelps, “The New View of Investment: A Neoclassical Analysis,” Quarterly Journal of Economics 76, no. 4 (November 1962): 548–567.
9. Schumpeter, in his 1911 / 12 classic Theorie der Wirtschaftlichen, made the point that he never met anyone in the economies he knew who possessed any “creativity.” In his 1939 book he is explicit that the entrepreneur is capitalizing on the work of an inventor or discoverer. See Schumpeter, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill, 1939).
Robert Solow appears to have viewed the standard theory in the same spirit: in reflective remarks made toward the end of his paper “A Contribution to the Theory of Economic Growth”—the last pillar of the standard theory—he characterizes his growth model as a “frictionless, competitive, causal system” (91; italics added). What he meant by “causal,” I think, is that the model has no place for any events or actions springing up within the economy modeled.
10. See Nicholas Conard, Maria Malina, and Susanne C. Münzel, “New Flutes Document the Earliest Musical Tradition in Southwestern Germany,” Nature, August 2009, 737–740.
11. See the charts in figures 7.1 and 7.2 in Edmund Phelps, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (Princeton, NJ: Princeton University Press, 2013), 183–184. They permit the reader to take into account that some countries have high levels of employment, which tend to reduce conventional measures of productivity such as real gross domestic product per employee and output per man-hour. Although these measures are from 1996 data, it is doubtful that results from 2017 data will be found to differ.
The implication of the “standard theory” that factor prices, such as wage rates and thus productivity measures as well, are equalized among countries was proved in a celebrated paper by Paul A. Samuelson, “The Gains from International Trade,” Canadian Journal of Economics and Political Sciences 5, no. 2 (May 1939): 195–205.
12. See Schumpeter, Theory of Economic Development. Schumpeter uses the word “obviously” on p. 88 of the Harvard edition.
13. Some economists deny there has been a slowdown of productivity in recent times, properly measured. This volume will bring some important data to bear on the question.
14. This summary of early models of endogenous growth draws on Richard R. Nelson, Merton J. Peck, and Edward Kalachek, Technology, Economic Growth and Public Policy (Washington, DC: Brookings Institution, 1967); and Edwin Mansfield, Industrial Research and Technological Innovation: An Econometric Analysis (New York: Norton, 1968). It would be difficult to do justice to the variety of insights presented by this first generation of model builders. Some of the prominent contributions were Richard Nelson, “The Simple Economics of Basic Scientific Research,” Journal of Political Economy 67, no. 3 (June 1959): 297–306; Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” Review of Economic Studies 29, no. 3 (June 1962): 155–173; and Mansfield, Industrial Research. Around 1970 Nelson and Sidney Winter began years of interchange and collaboration culminating in the expositions and models of “Schumpeterian competition” in An Evolutionary Theory of Economic Change (Cambridge, MA: Harvard University Press, 1982).
Another early model of endogenous growth takes global progress to be a function of the proportion of the labor force allocated to produce it. See Edmund Phelps, “Models of Technical Progress and the Golden Rule of Research,” in Golden Rules of Economic Growth (New York: Norton, 1966), 137–157. This model, in turn, suggested another model in which exponential growth of the labor force, far from diminishing the productivity of labor, speeds it up if some fixed share of the labor force is allocated to raising productivity. See Phelps, “Population Increase,” Canadian Journal of Economics 1, no. 3 (August 1968): 497–518.
It may be worth adding that in these same years the notion of “defensive investment” and thus “defensive innovation” arose and Kenneth Arrow introduced what might be called “offensive innovation”—an innovation motivated by the expectation that it would enable the innovator to take over a whole industry and gain the whole of the monopoly profit.
15. See Arrow, “Economic Implications of Learning.” Arrow pointed out in this paper that an entrepreneur would have an incentive to invest in the development of the new thing only if the enterprise were allowed to erect barriers to entry or a protection like patent rights.
16. Nelson also inspired work on the diffusion of new methods across competitive industries, such as the spreading use of fertilizer and the moldboard plow in farming. See Nelson and Phelps, “Investment in Humans.”
17. In this latter model, the long-run growth rate of productivity is positive under some conditions even if the population does not grow. A 1986 paper by Romer presents a model in which steady growth results from learning by doing. See “Increasing Returns and Long-Run Growth,” Journal of Political Economy 94, no. 5 (October 1986): 1002–1037. In this model, learning by doing brings some growth that brings more learning by doing and so forth in an endless spiral of growth.
18. Philippe Aghion and Peter Howitt, “A Model of Growth and Cycles through Creative Destruction” (Working Paper No. 527, Economics Department, MIT, May 1989); Philippe Aghion and Peter Howitt, “A Model of Growth through Creative Destruction,” Econometrica 60, no. 2 (1992): 323–351. See also the stupendous textbook by Aghion and Howitt, Endogenous Growth Theory (Cambridge, MA: MIT Press, 1998).
19. See Paul M. Romer, “Endogenous Technical Change,” Journal of Political Economy 98, no. 5 (January 1990): 71–103.
20. Nelson, Peck, and Kalachek write that “in the absence of new technological knowledge, sooner or later these possibilities would be exhausted. As returns to additional capital and education declined, not only would their contribution to further expansion diminish; their rate of expansion probably would decline as well.” Technology, Economic Growth, 16.
21. What I mean by “dynamism” is indicated in Phelps, Mass Flourishing, ix, 20. In my use of the term, a decrease of innovation owing to some weakening in the market for goods is not a decrease of dynamism.
