Literary Insights

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The introduction argues that examining the ideas of great economists from history can help provide insights into current economic challenges facing countries around the world, such as slowing growth, rising inequality, and rebalancing economies after the financial crisis.
It lists some of the major economic issues countries are grappling with, such as slow wage growth in the US, weak productivity in the UK after Brexit, reforms needed in the Eurozone, slowing growth in emerging markets, and technological changes driving innovation.
The economists featured will be ones whose work is directly relevant to issues like economic growth, innovation, markets, financial crises, globalization, and the role of government.
The first economist featured will be Adam Smith, whose ideas on markets, manufacturing, and the “invisible hand” are foundational. Other economists to be covered include David Ricardo, Karl Marx, and Alfred Marshall.
The introduction provides context for why each economist will be relevant to discussions of policies aiming to boost growth, rebalance economies, reduce inequality, and other pressing challenges countries currently face.

Marshall would likely have been concerned about rising inequality that disproportionately benefits the top 1%. Some key points he may have made:

Marshall believed economic growth should improve the well-being of all citizens, not just a narrow elite. Excessive inequality runs counter to this objective.
Rising inequality can undermine social cohesion and political stability, threatening long-term growth. Marshall was attuned to the broader social impacts of economic forces.
Capitalism needs broad-based growth that generates demand and allows most citizens to share in gains from trade and technological progress. Overly concentrated gains may not be sustainable.
Government has a role to ensure the rules and institutions of a capitalist system benefit all segments of society reasonably. Left unchecked, market forces alone may concentrate wealth at the top in ways that reduce general prosperity.
Close attention must be paid to the quality and distribution of economic gains, not just headline indicators like GDP growth. Progress means raising living standards for average citizens, not just production or profits.

In summary, while Marshall supported markets and growth, he believed their benefits should be widely shared. Excessive inequality that undermines social cohesion and hollows out the middle class would likely have concerned him as counter to long-term, sustainable progress. Ensuring rules and institutions supported broad prosperity in line with his formulation of “practical concepts of efficiency and justice.”

Adam Smith advocated for limited government intervention and free market capitalism. He was skeptical of governments attempting to direct economic activity.
Advanced economies like the UK and US have experienced deindustrialization as manufacturing declines and services grow to become the dominant sector. This was revealed as risky by the 2008 financial crisis.
Governments have since tried to “rebalance” economies back towards manufacturing through policies promoting industry. However, deindustrialization is a natural progression as economies develop, and services are now a large part of output.
Reversing deindustrialization is very challenging given global competition from lower-cost producers like China. Information technologies have also enabled more global trade.
While Smith advocated free markets, the crisis challenged reliance on large financial sectors. However, fully reversing deindustrialization may not be possible given structural economic changes. Government efforts to promote industry require balancing Smith’s skepticism of intervention with new economic realities.

In summary, Adam Smith would likely question heavy government efforts to rebalance economies, but may acknowledge some role for promotion of industry given lessons from the crisis. Reversing deindustrialization fully is very difficult in modern globalized economies.

