In Other Words

The Dismal Science Gets Happy

The Journal of Economic Perspectives, Winter 2000, Minneapolis Whatever happened to "the dismal science"? It is nowhere to be found in the Winter 2000 issue of the Journal of Economic Perspectives (JEP). This issue of the journal, an American Economic Association publication aimed at the general public, celebrates two events: the millennium and the journal’s ...

The Journal of Economic Perspectives, Winter 2000, Minneapolis

Whatever happened to "the dismal science"? It is nowhere to be found in the Winter 2000 issue of the Journal of Economic Perspectives (JEP). This issue of the journal, an American Economic Association publication aimed at the general public, celebrates two events: the millennium and the journal’s 50th issue. This ambitious volume touches on key developments in the global economy and economic theory and forecasts the future of both; as such, it should be filled with scenarios of doom and gloom. Instead, it contains a collection of important and provocative statements, all as upbeat as anything that has appeared in quite some time, and all by eminent economists — the chief dismal scientists themselves.

Judging by income, life expectancy, health, stature, fertility, school enrollment, literacy, and democracy, University of Southern California Professor Richard A. Easterlin concludes that, "Worldwide, standards of living have been improving" since 1800. His findings are consistent with the fact that dozens of developing countries still lag significantly behind industrialized economies. Even more compelling than his conclusion, however, is a discussion of how economists’ understanding of "living standards" has evolved over the last 50 years — rather than focusing solely on gross domestic product (GDP) per capita, analysts now consider an array of political and social indicators.

But if living standards are improving worldwide, should readers conclude that developing countries will eventually catch up to advanced economies? Robert E. Lucas Jr. of the University of Chicago seems to think so. Lucas suggests that "eventually everyone will join the industrial revolution, that all economies will grow at the rate common to the wealthiest economies, and that percentage differences in income levels will disappear (which is to say, return to their preindustrial levels)." Convergence is likely, he argues, because ideas spread and resources tend to flow to places where they can earn the highest return. Lucas’s model is somewhat mechanical but rests on solid facts, notably the drop in fertility rates observed in many developing countries, known as the "demographic revolution." Lucas appears supremely confident in his prescience, asking JEP readers in 2100, "Who else told you what the macroeconomics of your century would look like, in advance, with such accuracy and economy?"

"Capitalism is a necessary condition of democracy," but the reverse cannot be proved, contends Harvard Professor János Kornai. Noting that every democratic country has developed an economy based on private ownership and market forces, Kornai is cautiously optimistic about the eventual results of post-Communist economic reforms. He argues that even where yesterday’s apparatchiks are today’s CEOs — as is the case in many Russian firms — changes in the incentives they face will force them to mend their ways. "Old friendships may gain the former cadre member a job for a time," explains Kornai, "but if he fails to meet the requirements, he will not have a successful second career and will probably be weeded out sooner or later."

Finally, Princeton University Professor Paul Krugman focuses on the potential for economic parity among developed economies in his article "Will America Stay on Top?" Krugman argues that since advanced economies display roughly similar levels of technology and productivity, "the United States is likely neither to fall far behind nor pull dramatically ahead of that pack." He also admonishes the triumphalists who herald a second American Century to realize that international economics is not a zero-sum game, and that if in the coming years the United States no longer dominates the global economy, it will not be because the United States is slipping, but because other countries are improving. "And that," Krugman concludes, "is good news for everyone."

Indeed, all these contributions herald a better future for all. The unanswered question is how far ahead that future might be.

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