22. See Edmund Phelps, “The Dynamism of Nations,” Project Syndicate, December 2003; Phelps, “Macroeconomics for a Modern Economy” (Nobel Prize Lecture in Economics, Royal Swedish Academy of Sciences, December 2006); Phelps, “The Economic Performance of Nations,” in Entrepreneurship, Innovation, and the Growth Mechanism of Free Enterprise Economies, ed. E. Sheshinski, R. J. Strom, and W. J. Baumol (Princeton, NJ: Princeton University Press, 2007), 342–356; Phelps, “In Search of a More Dynamic Economy,” Financial Times, July 20, 2008; Phelps, “What Is Wrong with the West’s Economies?,” New York Review of Books, August 13, 2015, 54–56; and Phelps, “The Dynamism of Nations: Toward a Theory of Indigenous Innovation,” Capitalism and Society 12 (May 2017): article 3.
23. Walt Rostow’s wonderful coinage, “take-off into sustained economic growth,” or productivity growth, appearing in The Process of Economic Growth (New York: Norton, 1952), was amended to “self-sustained” growth in his paper “The Take-Off into Self-Sustained Growth,” Economic Journal 66, no. 261 (March 1956): 25–48. By “self-sustained” I think he meant not deriving and thus depending on a series of outside forces that kept the growth going for some time.
24. The consensus of scholars poring over much of the available data is that output per head began a sustained climb in Britain and America around 1820. With the national income data provided by Angus Maddison—see Maddison, The World Economy: Historical Statistics (Paris: OECD, 2003)—we can see that Britain lost ground in the latter decades of the 19th century, though Germany and France did not. Incredible as it appears now, tens of economic historians and economists were far from identifying what was behind the takeoffs in Britain and America after the end of the Napoleonic Wars in 1815.
25. Paul Johnson, The Birth of the Modern: World Society 1815–1830 (New York: HarperCollins, 1991).
26. See Phelps, Mass Flourishing; for summaries and restatements, see Edmund Phelps, “Mass Flourishing: How It Was Won, Then Largely Lost,” pts. 1 and 2, OECD Insights, August 19 and 20, 2013; Phelps, “What Is Wrong?”; and Phelps, “Dynamism of Nations: Toward a Theory.”
27. See Phelps, Mass Flourishing, 66. The term getting on in 1840s London meant making a success of one’s life. See Rick Rylance, The Cambridge Companion to the Brontës (Cambridge: Cambridge University Press, 2002), 157–158.
28. See Emma Griffin, Liberty’s Dawn (New Haven, CT: Yale University Press, 2013).
29. See Friedrich Hayek’s presidential address delivered before the London Economic Club on November 10, 1936: “Economics and Knowledge,” Economica 4, no. 13 (February 1937): 33–54; it takes up imperfect knowledge-creating opportunities (which the market unfailingly and rather quickly identifies!). See also his much-cited paper “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (September 1945): 519–530, in which he refers to “adaptations” to changing circumstances. Both are in Hayek’s Individualism and Economic Order (Chicago: University of Chicago Press, 1948). See also the influential book by Chester I. Barnard, The Functions of the Executive (1938; Cambridge, MA: Harvard University Press, 1968).
30. Hence cities were a by-product of the ferment of new ideas, not the cause of the ferment, as the famed urban economist Jane Jacobs maintained. See Jacobs, The Death and Life of Great American Cities (New York: Random House, 1961). See also Saskia Sassen, The Global City (Princeton, NJ: Princeton University Press, 2001).
31. The passage by Marshall, which I have been quoting since as early as my 1985 textbook Political Economy, is from his early textbook Elements of Economics (London: Macmillan, 1892), 5. Marshall knew of what he spoke. Born in 1842, he had been observing business life for five decades when he wrote those lines.
32. Alexis de Tocqueville, Democracy in America, 2 vols. (London: Saunders and Otley, 1835–1840).
33. Marx harshly criticizes Adam Smith for seeing the experience of one’s work as a cost to one’s tranquility, freedom, and happiness—far from a vehicle to freedom and happiness. “For Smith,” Marx writes, “labor is a curse. ‘Tranquility’ appears as an adequate state, identical with ‘freedom’ and ‘happiness.’ It seems far from Smith’s mind that the individual, ‘in his normal state of health, strength, activity, skill, facility,’ also needs a normal portion of work, and of the suspension of tranquility.… Smith has no inkling whatsoever that overcoming obstacles is in itself a liberating activity—hence as self-realization, … hence real freedom.” Karl Marx, Grundrisse der Kritik der Politischen Okonomie (New York: Penguin, 1993), 611, written 1857–1861, published originally in German (1939–1941) and in English by Penguin in 1973.
It is unsurprising that Smith did not notice these rewards of work, since they were certainly not prevalent in the British economy of the 1700s. The architects of the standard theory, 1893–1965, must have noticed them, however—certainly Marshall did and so did the mavericks Thorstein Veblen and Gunnar Myrdal—but apparently these architects did not see the harm of treating labor as simply leisure lost.
34. See David Hume, An Enquiry Concerning Human Understanding (London: Clarendon, 1748), for his discussion of how knowledge is increased.
35. This speculation has been voiced by Diana Coyle in “Rethinking GDP,” Finance and Development 54, no. 1 (March 2017): 17–19. The statistical study and quote referred to here can be found in M. L. Cropper and A. S. Arriaga-Salina, “Inter-city Wage Differentials and the Value of Air Quality,” Journal of Urban Economics 8, no. 2 (September 1980): 248. It draws on Robert M. Solow’s “On Equilibrium Models of Urban Location,” in Essays in Modern Economics, ed. Michael Parkin and A. R. Nobay (London: Longman, 1973), 2–16.