Some developing countries are moving directly from agriculture to services without gaining a firm foothold in manufacturing, leading to potentially worrying consequences according to economist Dani Rodrik.
Deindustrialization pressures are greater in Britain and America after the 2008 financial crisis, and they want economic change.
Adam Smith didn’t view services as valuable as manufacturing. Attitudes today still reflect this bias, with more detailed manufacturing stats compared to aggregated services data.
Britain wants to rebalance its economy away from financial services towards manufacturing after 2008, to rely less on a volatile sector and sell more goods abroad. But it continues to run a large trade deficit.
The goal is to access fast-growing emerging markets like China and India rather than mainly trading with Ireland. A cheaper pound after 2008 did not boost exports as hoped. Maintaining a trade surplus is difficult without a strong manufacturing sector.
The UK has run a trade deficit every year since 1984, with the goods trade deficit growing due to manufacturing declining. However, the UK runs a large surplus in trade in services, which offsets some of the overall trade gap.
The UK is particularly strong in exporting services like financial services, business services, education, and these tend to be high value-added. However, global trade in services has not opened up as much as goods trade due to less liberalization.
While manufacturing output overall has yet to fully recover from the recession, certain industries like aerospace, alcoholic beverages, and oil/gas services are doing well. Housing construction remains weak.
The services sector recovered quickly from the recession, but banking and government administration are still below pre-crisis levels. Business services, IT, and telecom have exceeded pre-recession levels.
Measuring output and productivity in services is challenging given their intangible nature. Better accounting for intangible assets and investment could show that services output and GDP are actually higher than traditional measures suggest.
Precisely measuring the size of the services sector in the UK economy is difficult, but it is an important part that generates significant employment. Better measurement could help policymaking and understanding the trade balance.
The UK has a large services sector and exports services, but emerging economies also have growing services sectors, increasing competition. Effectively promoting UK services depends on clear quantification and understanding of the sector.
However, policymakers have focused more on manufacturing, which hasn’t fully recovered from the 2008 crisis even as services have. This raises the question of whether the UK should continue trying to “rebalance” its economy away from services.
Adam Smith’s economic theory centered around specialization and market competition driving efficient production via self-interest and the “invisible hand.” Governments should minimally intervene and not distort prices.
Smith saw specialization and industrialization as driving prosperity, though he did not foresee large services sectors. He would be concerned about governments heavily intervening to rebalance economies away from market forces.
Smith still saw a limited role for government in areas like education, banking regulation, and infrastructure to support competition and productivity. So he may accept some focus on manufacturing but would caution against heavy-handed rebalancing efforts.
Adam Smith would not have advocated for governments directly rebalancing the economy through interventionist policies, as he believed this would distort the free operation of markets.
According to Smith’s economic model, government cannot fundamentally change the structure of the economy; it can only introduce inefficiencies. While a nation’s economic strengths can evolve over time, this is best done through free market forces rather than direct government planning or favoritism of certain industries.
Smith was strongly opposed to mercantilist policies that restricted free trade, such as tariffs, quotas and other trade barriers. He saw free trade as vital for efficiency and economic growth.
However, Smith did allow for moderate, non-distortionary taxes for the purposes of government revenue collection. He also acknowledged some scope for government regulation to improve market functioning.
Overall, Smith favored minimal government intervention and emphasized letting markets allocate resources based on competitive forces of supply and demand. He would not have endorsed modern notions of large-scale government efforts to “rebalance” economies.
The US dollar’s status as the world’s reserve currency gives the US privilege, as foreigners are more willing to lend money to finance America’s deficit. However, this position has come under question as currencies like the Chinese renminbi rise.
Economists have debated trade balances for centuries. David Ricardo’s theory of comparative advantage established that countries can benefit from trade even if less efficient overall.
Ricardo lived during the Industrial Revolution and Corn Law debates in Britain. His successful investment career gave him wealth and insight into different social classes.
Ricardo argued free trade benefited the most people according to Jeremy Bentham’s utility theory. While trade created winners and losers, the overall economic gains mattered most.
So for Ricardo, persistent deficits may not threaten economic sustainability as long as trade remains mutually beneficial according to comparative advantage. Geopolitical tensions could rise from imbalances but the underlying economic case for trade is unchanged.
David Ricardo proposed a tax on capital to pay off the national debt, which was seen as a “wild sort of notion” even by his friends. Most 18th century economists thought the debt was bad and drastic measures were needed to pay it off.
After this, Ricardo came to be seen more as a theorist than a practical economist. There was a divide between abstract theory and practical work, and Ricardo dealt more with abstractions and theories.
Economists like Joseph Schumpeter criticized Ricardo for making “heroic assumptions” in his models to produce desired results, rather than basing them fully in reality.
However, Ricardo had a lasting impact on economics, developing concepts like economic rent. He argued landlords gained higher rents without effort as land became scarcer.
Ricardo argued against mercantilism and for free trade based on increasing efficiency. He opposed the Corn Laws which imposed tariffs to protect UK agriculture.
His arguments helped lead to the repeal of the Corn Laws in 1846 and established Britain as a model of free trade, allowing it to industrialize and dominate global trade for decades.
Today the UK runs a large trade deficit, though some argue services exports may make the real deficit smaller than reported statistics show.
Services are the dominant part of the UK economy, but they are not as accurately measured as goods exports since services are considered “invisible”. Better measurement of services exports could reduce concerns about the UK’s trade deficit.
Services trade has not been as globally liberalized as goods trade through agreements like the WTO. More opening of services markets through agreements like TiSA could help the UK and US reduce their trade deficits by expanding exports.
Advanced manufacturing industries in the US have been growing faster than GDP, adding jobs, though manufacturing’s share of the economy continues to decline. Tennessee has seen reshoring of factories like Nissan due to lower costs and skills like robotics.
While manufacturing output may return to advanced economies, employment is still expected to decline long-term due to automation and competition. Better competitiveness could help trade balances but manufacturing will likely remain a smaller part of GDP than services.
Ricardo’s theory of comparative advantage suggests countries should specialize in what they are relatively best at producing and trade for the rest. This could guide trade policy for the UK and US.
David Ricardo developed the theory of comparative advantage to explain why international trade benefits countries. Even if one country is more efficient at producing all goods, each country should specialize in what it is relatively better at to gain from trade.
Ricardo used the example of England and Portugal. Portugal was better at producing wine, while England was better at producing cloth. Even though it took England more workers to produce wine, it should still import wine from Portugal and focus on cloth production.
By specializing and trading, both countries can consume more than if they produced everything domestically. While not intuitive, comparative advantage increases overall efficiency and consumption.
Ricardo’s theory has been criticized for simplifying assumptions about capital/labor mobility, complete versus incomplete specialization, distributional impacts, and unequal power dynamics between trading partners. However, economists agree it helps explain why and how nations gain from trade.
Ricardo would not have focused on trade deficits alone. He believed production and exchange determined prosperity, not mercantilist policies aimed at trade surpluses. As long as domestic economies are efficient, comparative advantage leads to mutually beneficial trade outcomes over time.
While imperfect globalization remains a challenge, following principles of open trade as much as possible aligns with Ricardian perspectives according to the summary. Overall it frames Ricardo’s view that trade deficits themselves should not be the sole policy concern.
Karl Marx was one of the most influential economists in history and the father of communism. He advocated for the working class and developed theories about class struggle and the inherent contradictions within capitalism.
Marx’s theories transformed economies like the former Soviet Union and present-day China. China adopted communism after its 1949 revolution but has since embraced market reforms starting in the late 1970s under Deng Xiaoping to generate growth.
Ricardo and other classical economists would say that trade creates both winners and losers, so policies are needed to help the “losers” through retraining programs, unemployment benefits, welfare, etc. to compensate them and enable adjustment to globalization.
The backlash seen in advanced economies reflects discontent among those hurt by trade, especially factory workers who face import competition. It shows the need for governments to better manage the disruption from trade and globalization through adequate social programs and retraining to maintain public support for an open economy.
For globalization to continue expanding in the future, its benefits must be more broadly shared while its costs, such as job losses, must be mitigated through publicly-funded programs. Otherwise, populist opposition and rise of protectionism could threaten the global trading system.

Here is a summary of the key ideas:

Engels and Marx initially met in Paris in 1844, where their brief encounter turned into a 10-day discussion that cemented their partnership and collaboration.
Engels observed the harsh conditions of industrial workers firsthand while working for his family’s cotton business in Manchester. This led him to Marxist Communist beliefs.
Marx was expelled from France and later Belgium due to his revolutionary activities and views. He and his family lived in poverty during this time.
Engels financially supported Marx and their ideological causes. He led a double life as a capitalist supporting revolutionary views and associates like Marx.
In 1845, Engels published The Condition of the Working Class in England describing the exploitation of industrial workers.
In 1848, at the request of the Communist League, Marx and Engels wrote the Communist Manifesto outlining their communist vision.
Marx spent many years in London as a political exile, observing and writing about capitalism while living in poverty with his family. Engels continued providing financial support.
Marx became increasingly influential with groups like the International Working Men’s Association, but saw many setbacks to actualizing communist revolution in his lifetime.
Karl Marx published two seminal works on his political economic theories - A Contribution to the Critique of Political Economy in 1859 and Capital: Critique of Political Economy Volume 1 in 1867. Volumes 2 and 3 of Capital were published posthumously by Engels.
Marx analyzed the works of economists like Adam Smith, David Ricardo, and Thomas Malthus and admired Ricardo’s analysis of class conflict under capitalism. Marx’s theory of surplus value helped explain his support for trade unions.
Marx predicted capitalism would inevitably lead to crisis, inequality, and revolution as profits declined. The Long Depression of the 1870s seemed to support this.
Lenin and the Bolsheviks implemented Marxism in the Soviet Union after the Russian Revolution. Mao later did so in China.
China has transformed from a poor nation to the world’s second largest economy since market reforms in 1979, while maintaining Communist Party rule. It has a unique model of growth as a developing yet industrialized country with a mixed economy.
China has grown rapidly over past decades through industrialization, investment in factories and R&D, which has accounted for about half of its economic growth. Its reindustrialization as a lower-middle income country contributed to its unique growth model.
Productivity has also been driven by workers moving from less efficient state sectors to more productive private sectors.
China confounds theories linking openness and growth, as it controls foreign competition but utilizes export-oriented FDI. Opening up benefited growth but China tailored policies to its circumstances.
Domestic innovation and R&D is crucial for sustaining growth, though China’s advancements remain mixed due to IP and rule of law issues.
Informal institutions like guanxi social networks also facilitated private sector emergence.
To avoid the middle-income trap, China is rebalancing away from exports toward domestic demand and services. Further reforms are needed to its institutions, SOEs, and private sector environment.
Financial stability is a concern due to high debt levels, including large corporate debt and shadow banking system debt which is difficult to measure. Greater banking competition is needed.
Shadow banking in China grew after the 2008 global financial crisis as the government encouraged private companies and local governments to boost the economy through infrastructure projects and borrowing. State-owned banks were reluctant to lend, so shadow banks filled the gap.
As exports declined due to Western recessions, the government implemented a large fiscal stimulus but relied on localities to fund projects. Some local governments turned to shadow banks for financing due to the lack of developed bond markets.
Since 2009, China has been clamping down on shadow banking to prevent a debt crisis. It is trying to develop bond markets as an alternative for companies and local governments to borrow from. Reforming state-owned banks is also needed to increase competition.
Sustaining growth long-term requires reforms like developing financial markets and reducing the role of state ownership, which poses challenges for China’s communist system. While China initially followed some Marxist principles, the command economy resulted in inefficiencies. Reforms have made the economy more market-based but communal ownership remains.
Alfred Marshall played a key role in establishing neoclassical economics and revolutionizing how economists think about prices, quantities, and markets. However, he lived during a time of growing inequality under capitalism in the late 19th/early 20th century.
Marshall was born in 1842 in London to a lower-middle class family. He received a scholarship to study at Cambridge University and later taught there. He published his influential textbook “Principles of Economics” in 1890.
Marshall transformed classical economics into a more analytical framework based on laissez-faire markets. However, inequality was rising during his lifetime, as evidenced by Thomas Piketty’s research showing Gilded Age levels of inequality in the modern US.
As the founder of neoclassical economics, Marshall likely believed markets worked best with minimal intervention. However, the “inherent vice of capitalism” that Churchill noted is unequal outcomes. It’s unclear if Marshall found inequality problematic or inevitable under capitalism.
Marshall spent most of his career at Cambridge University, where he established the economics degree. He died in 1924, so he did not live to see debates around rising inequality intensify in subsequent decades. His views on addressing inequality through policy are unknown.
The passage discusses Alfred Marshall, a leading 19th century British economist. He supported free trade like Adam Smith but was less laissez-faire than the Manchester School.
Marshall made seminal contributions in the 1880s during the Long Depression by formalizing concepts like demand/supply and using diagrams that are still taught today. His work helped shape economic policy debates.
Marshall published his influential textbook Principles of Economics in 1890, seen as a major milestone like Adam Smith’s Wealth of Nations. He spent around 40 years refining it through multiple editions.
Marshall was inspired by interests in welfare and equality of opportunities. He supported government roles like universal education to improve social conditions, though believed market forces could raise wages for the poor.
The passage then discusses growing income inequality in recent decades in countries like the US, UK, Germany and France. It notes debates over the effects of inequality on economic growth and recovery.
John Maynard Keynes argued that poorer people spend a higher proportion of their income on necessities, which drives economic growth. So reducing income inequality by raising incomes of the poor would stimulate more consumption and growth.
Paul Krugman acknowledges the rich may not technically “under-consume” since absolute spending is higher. However, redistributing income could still boost aggregate demand. He and Joseph Stiglitz agree high inequality is problematic for both economic and social reasons.
Income inequality in the US increased sharply from the 1970s onward. The middle class is shrinking while the economic gains are increasingly accruing only to the richest segments. Fitzgerald’s view that the rich are fundamentally different may apply more globally now.
Inequality has also risen sharply in China as it industrialized and urbanized rapidly. Over half of Chinese billionaires are self-made, taking advantage of the consumer market growth. But inequality persists between urban/rural and coastal/interior regions.
In developed nations, forces like globalization, technological changes favoring skilled workers, and lack of strong social welfare systems have contributed to rising inequality over the past century.
Alfred Marshall believed there was a trade-off between more equal income distribution and economic growth. Too much redistribution could discourage work and productivity.
He initially did not support fiscal redistribution through taxes, worrying it could reduce incentives. But he later accepted progressive income taxes and inheritance taxes after seeing they did not significantly reduce work incentives.
Marshall favored limited redistribution to reduce poverty, not completely equalize incomes. He supported education and job skills training to help the poor compete.
He saw a role for government as a regulator, not large provider of services, to ensure fair markets. Local initiatives were preferred over centralized control.
While concerned about unequal outcomes, Marshall emphasized individual responsibility and self-help over reliance on charity.
Overall, he would accept moderated redistribution through taxes if evidence showed it did not unduly harm incentives or economic growth. But large-scale socialism in production was still opposed.
Irving Fisher was a pioneering American economist in the late 19th/early 20th century who made major contributions to developing economics as a quantitative, mathematical science. However, he is often overlooked compared to economists like Keynes who developed unified theories.
Fisher famously predicted in late 1929 that the stock market had reached a “permanently high plateau”, but just days later the Great Crash began, wiping out his $10 million fortune as the Depression took hold. This damaged his reputation.
Nonetheless, historians recognize the significance of his work, which laid foundations for modern macroeconomics. His 1930 book “The Theory of Interest” drew together previous research and anticipated later macro theories.
Fisher emphasized empirical, quantitative analysis over unified theoretical systems. He was also prolific outside academia, promoting public health causes, the League of Nations, and Prohibition. This diluted the impact of his economic thought.
In summary, Fisher was a hugely influential early 20th century American economist, but his spectacular market forecasting failure and lack of a single unified theory mean he is often overlooked compared to thinkers like Keynes.
Irving Fisher was a prominent American economist who became an unpaid adviser to Presidents Hoover and FDR during the Great Depression.
He sought to understand the causes of the economic collapse and his own financial losses in order to help fix the economy.
His work on “debt-deflation” proposed that economies can get trapped in a deflationary spiral when prices and consumption fall as people pay down debt during a recession.
This theory resonates with policymakers today who fear deflation after the 2008 financial crisis and slow growth since then. High debt levels make economies vulnerable to debt-deflation.
Fisher had a strict Protestant upbringing and personally led a very healthy lifestyle. He became known for promoting public hygiene and diet.
The Great Depression was a humbling experience for the proud Fisher, who hated to be proven wrong. It motivated his work to understand and address the economic crisis.
Academic economists are prone to embrace the biases of the communities they live in. Economists on Wall Street may take a Wall Street perspective, while those at rural universities favor agricultural interests.
Irving Fisher, an economist at Yale, earned a comfortable salary but relied more on his wife’s wealth from the Hazard family. He tried inventing to make a fortune but succeeded with his 1920s invention of an index card system.
Fisher invested heavily in the stock market in the 1920s bull run, using leverage and debt. This made him a fortune but also left him vulnerable.
When the 1929 crash hit, Fisher’s highly leveraged investments collapsed, ruining him financially. He had to borrow repeatedly from his wealthy sister-in-law to avoid bankruptcy over the depression years.
Fisher made important theoretical contributions to economics but his incorrect optimistic views of the economy in 1928-1929 and reliance on debt contributed to his major financial downfall in the crash.
Irving Fisher developed the Quantity Theory of Money, which held that changes in the money supply will have a proportional impact on price levels in the long run. This theory was influential on monetarism.
However, the theory’s assumption of a stable equilibrium does not always reflect reality, as economies are often in transition and velocity of money is not stable. So the link between money and prices is not necessarily direct or stable.
Fisher believed rising prices could cause people to mistakenly think the economy was growing, rather than realizing prices were rising due to money supply increases. He argued this “money illusion” could temporarily stimulate purchases.
Fisher proposed tying the dollar to a basket of commodities (the “commodity dollar”) rather than gold to better stabilize prices. But this idea was controversial and opposed by supporters of the gold standard.
While his commodity dollar was not adopted, indexing wages and debts to prices has become more common, as Fisher advocated. Chile in particular has embraced some of his monetary policy ideas.
Fisher made major contributions to developing price indices and statistics that are still used today to track inflation and economic activity. He sought to educate the public on the importance of stabilizing prices.
Irving Fisher was an economist who lost his fortune in the Great Depression. He wrote books trying to understand and explain what caused the market crash and economic downturn.
Initially, he believed the downturn was temporary and recovery would be quick. But as the 1930s progressed and the economy did not recover, he developed a new debt-deflation theory of depressions.
Fisher argued that over-indebtedness fueled by easy credit led to asset bubbles. When these collapsed, falling asset prices made debts harder to pay back, causing more distress selling and bankruptcies in a vicious cycle of debt-deflation.
Ben Bernanke later built on Fisher’s theory by introducing the idea of a credit crunch. As debt burdens rise and assets lose value in a downturn, banks reduce lending, hurting aggregate demand and compounding the recession.
This “financial accelerator” effect, where financial factors amplify economic cycles, played a key role in the 2008 crisis as it did in previous downturns like the Great Depression and Japan’s lost decades. Over-leveraged banks and non-performing loans can severely restrict credit flows in the aftermath of a financial crisis.
The Japanese stock market, as measured by the Nikkei 225 index, peaked at over 38,000 in early 1990 before crashing in the early 1990s. It fell to 14,000 in 1992 and under 9,000 after the 2008 financial crisis, though has since recovered to around 20,000. Despite recent gains, it remains only half its pre-1990 crash value.
Japan’s economic recovery has been hampered by a rapidly aging population and competition from neighbors. Low inflation expectations have created a deflationary mindset that is difficult to escape.
Irving Fisher’s debt-deflation theory hypothesized that falling prices increase the real value of debts and lead to financial crises. Nearly a century later, Japan’s experience shows reflating an economy through monetary policy alone is difficult.
Hyman Minsky also warned about financial instability and debt crises. His theories were validated by the 2008 crisis but so far the threat of widespread debt-deflation has not materialized, despite high government and private debts globally.
Central banks have taken aggressive unconventional actions like quantitative easing to prevent deflation, though risks remain given the limits of near-zero rates and large debt stockpiles across major economies.
The passage discusses the debate over whether governments should cut spending and adopt austerity policies in the aftermath of an economic crisis, as was debated after the 1929 crash and is again today.
John Maynard Keynes advocated for increased government spending to stimulate the economy, breaking from the dominant view at the time. He gave the example of the government burying banknotes and having private companies dig them up to illustrate how this could boost output and employment.
Keynes was an influential economist and writer who helped launch the Keynesian revolution. His ideas on using fiscal policy to respond to downturns came to heavily influence economic thought, especially after being incorporated into mainstream neoclassical economics.
The life of Keynes is briefly outlined, including his privileged upbringing and education at Eton and Cambridge where he excelled academically from a young age. He had an illustrious career at King’s College Cambridge and helped establish the Economic Journal.

