The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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Macroeconomics, Technology, and Economic Growth: An Introduction to Some Important Issues
Macroeconomics, Technology, and Economic Growth: An Introduction to Some Important Issues
Pages 33-56
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From page 33... ...
The next section presents a taxonomy of the major economic issues in macroeconomics: fluctuations in output, employment, and price levels; long-run trends in real economic grown; and issues in the composition of output. It suggests that while economic fluctuations may at times be induced by technological occurrences, and certainly the overall relative stability of the macroeconomy may influence investment in new technology and its dissemination, the major issues in economic fluc33
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From page 34... ...
It also argues that the relationship of technology and economic growth may be substantially affected by what might be called "second-tier macroeconomic policy": the composition of government spending among R&D and investment, on the one hand, and consumption and transfer payments, on the other; the structure of the tax system used to raise given levels of revenue; and the influence of monetary and fiscal policies on the private economy's decision making. The discussion then turns to venous debates in macroeconomics concerning the structure of the economy and the efficacy of economic policy.
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From page 35... ...
These include such factors as increased labor input, increased capital per worker, improved resource allocation, and a general category labeled "technical change." If we are examining the ability of the economy to improve standards of living per capita, for example, then He growth of real GNP per worker will depend heavily on the capitallabor ratio, the rate of technical change, the rate of improvement in the quality of the labor force, and other factors. The phrase "economic growth" is often misused in political and media discussions.
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From page 36... ...
permanently by a few tenths of a percentage point may not sound very exciting ,, but it is an enormous economic and social achievement. Policies designed to alter the rate of economic growth directly tend to focus on enhancing technological advances, the quality of the labor force, and the level or rate of growth of capital per worker.
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From page 37... ...
37 economic fluctuations, if it is possible, might increase or decrease the longnan underlying rate of growth? And is it possible that in an economy with an environment which promotes long-te~m growth and rapid technological advance, more severe economic fluctuations are more likely?
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From page 38... ...
For example, while some people still focus on the level of real government spending in the control of economic fluctuations, the composition of that spending among research and development expenditures and physical and human investment, versus payments to individuals for income support, net interest, and purchases on noninvestment types of goods and services, obviously can affect the rate of technical change. Probably the most important of these is direct government support of research and development.
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From page 40... ...
They are concerned with economic fluctuations, long-run grown, and a detailed examination of the composition of output. The three issues are interrelated in many ways, only some of which have been hinted at in this discussion.
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From page 41... ...
Among explanations advanced for the slowdown are reduced sector-specific rates of technical change, a slowing rate of increase in the capital-labor ratio, energy price increases, changes in the legal environment, shifts in the economy toward services, and changes in the age and sex composition of the labor force. One major school of thought, to which I subscnbe, is that a major culprit in the slowdown was the decline in the incentives to produce income and wealth.
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From page 42... ...
If there ever was a short-run tradeoff, conditions for it have worsened considerably, and it is probably simply a statistical artifact. Government spending increased substantially in the United States in Me 1970s, but more significant was the change in its composition, both by level of government and by type of expenditure.
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From page 43... ...
Thousands of price decisions are made daily and an attempt to keep ~ large subset of them under control would have led to a governmental nightmare so costly as to be beyond any possible gain. Since only about 20 percent of our labor force is unionized, it was strange to believe that hammering the wage demands of the larger unions could be the primary method of controlling inflation.
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From page 44... ...
On one level were actions to restore incentives to produce income and wealth, which implied reducing, inflation substantially (probably through monetary policy) ; reducing marginal tax rates, especially those on capital income; reducing the relative size of government; and increasing private resources for investment, saving, and research and development.
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From page 45... ...
While Keynesian thought was dominating economic policymaking in the United States and Western Europe during the past several decades, another "school of thought," generally called monetarism, led by Milton Friedman, was emphasizing the role of changes in the rate of growth of the money supply in predicting fluctuations in short-term, real economic activity. The monetarists also tended to be skeptical about active demand management, and they tended to advocate nondiscretionary rules to guide both monetary and fiscal policy, rather than continuously applied discretion aimed at finetuning the economy.
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From page 46... ...
While Keynesians, monetarists, and new classlca1 macroeconomists were; debating He efficacy of demand management in controlling economic fluctuations, a substantial amount of research has also addressed the effects of economic policies on incentives to work, save, and invest. The work of Feldstein, Jorgenson, Heckman, Hall, Hausman, and Boskin, among many others, has revealed that changes in real after-tax refilms to saving, investment, and labor supply have had far greater incentive effect on those factors of production than had previously been ~ought.
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From page 47... ...
Before turning to a partial research agenda concerning the ma~roeconomy, technology, and economic growth, let me just add that in addition to Me intramural disputes among Keynesians, monetansts, new classical macroeconomists, and supply-side growth advocates, a very important set of developments occurred that have influenced the thinking of economists about both short-run economic fluctuations and long-ran issues. This is the tremendous internationalization of both trade and capital flows.
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From page 48... ...
RECENT ECONOMIC POLICY While the reduction in inflation and marginal tax rates, the increased investment and saving incentives in He 1981-1982 tax reforms, and reordered budget priorities are substantial achievements, much remains to be done to improve the prospects for long-run growth. Our budget dilemma may ultimately cause severe problems for capital formation, and there is a possibility that He pro-capital-formation tax changes may be repealed.
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From page 49... ...
Lest anyone think our current fiscal dilemma will be resolved in the course of this decade and that we can then breathe a deep sign of relief, we have impending a major conundrum with respect to the financing of our Social Security and Medicare systems (see Table 31. (Recall that we had a major, bipartisan Social Security reform in 1983.)
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From page 50... ...
There is no need for the current budget deficit to be inflationary for the next year or two. Bllt if we run primary deficits of several percent of GNP for a very long period, some strange things are going to happen.
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From page 51... ...
The ratio of the federal government debt to GNP evolves over iune depending on this primary deficit and Me relationship of the real rate of interest and the growth rate. For example, if we start out with a positive national debt, and We real interest paid on Me national debt exceeds Me grown rate, then the interest payments will grow more rapidly Man GNP, and if nothing else has changed, eventually the interest payments, in an explosive pattern, will gobble up aB of the budget, then ah of GNP, then all of national wealth.
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From page 52... ...
Table 5 indicates the decline in effective tax rates on marginal investment due to He Economic Recovery Tax Act (ERTA) of 1981 and He Tax Equity and Fiscal Responsibility Act (TEFRA)
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From page 53... ...
Current net saving and investment figures for Me private economy are shown in Table 6. Clearly, while we have had an investment boomlet, our net national saving and net national investment are still quite modest relative to our history and to Nose of our major trading partners.
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From page 54... ...
More importantly, however, the sources of long-term growth in the economy have less to do win short-te~ macroeconomics than with "second-tier macroeconomics." This is certainly only my casual judgment, but the composition of government spending, the structure of taxes, and the effects of monetary and fiscal policies on the composition of output are likely to be more important to the determinants of our long-term grown rate, generation of new technology, and rising standards of living than minor changes in the policies designed to mitigate economic fluctuations. Further, while there probably are links among the overall macroeconomic climate and innovation, technical change, and economic growth, it will not be easy to establish more than anecdotal evidence of a relation.
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From page 55... ...
Renewed studies of the sectoral details of technical change and its relationship to aggregate economic growth; 5. Analyses of broad macroeconomic policies to promote innovation and the generation and adoption of new technologies, e.g., comparative international and historical studies; 6.
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From page 56... ...
ea.. Essays on tile Theory of Optimal Economic Growth.
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