Another point on the material benefits brought by the takeoffs is that the resulting national income gains soon enabled governments to take public health and hygiene measures that saved many working-age people from early death.
36. Abraham Lincoln, “Second Lecture on Discoveries and Inventions,” February 11, 1859.
37. The economist Kenneth Boulding was heard at an unpublished lecture given in Philadelphia around 1967 to place great importance on “obtaining better terms of trade.”
38. This satisfaction, which certainly seems important, I first added at a joint conference, “The Future of Europe,” cohosted by the Oxford Martin School and the Center on Capitalism and Society at Oxford University in April 2016. The others cited here are pointed to in Phelps, Mass Flourishing.
39. There are other sorts of models. In 1949, the celebrated engineer and statistician W. A. Phillips, when a student at the London School of Economics, built in the basement a hydraulic model of the workings of the British economy. Made a lecturer and later a professor at LSE, he went on to discover a statistical relationship between the rate of wage inflation and the unemployment rate, dubbed the Phillips Curve.
40. See Douglass North, Institutional Change and American Economic Growth (Cambridge: Cambridge University Press, 1971); and Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty (New York: Currency, 2013).
41. These signs of slowdown were not always immediate noticed, owing to a surge of increased investments following a steep rise of oil prices and the end of fixed exchange rates, not to mention the violence that broke out around 1968, notably in New York, Los Angeles, and Paris. It took the whole decade or more to sense the new developments, though they seem clearer by now. See Assar Lindbeck, “The Recent Slowdown of Productivity Growth,” Economic Journal 93, no. 369 (March 1983): 13–34; and Stanley Fischer, “Symposium on the Slowdown in Productivity Growth,” Journal of Economic Perspective 2, no. 4 (Fall 1988): 3–7.
Those economists were referring to labor productivity—that is, output per worker or per hour worked. In 2012, Robert J. Gordon, poring over data he had constructed on the growth rate of total factor productivity in the American economy, noticed far slower growth rates from 1972 with some ups and downs. (At my suggestion, he calculated the growth rate in the periods 1922–1972 and 1972–2012, which showed far slower growth over the latter period. The latter growth rate was approximately half the earlier growth rate. Phelps, Mass Flourishing displays the bar chart on pp. 220–221. In another bar chart, contained in his book The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War [Princeton, NJ: Princeton University Press, 2016], Gordon presents decadal averages showing reduced growth in the 1970s and far slower growth since then. It had been my impression for some time that 1968 saw the first signs of a sea change in attitude and orientation in the nation.) The present volume uses data constructed by the Banque de France after Gordon’s construction of data and extended to a large set of countries.
42. Phelps, Mass Flourishing, 222–225, reported that the growth rate of total factor productivity in the United States in the span 1972–2012 was half the rate in the span 1922–1972, based on earlier annual estimates in Penn World Tables.
43. For prominent accounts, see Tyler Cowen, The Great Stagnation (Boston: Dutton, 2011); Phelps, Mass Flourishing; and Gordon, Rise and Fall.
44. It may be noted that the standard theory does not leave room for a decline of entrepreneurship; the latter is baked into the prevailing model of the economy. Hayek, as noted at the outset, did move away a little from the standard theory in injecting the notion that insightful managers might, over years of experience, develop a sense of unexploited opportunities arising from exogenous developments in population, climate, and so forth. See Hayek, “Use of Knowledge in Society.”
45. One source is the data reported in the General Social Survey, known as the GSS. This time series goes back only to 1972, so it cannot support (or refute) the implication of the hypothesis that job satisfaction was buoyant in the 1950s and well into the 1960s compared with its level after the slowdown of indigenous innovation in the years around 1970—and, one might add, the investment boom in the 1970s. One can see that the proportion of respondents who feel “a little dissatisfied” or “very dissatisfied” with the “work they do” rose from 177 and 134, respectively, in 1985 and 1986, after the worst of the early 1980s recession was over, to 188 and 281 in 2004 and 2006. The dissatisfaction was even worse in the latest year, 2016.
Another source of data is the degree of “life satisfaction” reported in household surveys by the Pew Research Center. We know that, statistically, job satisfaction is a huge part of life satisfaction in household surveys. And even if it were not, people’s sense of satisfaction with their lives in a modern society is germane to the theory articulated and tested in this volume. (It is also of interest per se.) The resulting time series, from its start in the early 1970s, shows a downward trend in the reported degree of life satisfaction.
46. See the extensive investigation in the forthcoming volume by Anne Case and Angus Deaton, Deaths of Despair and the Future of Capitalism (Princeton, NJ: Princeton University Press, March 2020). See also Jeffrey D. Sachs, “America Is Falling Far Behind on Key World Goals,” CNN, July 11, 2018, https://
www .cnn .com /2018 /07 /11 /opinions /america -ranks -low -sustainable -development -sachs /index .html. Sachs also referred to a decline in the sense of “well-being” and “longevity.” (It is not clear whether longevity is to be categorized as nonmaterial, since it is heaven-sent, not earned, but it also increases leisure and consumption possibilities, which are in the material category.) 47. Christopher Lasch, The Culture of Narcissism (New York: W. W. Norton, 1979).
48. Caddell is quoted in Stuart E. Eizenstaat, President Carter: The White House Years (New York: St. Martin’s, 2018), 690.