So in summary, the passage discusses the ongoing relevance of Keynes’s argument for government spending during economic crises through discussing the backdrop of debates over austerity policy and providing context on Keynes’s influential ideas and background.

Keynes took second place in the civil service exams, meaning he had to settle for a job at the India Office rather than his preferred role at the Treasury. Had he come first, the course of economic history may have been different.
During WWI, Keynes worked in the Treasury and gained influence. He criticized the harsh terms imposed on Germany in the Treaty of Versailles after WWI.
In the 1920s and 1930s, Keynes opposed the “Treasury view” which advocated austerity. His main opponent was Otto Niemeyer, who had taken the top civil service job thatKeynes wanted.
The Great Depression provided the context for Keynes’ influential work “The General Theory.” He argued governments should spend more during downturns to boost demand and employment.
Keynes was critical of how little fiscal stimulus governments provided, like FDR’s New Deal. However, a combination of factors did lead to a temporary recovery, though recession struck again in 1937-38.
Keynes advocated focusing on the “short run” where adjustments are slow, rather than the “long run” where classical economists believed economies would self-correct. His ideas launched the Keynesian revolution in economic thought.
Keynes criticized the UK Treasury for treating government capital spending and deficit financing the same. He argued public investment could boost a below-potential economy, while critics felt it would increase deficits.
Keynes was concerned about uncertainty dampening private investment. He disagreed with the classical view that interest rates balance savings and investment, arguing savings rise/fall with income. People hold cash despite low returns due to uncertainty.
Keynes argued deficit spending would raise national income and generate more savings to pay down debt over time.
His theories supported government intervention to stimulate demand and full employment. This challenged the classical view of self-regulating markets.
Keynesian ideas were influential until stagflation in the 1970s undermined them. Monetarism and new classical theories gained favor in explaining stagflation.
New Keynesians emerged recognizing limited roles for government. A new synthesis incorporated different schools of thought.
Austerity policies after 2008 were disputed, with arguments made for continued stimulus. Deficit reduction was also motivated by eurozone debt crisis pressures.
The ECB began quantitative easing in 2015 to stimulate the euro area economy during weak recovery from the euro crisis and Great Recession. This lowered borrowing costs.
There is now debate around whether governments should take advantage of low interest rates to invest more, prioritizing growth over budget deficits/debt. Both the US and EU are considering more investment.
In the EU, the Juncker Plan established a €315 billion infrastructure fund leveraging EU and EIB funds to boost lending for projects and SMEs. The goal is to encourage private investment while reducing impact on government finances.
Public investment was deeply cut during austerity but investment is key to growth. Low rates now make infrastructure projects relatively attractive. Resolving why companies don’t invest more despite savings could unlock more growth. Overall the renewed focus on investment and growth offers opportunities to reconsider this relationship.

Here is a summary of what Keynes would make of the current austerity debate based on the passage:

Keynes argued for government spending and deficit spending to counteract slow economic growth and boost aggregate demand, especially during recessions or depressions when private demand is deficient.
Keynes believed investment is a key component of aggregate demand and that governments should borrow to invest, as the private sector often underinvests. This would boost output, income, consumption and savings.
Keynes proposed that governments take on a greater role in investment and saw a role for “socializing investment” through things like a government-backed infrastructure bank.
Regarding the current debate, Keynes would support the position that governments should borrow more to invest in infrastructure and other areas, even outside periods of crisis, in order to increase overall investment levels and boost economic growth.
Keynes may have been open to private sector participation in infrastructure projects but believed the government should directly organize more investment.
He would argue this type of active fiscal policy and public investment could help counter current issues like low private investment levels and slow growth outside recessions.
Overall, based on his theories, Keynes likely would have supported the shift in the debate toward more emphasis on government investment as a means to increase aggregate demand and growth.
Joseph Schumpeter was an Austrian/Czech economist born in 1883 who made important contributions to theories of innovation and economic development.
He observed how innovations like the automobile and electricity transformed economies and rendered older businesses obsolete, a process he termed “creative destruction.”
Schumpeter had experience in both business and government that shaped his pragmatic, value-neutral approach focused on understanding economic dynamics rather than political ideology.
He believed capitalism required entrepreneurship and prudent regulation to sustain innovation and growth over time. While disruption was part of progress, the system needed fuel to function well.
Schumpeter’s own diverse career path included banking, government service, and academia, giving him insights into different aspects of the economy. He taught at Harvard and wrote influential texts.
His work delved into how specific innovations improved living standards and analyzed the relationship between inventions and economic changes over time. This provided a more nuanced view than those focused on political revolution.
Schumpeter would have been interested in challenges of innovating in today’s services-focused economies and China’s role in global innovation and development. His theories remain highly relevant to understanding economic changes.
Schumpeter married Gladys Ricarde Seaver in 1907, boosting his social status. They moved to Cairo where he earned enough as a lawyer to finance his family for years.
In 1908 he published his first book which contributed to his qualifications to teach at Austrian universities. He taught at Czernowitz and Graz.
His 1911 book “Theory of Economic Development” established his reputation and contained the core ideas of “Schumpeterian economics” on business cycles and development.
After WWI he became a banker and investor in Vienna but lost most of his money in the 1924 stock market crash.
He fell in love with Anna Reisinger and they married in 1925 after he joined the University of Bonn, but Anna died in childbirth a year later.
Schumpeter taught productively at Bonn for 7 years before accepting a position at Harvard in 1932, where he established the Econometric Society.
He was a popular teacher but very driven and ambitious in his research. After Hitler rose to power in 1933, Schumpeter became critical of Nazism.
Joseph Schumpeter was an active recruiter for American universities in the inter-war period, working to secure placements for German economists, particularly Jews, as many had left Vienna and the university’s economics faculty was in decline.
At Harvard, he met Romaine Elizabeth Boody Firuski, a graduate student 15 years his junior from a prominent New England family. They worked together and she became his intellectual partner. They married in 1937, his third marriage.
At Harvard, Schumpeter completed his major works: Business Cycles (1939), Capitalism, Socialism and Democracy (1942), and History of Economic Analysis (1954, published posthumously).
Business Cycles was a disappointment as it did not receive attention compared to Keynes’ more succinct General Theory, published in 1936. Schumpeter disputed aspects of Keynes’ work.
Capitalism, Socialism and Democracy, published in 1942 but most influential in later editions, examined whether capitalism would fail as Marx argued and whether socialism or democracy could succeed it, influencing the significant debate of the time period.
Schumpeter argued capitalism would succeed through “creative destruction” of innovation constantly revolutionizing the economy, though political stability was needed to support this process of change. He saw capitalism as fragile but the best system for economic growth and progress.
Joseph Schumpeter argued that innovation, led by entrepreneurs, is the primary driver of economic growth and development, not equilibrium forces. Innovation creates “gales of creative destruction” that constantly revolutionize industries and the broader economy.
Key to enabling entrepreneurs is access to credit. Schumpeter felt capitalism best provides this through bank loans and funding from capital markets. Large companies also play an important role through self-funded research and development.
Schumpeter outlined five main types of innovation: new products, new production methods, new markets, new sources of supply, and new forms of business organization.
Examples of disruptive innovation leading to the rise and fall of major companies include Nokia/Blackberry in smartphones, Kodak in cameras, and possibly future challenges for current leaders like Apple and Samsung.
Schumpeter’s theory emphasizes that innovation and technological progress, not continuity, define capitalist economies and their long-term growth potential. Firms must constantly adapt and reinvent themselves or risk being overtaken through “creative destruction.”
Sony was once a leader in portable music players with the Walkman brand, but failed to capitalize on the MP3 trend started by the iPod. Its fortunes have declined since as it struggled with innovation and changing technology.
Apple and Samsung long dominated the smartphone market but face challenges as growth slows in developed markets. Cheaper competitors from China are gaining market share by targeting developing markets and customers focusing more on price than brand.
Chinese manufacturers like Huawei, Xiaomi and Oppo have emerged as major players, eroding Samsung’s share. Apple relies heavily on overseas sales where competition is intense. Both companies are expanding into services and diversifying away from smartphones.
The smartphone market may become saturated, so future innovation in areas like augmented reality, flexible screens, batteries or new form factors could be important for companies to adapt. However, competition from China’s huge number of manufacturers will remain a challenge.
For sustained growth, China aims to transition from low-cost manufacturing to innovation and designing products themselves. Through investment in R&D and companies like Huawei, China shows potential but faces obstacles to cultivating homegrown talent and innovation beyond manufacturing.
In the late 1980s, China began liberalizing its centrally planned economy and private firms emerged as consumer markets developed. However, state-owned companies still dominate key sectors like banking and credit.
As a private firm, Huawei couldn’t rely on government policies that promoted Chinese-foreign joint ventures to gain technology. Instead, it innovated and undercut competitors to gain market share.
Huawei innovates to meet market needs rather than creating new technologies without identifying customers. It developed testing facilities like anechoic chambers to gain competitive advantages.
Huawei spends 10% of revenue on R&D, has over 150,000 employees in R&D, and holds over 50,000 patents, showing significant innovation efforts. However, innovation requires inventing new products, not just improving existing ones.
Huawei is researching universal language translation to enable conversation across languages, demonstrating cutting-edge work. It aims to become a top global brand recognized beyond the tech industry.
If Huawei succeeds in global smartphone markets, it would show China can transition from imitation to innovation. Scale from China’s large market helps companies test without leaving China.