49. The line appears in the biopic The Iron Lady (2011), directed by Phyllida Lloyd.
50. Jimmy Carter, “Energy and the National Goals,” Malaise Speech, televised July 15, 1979, https://
www .americanrhetoric .com /speeches /jimmycartercrisisofconfidence .htm. Vice President Walter Mondale said, “We wanted a government as good as the people; now we tell them we need a people as good as the government.” Eizenstaat, President Carter, 679. 51. I like to think of this economy as the Hollywood model. Many writers are producing screenplays chosen from a stock of scripts, and a number of these writers are producing materials that can be developed into screenplays. (I think of F. Scott Fitzgerald’s Great Gatsby and Budd Schulberg’s On the Waterfront.)
52. Where, it might be wondered, are the prices in this model? Viewing the two aggregates, K and D, as fairly homogenous, it is reasonable to conceive this economy as near to having just one relative price, the real price of capital, K, denoted q—the notation commonly found in two-sector aggregative models. In such an extended model, the price, q, might be lower than average if there were a large overhang of K in the economy. But the model might be built in such a way that participants struck by new ideas would not be deterred from developing them by the depression in the price received for the resulting product. Hence, it does not appear to be impermissible to abstract here from the price.
1. Innovation: The Source of Rapid Growth
1. Charles W. Cobb and Paul H. Douglas, “A Theory of Production,” in “Papers and Proceedings of the Fortieth Annual Meeting of the American Economic Association,” supplement, American Economic Review 18, no. 1 (March 1928): 139–165.
2. Robert Barro and Xavier Sala-i-Martin, “Public Finance in Models of Economic Growth,” Review of Economic Studies 59, no. 4 (1992): 645–661.
3. Richard R. Nelson and Edmund Phelps, “Investment in Human, Technological Diffusion, and Economic Growth,” American Economic Review 56, no. 1–2 (March 1966): 69–75; Philippe Aghion and Peter Howitt, “A Model of Growth through Creative Destruction,” Econometrica 60, no. 2 (1992): 323–351; Philippe Aghion, Peter Howitt, and Fabrice Murtin, “The Relationship between Health and Growth: When Lucas Meets Nelson-Phelps,” Review of Economics and Institutions 2, no. 1 (2011): article 1.
4. See João Amador and Carlos Coimbra, “Characteristics of the Portuguese Economic Growth: What Has Been Missing?” (Working Papers w2007708, Banco de Portugal, Economics and Research Department, 2007); Robert Barro, “Economic Growth in a Cross Section of Countries,” Quarterly Journal of Economics 106, no. 2 (May 1991): 407–443; William Baumol, “Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show,” American Economic Review 76, no. 5 (December 1986): 1072–1085; Robert E. Lucas, “On the Mechanics of Economics Development,” Journal of Monetary Economics 22, no. 1 (July 1988): 3–42; Paul Romer, “Increasing Returns and Long-Run Growth,” Journal of Political Economy 94, no. 5 (October 1986): 1002–1037; Paul Romer, “Endogenous Technological Change,” in “The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems,” Journal of Political Economy 98, no. 5, pt. 2 (October 1990): S71–102; and Xavier Sala-i-Martin, “I Just Ran Two Million Regression,” in “Papers and Proceedings of the Hundred and Fourth Annual Meeting of the American Economic Association,” American Economic Review 87, no. 2 (May 1997): 178–183.
5. Daron Acemoglu, Ufuk Akcigit, and William Kerr, “Innovation Network,” Proceedings of the National Academy of Sciences 113, no. 41 (October 2016): 11483–11488.
6. Ufuk Akcigit, John Grisby, and Tom Nicholas, “The Rise of American Ingenuity: Innovating and Investors of the Golden Age” (NBER Working Paper No. 23047, National Bureau of Economic Research, Cambridge, MA, January 2017).
7. Pierre Mohnen and Rene Belderbos, “Intersectional and International R&D Spillovers” (UNU-MERIT Working Paper 7, Maastricht, Netherlands, 2013).
8. Petra Moser, Alessandra Voena, and Fabian Waldinger, “German-Jewish Émigrés and US Invention,” American Economic Review 104, no. 10 (October 2014): 3222–3255.
9. Joseph Zeira, “Workers, Machines, and Economic Growth,” Quarterly Journal of Economics 113, no. 4 (November 1998): 1091–1117.
10. Nicholas Kaldor, “Capital Accumulation and Economic Growth,” in The Theory of Capital, ed. F. A. Lutz and D. C. Hague (New York: St. Martin’s, 1961), 177–222.
11. Pietro Peretto and John Seater, “Factor-Eliminating Technical Change,” Journal of Monetary Economics 60, no. 4 (May 2013): 459–473; David Hémous and Morten Olsen, “The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality” (CEPR Discussion Paper No. 10244, Center for Economic Policy Research, London, 2016); Philippe Aghion, Benjamin F. Jones, and Charles I. Jones, “Artificial Intelligence and Economic Growth” (NBER Working Paper No. 23928, National Bureau of Economics, Cambridge, MA, October 2017).
12. Zeira, “Workers, Machines, and Economic Growth.”
13. William Baumol, “Macroeconomics of Unbalance Growth: The Anatomy of Urban Crisis,” American Economic Review 57, no. 3 (June 1967): 415–426.
14. Daron Acemoglu, Simon Johnson, and James Robinson, “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review 91, no. 5 (December 2001): 1369–401; Daron Acemolgu and James Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York: Crown, 2012).
15. Finn E. Kydland and Edward C. Prescott, “Business Cycles: Real Facts and a Monetary Myth,” Quarterly Review (Federal Reserve Bank of Minneapolis) 14, no. 2 (Spring 1990): 3–18.
16. Hian Teck Hoon and Edmund Phelps, “Growth, Wealth and the Natural Rate: Is Europe’s Jobs Crisis a Growth Crisis?,” European Economic Review 41, nos. 3–5 (1997): 549–557.
17. Edward C. Prescott, “Why Do Americans Work So Much More than Europeans?,” Quarterly Review (Federal Reserve Bank of Minneapolis) 28, no. 1 (July 2004): 2–13.
18. Philippe Aghion and Peter Howit, Endogenous Growth Theory (Cambridge, MA: MIT Press, 1998); Philippe Aghion and Peter Howitt, “Appropriate Growth Policy: A Unifying Framework,” Journal of the European Economic Association 4, no. 2–3 (2006): 269–314. The later paper was delivered as the 2005 Joseph Schumpeter Lecture, 20th Annual Congress of the European Economic Association, Amsterdam, August 25, 2005.
19. Edmund Phelps, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (Princeton, NJ: Princeton University Press, 2013).
20. Friedrich A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948). This book contains “Socialist Calculation, I, II” of 1935, “Economics and Knowledge” of 1937, and “The Use of Knowledge in Society” of 1945.
21. Henri Bergson, Creative Evolution, trans. Arthur Mitchell (New York: Henry Holt, 1911).
22. Antonin Bergeaud, Gulbert Cette, and Rémy Lecat, “Productivity Trends in Advanced Countries between 1890 and 2012,” Review of Income and Wealth 62, no. 3 (September 2016): 420–444. Additional related work can be found at http://
www .longtermproductivity .com /post .html. 23. Bergeaud, Cette, and Lecat, “Productivity Trends.”
24. Angus Maddison, The World Economy: Historical Statistics (Paris: OECD, 2003), https://
www .oecd -ilibrary .org /development /the -world -economy _9789264104143 -en. 25. Bergeaud, Cette, and Lecat, “Productivity Trends.”
26. Gilbert Cette, Yusuf Kocoglu, and Jacques Mairesse, “Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century” (NBER Working Paper No. 15577, National Bureau of Economic Research, Cambridge, MA, December 2009).
4. A Case Study of Iceland’s Successful Innovators
This chapter was written in collaboration with Ágúst Arnórsson.
1. See http://
www .solfar .com /. 3. See http://
www .ossur .is /. 5. See https://
startupiceland .com /2014 /12 /02 /oz -a -startup -profile -founder -spilling -the -beans /. 6. See, for example, https://
www .eveonline .com / ?gclid =EAIaIQobChMItYH54vHN2QIV5pPtCh02 _wzTEAAYASAAEgJUZfD _BwE&gclsrc =aw .ds&dclid =CIfnkuTxzdkCFYWNGwod _WgOXw.
5. The Force of Values
Ágúst Arnórsson assisted with research for this chapter.
1. William Baumol, “Entrepreneurship: Productive, Unproductive, and Destructive,” Journal of Political Economy 98, no. 5 (October 1990): 893–921.
2. Friedrich A. Hayek, “Competition as a Discovery Procedure,” in New Studies in Philosophy, Politic, Economics and the History of Ideas (London: Routledge, 1978), 179–190. Hayek wrote this piece in 1967 / 68 and delivered it as a lecture in 1968 at the University of Kiel.
3. Edmund Phelps, “The Dynamism of Nations: Toward a Theory of Indigenous Innovation,” Capitalism and Society 12, no. 1 (May 2017): article 3, https://
ssrn .com /abstract =2963105. 4. Edmund Phelps, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (Princeton, NJ: Princeton University Press, 2013).
5. Edmund Phelps and Gylfi Zoega, “Corporatism and Job Satisfaction,” Journal of Comparative Economics 41, no. 1 (February 2013): 35–47.
6. Joseph Schumpeter, Theorie der Wirtschaftlichen Entwicklung (Vienna: Duncker and Humblot, 1911 / 12).
7. David C. McClelland, The Achievement Society (Princeton, NJ: Princeton University Press, 1961).
8. Robert H. Brockhaus, “The Psychology of the Entrepreneur,” in Encyclopedia of Entrepreneurship (Englewood Cliffs, NJ: Prentice-Hall, 1982), 39–57.
9. Donald L. Sexton and Nancy Bowman, “The Entrepreneur: A Capable Executive and More,” Journal of Business Venturing 1, no. 1 (1985): 129–140.
10. Amir N. Licht and Jordan I. Siegel, “The Social Dimensions of Entrepreneurship,” in The Oxford Handbook of Entrepreneurship, ed. Mark Casson and Bernard Yeung (Oxford: Oxford University Press, 2006), 511–539.
11. Stanley Cromie, “Assessing Entrepreneurial Inclinations: Some Approaches and Empirical Evidence,” European Journal of Work and Organizational Psychology 9, no. 1 (March 2000): 7–30.
12. Richard Lynn, The Secret of the Miracle Economy: Different National Attitudes to Competitiveness and Money (London: Social Affairs Unit, 1991).
13. Scott Shane, “Cultural Influences on National Rates of Innovation,” Journal of Business Venturing 8, no. 1 (January 1993): 59–73.