Schumpeter would see entrepreneurs and innovative companies as driving economic growth. As long as China supports entrepreneurs, he would expect its economy to transform through their innovations. History rarely repeats, but China has advantages over past powers from its large domestic market.
The Occupy movement in the late 2000s protested the high concentration of wealth among the top 1% and called for financial reform and a fairer distribution of income and wealth.
This reflected ongoing ideological battles over capitalism, socialism, and welfare states that stretched back to the 20th century. Milton Friedman noted Friedrich Hayek’s influence on bringing down communist regimes.
Had he been alive, Hayek would have challenged views that capitalism’s time was up after the financial crisis. He argued prosperity comes from free markets, entrepreneurship, and innovation.
Hayek was a leading figure of the Austrian School who criticized Keynesian economics and the expanding welfare state. In his view, socialism inevitably leads to central planning and suppresses individual freedoms.
Markets create incentives through price signals, according to Hayek, and governments should focus on establishing property rights and exchange rather than directing the economy.
He would have been less concerned with inequality and argued financial markets were overregulated, not underregulated as protesters claimed. Hayek spent his career fighting socialism and would have commentary on capitalism’s future.
Fear the Boom and Bust is a 2010 YouTube video that depicts a rap battle between economic theorists Hayek and Keynes over the causes of business cycles. It has been viewed over 6 million times.
While Hayek and Keynes represented rival economic views and schools of thought, they personally respected each other. During WWII when the LSE relocated, Keynes arranged for Hayek to use rooms at his college.
Initially, Hayek supported some of Keynes’ early works but later critiqued Keynes’ views more strongly as their economic disagreements increased. Their substantive disagreement was over the causes of business cycles and appropriate policy responses.
Hayek argued that booms and busts resulted from malinvestments due to artificially low interest rates distorting capital allocation. Recessions allowed necessary liquidation. Keynes focused more on aggregate demand fluctuations.
Keynes’ General Theory was more influential in the 1930s while Hayek’s views were largely rejected. However, Hayek’s skepticism of government intervention gained more traction later.
Personally, Keynes was a better communicator while Hayek struggled to convey his ideas clearly. Nonetheless, Hayek went on to influence thinking through works on political philosophy and the limits of economic planning.
Friedrich Hayek published his influential book The Road to Serfdom in 1944, warning about the dangers of centralized economic planning and the loss of individual freedom that could lead to totalitarianism.
The book was very successful, receiving positive reviews and selling out multiple print runs in the UK. It had an even bigger impact in the US, where Reader’s Digest featured an excerpt that introduced it to millions of readers.
While it did not significantly influence the post-war establishment of the welfare state in the UK, it raised Hayek’s public profile internationally and established him as an important thinker opposing socialist ideas.
In 1947, Hayek helped found the Mont Pelerin Society to bring together classical liberal intellectuals. He also worked on developing his ideas about the division of knowledge in societies in his 1952 book The Sensory Order.
Hayek then moved to the University of Chicago, where he published The Constitution of Liberty in 1960 outlining his philosophical defense of individual liberty and limited government. He argued freedom and competition, not equality, drove societal progress.
In 1959, Hayek wrote The Constitution of Liberty, intending it to be his magnum opus and “The Wealth of Nations for the 20th century.” Unfortunately, it did not achieve the same popularity as his earlier book The Road to Serfdom.
In 1962, Hayek left the University of Chicago and America for financial reasons, taking a position at the University of Freiburg in Germany.
During this time, he worked on Law, Legislation and Liberty as a follow up to The Constitution of Liberty. It was published in three volumes from 1973-1979.
Hayek won the Nobel Prize in Economics in 1974, which reinvigorated him. He felt validated after being forgotten in America.
His work influenced free market thinkers and politicians like Margaret Thatcher in the UK. She cited him frequently and quoted from his work.
Hayek’s final major work was The Fatal Conceit in 1988, which critiqued socialism and summarized his life’s work. He died in 1992 after witnessing the fall of communism.
Regarding the 2008 crisis, Hayek would have argued low interest rates led to risky investments and a bubble. He opposed bailouts and believed liquidation and restructuring were necessary for long term health, even at the cost of short term pain.
Joan Robinson made seminal contributions to explaining low wages through her work on imperfect competition and monopolies.
Her 1933 book The Economics of Imperfect Competition rejected the notion of perfect competition and argued that imperfect competition and monopoly power allow firms to pay workers less than the market value of their labor. This challenged neoclassical theories.
She refined and extended John Maynard Keynes’ ideas about labor markets in her 1937 book Essays in the Theory of Employment.
Her textbook Introduction to the Theory of Employment, also published in 1937, was influential in establishing Keynesian concepts in economics education.
While initially a follower of Keynes, she later concluded that neither neoclassical nor Keynesian economics fully explained long-term economic outcomes. Her 1956 book The Accumulation of Capital attempted to provide a theory of long-run capital accumulation and growth.
Joan Robinson was highly influential and recognized as one of the most important women in the history of economic thought for her pioneering work on imperfect competition and wages.
Joan Robinson was a highly influential but also controversial British economist active in the mid-20th century. She played a key role in developing the theory of imperfect competition.
Despite her significant contributions and publication record, she was never awarded the Nobel Prize in Economics, which was seen as surprising by some like Paul Samuelson.
Reasons for her becoming more marginalized over time included growing skepticism of Keynesian economics, her rejection of mathematical economics, writing on Marxist economics, and support for communist regimes, which were unpopular stances. Her gender in a male-dominated field may have also played a role.
Robinson introduced the concept of imperfect competition and helped establish it as a new field through her seminal book in 1932. She developed ideas around monopolies, oligopolies, and how markets actually operate versus theoretical constructs.
She played a central role within Cambridge economics circles in the 1930s-1940s through her relationships with figures like Piero Sraffa, Richard Kahn, and John Maynard Keynes. She helped develop and extend Keynesian economic theory.
However, she faced competition in defining the new field of imperfect competition from economists like Edward Chamberlin and later developed her own more theoretical approaches, especially related to labor economics.
Joan Robinson further explored issues related to employment in her 1937 book Essays in the Theory of Employment. This built on ideas raised in Keynes’ General Theory.
Robinson developed theories of imperfect competition and monopsony, where firms have market power over labor markets allowing them to pay workers less than the value of their productivity. This counters the neoclassical view of perfectly competitive labor markets.
If labor markets are not perfectly competitive due to market imperfections like few employers or inelastic labor supply, firms can exploit workers and earn “rents” by paying wages below productivity. This helps explain stagnating real wages despite rising productivity.
Robinson’s work challenged the notion that markets always function efficiently and shifted the focus to factors like market structure and power dynamics that influence wages. Her theories were an important contribution to understanding determinants of pay beyond just productivity or unemployment rates.