14. Edward C. Banfield, The Moral Basis of a Backward Society (Glencoe, IL: Free Press, 1958).
15. Robert D. Putnam, Robert Leonardi, and Raffaella Y. Nanetti, Making Democracy Work: Civic Traditions in Modern Italy (Princeton, NJ: Princeton University Press, 1993).
16. Stephen Knack and Philip Keefer, “Does Social Capital Have an Economic Payoff? A Cross-Country Investigation,” Quarterly Journal of Economics 112, no. 4 (November 1997): 1251–1288.
17. Guido Tabellini, “Culture and Institutions: Economic Development in the Regions of Europe,” Journal of the European Economic Association 8, no. 4 (June 2010): 677–716.
18. See Paul J. Zak and Stephen Knack, “Trust and Growth,” Economic Journal 111, no. 470 (March 2001): 295–321. They offer examples of trust relationships. One is that of Thomas Hobbes, who claimed that trust between strangers was derived from the government alone, and thus had nothing to do with goodwill, while John Stuart Mill stated that the fear of being exposed motivated members of society to hold to their obligations because otherwise they would harm their reputation, which doesn’t really rely on goodwill either.
19. See Knack and Keefer, “Does Social Capital?”; Zak and Knack, “Trust and Growth”; Yann Algan and Pierre Cahuc, “Trust, Growth and Happiness: New Evidence and Policy Implications,” in Handbook of Economic Growth, vol. 2A, ed. Philippe Aghion and Steven Durlauf (Amsterdam: North-Holland, 2013), 49–120; and Christian Bjørnskov, “How Does Social Trust Lead to Economic Growth?,” Southern Economic Journal 78 (2012): 1346–1368. A study by Brueckner, Chong, and Gradstein (2015) finds that the causality is the other way around, such that a fall in income makes trust fall. See Markus Brueckner, Alberto Chong, and Mark Gradstein, “Does Economic Prosperity Breed Trust?” (Discussion Paper 10749, Centre for Economic Policy Research, London, August 3, 2015).
20. Edmund Phelps, “Economic Culture and Economic Performance: What Light Is Shed on the Continent’s Problem?” (Working Paper No. 17, Center on Capitalism and Society, Columbia University, New York, July 2006).
21. Tabellini, “Culture and Institutions.”
22. Edmund Phelps and Gylfi Zoega, “Entrepreneurship, Culture and Openness,” in Entrepreneurship and Openness: Theory and Evidence, ed. David B. Audretsch, Robert Litan, and Robert Strom (Cheltenham, UK: Edward Elgar, 2009), 101–130.
23. Raicho Bojilov and Edmund Phelps, “Job Satisfaction: The Effects of Two Different Cultures” (Working Paper No. 78, Center on Capitalism and Society, Columbia University, New York, September 2012).
24. Phelps, Mass Flourishing.
25. Agust Arnorsson and Gylfi Zoega, “Social Capital and the Labor Market,” Capitalism and Society 11, no. 1 (June 2016): article 1, https://
ssrn .com /abstract =2788829. 26. On canonical correlations, see Harold Hotelling, “Relations between Two Sets of Variates,” Biometrika 28, no. 3–4 (December 1936): 321–377; and Alissa Sherry and Robin K. Henson, “Conducting and Interpreting Canonical Correlation Analysis in Personality Research: A User-Friendly Primer,” Journal of Personality Assessment 84, no. 1 (2005): 37–48.
27. Hotelling, “Relations between Two Sets.”
28. For a more thorough discussion, see Jacques Tacq, Multivariate Analysis Techniques in Social Science Research: From Problem to Analysis (Thousand Oaks, CA: Sage, 1997).
29. Sherry and Henson, “Conducting and Interpreting.”
30. These are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
31. Other functions than the first one were not statistically significant.
32. They are standardized because of the constraint that the variance of the pair of canonical variables in a canonical function are equal; var(X*) = var(Y*).
33. It might, for example, be the case that the effect of the standardized coefficient for a certain variable is picked up by another variable. Theoretical insight is thus needed for explanation.
34. The measures of economic freedom and freedom from corruption are from the Heritage Foundation index for 2008. The measures of people values are taken from the European Values Study conducted in 2008 and 2009.
35. The innovation variables are an average from 1993 to 2013.
36. Phelps, “Economic Culture and Economic Performance”; Bojilov and Phelps, “Job Satisfaction.”
6. Individual Values, Entrepreneurship, and Innovation
1. Yann Algan and Pierre Cahuc, “Inherited Trust and Growth,” American Economic Review 100, no. 5 (December 2010): 2060–2092.
2. Jeffrey V. Butler, Paola Giuliano, and Luigi Guiso, “The Right Amount of Trust,” Journal of the European Economic Association 14, no. 5 (October 2016): 1155–1180.
3. See Raquel Fernandez, “Does Culture Matter?,” in Handbook of Social Economics, vol. 1A, ed. Jess Benhabib, Alberto Bisin, and Matthew Jackson (Amsterdam: North-Holland, 2010), 481–510.
4. Edward Banfield, The Moral Basis of a Backward Society (New York: Free Press, 1958); James Coleman, Power and the Structure of Society (New York: W. W. Norton, 1974); Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon and Schuster, 2000).
5. Miguel Jiménez and Sébastien Jean, “The Unemployment Impact of Immigration in OECD Countries,” European Journal of Political Economy 27, no. 2 (June 2011): 241–256.
6. Alberto Bisin and Thierry Verdier, “The Economics of Cultural Transmission and the Dynamics of Preferences,” Journal of Economic Theory 97, no. 2 (April 2001): 298–319; Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Long-Term Persistence,” Journal of the European Economic Association 14, no. 6 (August 2016): 1401–1436; Guido Tabellini, “Culture and Institutions: Economic Development in the Regions of Europe,” Journal of the European Economic Association 8, no. 4 (June 2010): 677–716.
7. Algan and Cahuc, “Inherited Trust and Growth.”
8. Raicho Bojilov and Edmund Phelps, “Career Choice and Economic Innovation: A Comparison between China, Germany and the USA” (Working Paper No. 80, Center on Capitalism and Society, Columbia University, New York, November 2013).
9. For more details on the survey design and methodology, see Roland Inglehart, World Values Surveys 1981–2004 (Ann Arbor: University of Michigan Press, 2006).
10. Algan and Cahuc, “Inherited Trust and Growth.”
7. Innovation, Job Satisfaction, and Performance in Western European Countries
1. The countries included are Australia, Canada, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
8. Growth Effects of Additive and Multiplicative Robots alongside Conventional Machines
1. See Alfred Marshall, Elements of Economics of Industry, 3rd ed. (London: Macmillan, 1899), 19; italics added for emphasis.
2. Paul Samuelson, “Mathematical Vindication of Ricardo on Machinery,” Journal of Political Economy 96, no. 2 (April 1988): 276. In the third edition of his Principles of Political Economy and Taxation, Ricardo had written a chapter titled “On Machinery,” where he discussed whether the application of machinery (with the arrival of the Industrial Revolution) would benefit all classes of society, including the working class. Ricardo presented a scenario in which the demand for labor falls as machinery substitutes for human labor. See Agnar Sandmo, Economics Evolving: A History of Economic Thought (Princeton, NJ: Princeton University Press, 2011). Following his analysis, Ricardo concluded “that the opinion entertained by the laboring class, that the employment of machinery is frequently detrimental to their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy.” David Ricardo, The Principles of Political Economy and Taxation (1821; London: Everyman’s Library, 1911), 267.
3. See International Federation of Robotics, World Robotics Report 2016, https://
ifr .org /ifr -press -releases /news /world -robotics -report -2016. 4. International Federation of Robotics.
5. Robert M. Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. 1 (February 1956): 65–94; Trevor W. Swan, “Economic Growth and Capital Accumulation,” Economic Record 32, no. 2 (November 1956): 334–361; Edmund Phelps, Golden Rules of Economic Growth (New York: W. W. Norton, 1966); Hirofumi Uzawa, “Optimal Growth in a Two-Sector Model of Capital Accumulation,” Review of Economic Studies 31, no. 1 (January 1964): 1–24; Erik Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (New York: W. W. Norton, 2014).
6. Daron Acemoglu and Pascual Restrepo, “The Race between Man and Machine: Implications of Technology for Growth, Factor Shares and Employment,” American Economic Review 108, no. 6 (June 2018): 1488–1542.
7. Georg Graetz and Guy Michaels, “Robots at Work” (Discussion Paper 1335, Centre for Economic Performance, London School of Economics, London, March 2015, updated 2017).
8. Daron Acemoglu and Pascual Restrepo, “Robots and Jobs: Evidence from US Labor Markets” (NBER Working Paper No. 23285, National Bureau of Economic Research, Cambridge, MA, March 2017).
9. Maarten Goos, Alan Manning, and Anna Salomons, “Explaining Job Polarization: Routine-Biased Technological Change and Offshoring,” American Economic Review 104, no. 8 (August 2014): 2059–2526.
10. Solow, “Contribution to the Theory”; Swan, “Economic Growth and Capital Accumulation.”
11. We make the assumption that additive robots can substitute for an assembly-line worker doing a routine job but cannot substitute for a research scientist whose nonroutine job is made more productive with an AI-enabled robot plowing through huge databases.
12. Note that (1 − ρ)−1 gives the elasticity of substitution.
13. For an early discussion of capital theory and the rate of return, see Robert M. Solow, Capital Theory and the Rate of Return (Amsterdam: North-Holland, 1963).
14. Robert J. Barro and Xavier Sala-i-Martin, Economic Growth, 2nd ed. (Cambridge, MA: MIT Press, 2004), 205–210.
15. More specifically, the real wage declines on account of the term f(x) − xf ′ (x)where x is the relevant effective capital intensity, in (55) and (61).
16. More specifically, this channel works through the term
in (55) and the term 
in (61). With the elasticity of substitution between routine and nonroutine jobs being greater than one, the relative abundance of routine jobs performed by human workers acts, ceteris paribus, to depress the real wage of workers doing routine jobs before the adoption of robots, as can be seen from (61).
9. Wage Effects of Additive and Multiplicative Robots alongside Factory Buildings and Physical Structures
2. See William D. Nordhaus, “Lethal Model 2: The Limits to Growth Revisited,” Brookings Papers on Economic Activity 2 (1992): 1–59. He shows that a neoclassical constant-returns-to-scale aggregate production function with an elasticity of substitution between pairs of factors of production not equal to one can be written as a generalized Cobb-Douglas production function where the exponent on a factor of production is equal to the factor share.
3. With population normalized to one, C and
also represent per capita consumption and employment, respectively.
10. Additive Robots, Relative Prices, and Indigenous Innovation
1. Gene M. Grossman and Elhanan Helpman, Innovation and Growth in the Global Economy (Cambridge, MA: MIT Press, 1991); Philippe Aghion and Peter Howitt, “A Model of Growth through Creative Destruction,” Econometrica 60, no. 2 (March 1992): 323–351.