Based on the passage, Joan Robinson would likely say the following:

Globalization, technological changes, rise of temporary/non-permanent jobs, and declining trade union membership have all contributed to weakening worker bargaining power and allowing firms to pay wages that are lower than what their increases in productivity would otherwise allow.
This breaks down the traditional relationship between productivity growth and wage growth, as productivity has outpaced wage growth in many advanced economies in recent decades.
New technologies have benefited high-skilled workers but replaced middle-skilled jobs, contributing to a “hollowing out” of the middle class. While overall growth and profits have increased, the gains have not been shared equally between firms and workers.
Even as productivity rises, wages may not keep pace if worker bargaining power is weak. This allows firms to capture a greater share of income in the form of profits rather than paying higher wages.
Robinson’s theory was that in imperfect labor markets, firms have market power to “exploit” workers by paying them less than their marginal productivity. The trends of globalization, technology, non-standard jobs, and declining unions have all served to weaken workers’ bargaining positions and increase firms’ power in the labor market.

So in summary, Robinson would argue that changes in the global economy and labor market have shifted bargaining power away from workers, allowing firms to pay wages below what increased productivity would otherwise support. This breaks down the traditional relationship between wages and productivity.

Central banks have taken on many new and unconventional monetary policy tools since the 2008 financial crisis, like quantitative easing, forward guidance, negative interest rates, and macroprudential policy. This raises the question of whether central banks are now doing too much.
Quantitative easing (QE) involves central banks electronically printing money and using it to buy bonds from companies, with the goal of putting more money into the economy to boost recovery. This represents a new era in monetary policy.
Milton Friedman was a leading monetary economist who fundamentally changed our understanding of monetary policy after the Great Depression. Though a controversial public figure later in life, his research earned him the Nobel Prize in Economics.
Friedman would likely view the current unprecedented central bank actions with skepticism. While QE aims to spur growth, it works in practice but not clearly in theory. Friedman believed strong economic theories should guide policy, not untested measures.
Central banks are trying new tools because interest rates hit zero, but Friedman may argue this indicates deeper structural issues need fixing, rather than relying on endless stimulus measures without a clear exit plan. His view still influences debates around the appropriate role and power of central banks today.
Milton Friedman had a remarkable career in economics spanning from the 1930s to his death in 2006. He is best known for his monetary theory and criticism of the Keynesian view which dominated economics in the postwar period.
Between the 1930s-1960s, Friedman produced influential work on monetary policy, consumption theory, and identifying the role of monetary policy in prolonging the Great Depression. These theories remain deeply influential today.
It was only in the 1960s that Friedman began more political writing and commentary. He became a prominent public intellectual and advocate for free market policies.
Friedman had two main phases to his career - the first as an academic economist developing theories, the second as a public figure expressing political views. The latter has arguably overshadowed his early academic work.
Friedman’s analysis of the causes of the Great Depression were hugely influential. Central bankers drew on his insights after the 2008 financial crisis to avoid repeating the mistakes of the 1930s. His views on monetary policy remained influential until his death.
Milton Friedman started teaching at the University of Chicago in 1946. At the time, it was home to the influential Cowles Commission which took a more mathematical approach to economics that Friedman disagreed with.
Friedman pushed for a more empirical, data-driven approach focused on predictive accuracy over mathematical formality. He grew in influence and was able to move Cowles out of Chicago by 1951.
Friedman helped establish the “Chicago School” of economics centered around monetarism and laissez-faire capitalism during his 30-year tenure at Chicago. He won the prestigious John Bates Clark Medal in 1951 and the Nobel Prize in Economics in 1976.
Friedman advocated for libertarian, free market policies outlined in his influential 1962 book Capitalism and Freedom. He opposed government intervention and regulation, instead favoring private sector and market-based solutions.
His 1976 Nobel Prize was controversial given his association with Chile’s Pinochet regime, though he denied endorsing their politics. He focused on promoting economic freedom above all else.
Milton Friedman became a prominent conservative economist after retiring from the University of Chicago in 1977. He advocated for free market capitalism and monetarism.
In 1980, Friedman published the best-selling book “Free to Choose” which laid out his arguments for political and economic freedom from government intervention. This was accompanied by a popular television series.
Friedman influenced several major political figures including Barry Goldwater, Richard Nixon, and Ronald Reagan. He supported Reagan’s 1980 presidential campaign and Reagan largely implemented Friedman’s economic policies once in office.
Friedman’s monetarist views also found an audience in the UK under Prime Minister Margaret Thatcher.
Friedman’s seminal work “A Monetary History of the United States” argued that monetary policy, not just demand factors, played a major role in amplifying the Great Depression. This work established his view that central banks should target monetary aggregates like money supply.
Overall, Friedman had a significant political influence as a leading conservative economist and proponent of free market capitalism and monetarism in the late 20th century, particularly in the US and UK.
Friedman and Schwartz argued that the Fed’s tightening of monetary policy in the late 1920s helped trigger the Great Depression by slowing the economy down.
When the stock market crashed in 1929, the Fed initially eased policy but then tightened again due to fears of inflation and pressure to maintain the gold standard.
Between 1930-1933, as bank failures mounted, the money supply contracted by over a third, exacerbating the economic downturn.
Friedman believed the Fed should have acted as a stronger lender of last resort and provided more liquidity to banks during this period. Its failure to do so turned the stock crash into a full-blown depression.
Leaving the gold standard in 1933 and devaluing the dollar allowed greater monetary flexibility and helped end the “Great Contraction” of the money supply. The economy then recovered strongly.
Friedman’s research convinced the Fed that too-tight monetary policy can turn an economic downturn into a prolonged depression, a lesson policymakers aimed to apply in responding to the 2008 financial crisis.