2. As an example, suppose that the rate of time preference is 20 percent and the rate of capital depreciation is 10 percent. Then δ + θ = 0.30.
3. Note that, from (17), (39), and (40), we can write
. From (28), we have 
.4. See Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb, “Are Ideas Getting Harder to Find?” (NBER Working Paper No. 23782, National Bureau of Economic Research, Cambridge, MA, September 2017, updated March 2018).
Epilogue
1. Ray Dalio, “Why and How Capitalism Needs to Be Reformed (Part 1 & 2),” LinkedIn, April 5, 2019, https://
www .linkedin .com /pulse /why -how -capitalism -needs -reformed -parts -1 -2 -ray -dalio /. 2. Much of the discussion here is in Richard Reeves and Isabel Sawhill, “Modeling Equal Opportunity,” Russell Sage Foundation Journal of the Social Sciences 2, no. 2 (May 2016): 60–97. See also Raj Chetty et al., “The Fading American Dream: Trends in Absolute Income Mobility since 1940” (NBER Working Paper No. 22910, National Bureau of Economic Research, Cambridge, MA, December 2016).
3. See Assar Lindbeck, “The Recent Slowdown of Productivity Growth,” Economic Journal 93, no. 369 (March 1983): 13–34; and Stanley Fischer, “Symposium on the Slowdown in Productivity Growth,” Journal of Economic Perspective 2, no. 4 (Fall 1988): 3–7. The “great slowdown” should not be confused with “secular stagnation” or “structural slumps.”
4. Interestingly, these trends from 1970 to 2018 have not been accompanied by a worsening trend of the unemployment rate in America, Britain, Canada, Germany, and Sweden, which constitute more than half of the West. The bulge of the unemployment rate in Italy and France, for example, can be attributed to the presence of institutions that have impeded or failed to facilitate the reemployment of workers in the years following the global financial crisis of 2009–2011. In the aforementioned countries, the labor market has always recovered from adverse shocks.
5. The existing time series on job satisfaction was instituted by the General Social Survey in 1972, and fortunately it has continued to the present time.
6. To be sure, the Great Depression of the 1930s was more recent than Weimar. But it was a different phenomenon—caused by different developments and marked by different ills.
7. Edmund Phelps, “Dangers in a Repeat of Historic Corporatism,” Journal of Policy Modeling 39, no. 4 (July-August 2017): 611–615. Previously published as “Trump, Corporatism, and the Dearth of Innovation,” Project Syndicate, January 17, 2017; and as Working Paper No. 93, Center on Capitalism and Society, Columbia University, New York, January 2017 (presented at the 129th Annual Meeting of the American Economic Association, Chicago, January 2017).
8. In the US, many young men and a large number of women, overcoming discrimination and urban slums to gain a college education, obtained positions where they had greater productivity, hence greater pay, than their predecessors in those positions had, thus pulling up productivity and pay in the upper stratum of jobs, while no such development occurred in the middle stratum. That development raised wage rates in the upper quartile of the distribution, for example, while doing nothing to raise the wage rates of those still doing relatively low-skilled work.
9. In just the past 20 years, the ratio of the wage at the 90th percentile to the wage at the 50th percentile rose from 2.2 in 1997 to 2.4 in 2017—a rise of about one-tenth. (Perhaps the rise between 1977 and 1997 was another one-tenth.) See the discussion of the data by Edward P. Lazear, “Mind the Productivity Gap to Reduce Inequality,” Wall Street Journal, May 5, 2017.
10. Among the most notable are the Alternative for Germany, Marie Le Pen’s National Rally, and Mario Salvati’s Lega on the right and, somewhat to the left, Spain’s Vox and Italy’s 5-Star Movement.
11. This definition of dynamism comes from the earlier iteration, “the appetite and capacity for innovation,” found in Edmund Phelps, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (Princeton, NJ: Princeton University Press, 2013), ix.
12. These are the values instilled in a torrent of books in the 19th century and the first half of the 20th, books by Charlotte Brontë, Emily Brontë, Charles Dickens (the Dickens of David Copperfield), Herman Melville, Jules Verne, Mark Twain, Robert Louis Stevenson, H. Rider Haggard, Arthur Conan Doyle, H. G. Wells, Laura Ingalls Wilder, Willa Cather, Jack London, Virginia Woolf, and H. P. Lovecraft—all undoubtedly influenced by some giants of the past such as Homer, Aristotle, Pico della Mirandola, Luther, Cervantes, Shakespeare, Hume, and Voltaire.
13. See Philip K. Howard, Try Common Sense: Replacing the Failed Ideologies of Right and Left (New York: W. W. Norton, 2019).
14. Deirdre McCloskey gives an admirable discussion of the matter in her Bourgeois Dignity (Chicago: University of Chicago Press, 2010), 355–365.
15. See Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths (London: Anthem, 2013); and Joseph Stiglitz, People, Power and Profit: Progressive Capitalism for an Age of Discontent (New York: W. W. Norton, 2019).
16. Edmund Phelps, Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise (Cambridge, MA: Harvard University Press, 1997; 2nd ed. 2007). See also my critique of Philippe van Parjis, “A Basic Income for All,” Boston Review, October 2000. In his Basic Income: A Radical Proposal for a Free Society and a Sane Economy (Cambridge, MA: Harvard University Press, 2017), he offers a rebuttal to my critique.