So in summary, Friedman argued the Fed’s tight money policies in the early 1930s worsened the Great Depression by failing to support the banking system, and that greater monetary stimulus could have prevented its severity. His research shaped modern views of the need for central banks to act as lenders of last resort.

Ben Bernanke was well placed to handle the 2008 global financial crisis as Fed chair, since he was a scholar of the Great Depression and aimed to prevent the same mistakes.
Leading up to the crisis, US house prices doubled from 1999-2007 due to easy credit policies. Riskier mortgages like subprime and Alt-A loans grew rapidly.
Mortgages were repackaged into mortgage-backed securities for higher returns, but risk was underestimated. Defaults triggered when house prices collapsed in 2007.
Unlike the Great Depression liquidity crisis, this was more a solvency crisis as securities became difficult to value. Lenders wouldn’t lend without knowing creditworthiness.
The Fed reacted quickly by cutting rates, extending credit, and quantitative easing asset purchases totaling $4.5 trillion to increase money supply and avoid bank panics.
Friedman likely would have approved of QE to inject liquidity but may have seen targeted interventions like Bear Stearns as undermining Fed independence and getting involved in bailouts.
Effectiveness of unconventional policies is still debated, but Friedman supported QE when used earlier in Japan to boost a sluggish economy and money supply.
Douglass North was an influential economist who pioneered research on how institutions and economic development are linked. He won the Nobel Prize in Economics in 1993 for this work.
Standard economic models couldn’t fully explain why some countries prosper while others don’t, when looking just at factors like capital, labor, and technology. North argued institutions are also a key factor.
Well-functioning political, legal and economic institutions that enforce property rights and contracts are critical for long-term economic growth. Countries that developed good institutions were more likely to become prosperous.
North took economics “out of its comfort zone” by incorporating insights from other fields like politics, sociology and history. This new “New Institutional Economics” approach analyzed why institutional reforms succeeded or failed in different nations.
North spent his career trying to understand the reasons for economic disparity between nations and long-term economic stagnation or decline in some societies. His work laid the foundation for further research in this area by scholars like Acemoglu, Robinson and others.

So in summary, North made the case that differences in institutions are a major reason why so few countries become prosperous, and his research helped establish institutions as a key factor in economic development studies.

Douglass North was an American economist who won the Nobel Prize in Economics in 1993 for his work on how institutions influence economic growth and development.
He got his PhD from UC Berkeley and had academic positions at the University of Washington and Washington University in St. Louis. He held visiting positions at top universities but did not have a permanent position at one.
North became interested in studying why some economies grow and others do not. He rejected neoclassical economic theories, believing institutions were key to explaining long-term development.
His seminal work “Institutions, Institutional Change and Economic Performance” introduced the idea that institutions shape incentives and influence the costs of economic activity. Good institutions promote growth while poor institutions impose high costs.
North argued that institutions, both formal rules and informal societal norms, evolve over time and impact development. History and path dependence are important, with economies perpetuating good or poor growth depending on their institutional foundations.
His work helped shift economics to consider political and social factors, not just markets. It influenced development policy by emphasizing the role of institutional reforms in promoting long-term growth.

Here are the key points from the summary:

The number of people living in extreme poverty (defined as less than $1.90 per day) has declined dramatically worldwide since 1990, from 36% to 10% currently.
The UN and World Bank believe it’s possible to eliminate extreme poverty globally by 2030, which would be a historic first. This requires reducing the number of poor people by 50 million per year.
China has been very successful at reducing poverty through policies that raised agricultural productivity and rural incomes. But growth alone is not enough, as seen by some African countries.
Targeted pro-poor policies like supporting smallholder farmers may help reduce poverty, as well as overhauling how overseas aid is used.
Replicating the progress of the past few decades in tailored ways for individual countries could eliminate the remaining extreme poverty. However, financial crises periodically derail developing economies’ growth, making the goal challenging. Maintaining stable institutions and avoiding large deficits helps reduce crisis vulnerability.

So in summary, global poverty reduction has been unprecedented but eliminating the final 10% will require sustained efforts given the risk of economic crises disrupting progress. Learning from successes like China while tailoring strategies to each context may help achieve the goal of ending extreme poverty.

The article discusses the institutional challenges facing Vietnam and Myanmar as they transition their economies from central planning to market-oriented systems.
Vietnam launched market reforms called “doi moi” in 1986 but has progressed slowly, dominated by state-owned enterprises that account for over half the bad debt. This poses risks of a debt crisis if not addressed.
China underwent more rapid reforms in the 1990s, privatizing most state firms, but Vietnam has been cautious, maintaining Communist Party rule as it gradually introduces reforms.
Vested interests in Vietnam have made it difficult to privatize state firms and end the flow of bad debts, posing economic challenges.
Myanmar only recently opened up in 2011 after decades of military rule. It faces the challenge of reforming its institutions to integrate its economy globally as the “final frontier.”
Both countries show the difficulties of institutional change predicted by Douglass North - resisting vested interests can impede reforms even if changes improve efficiency over the long run.
Myanmar has significant potential for economic growth due to its young population, natural resources, and position in Southeast Asia, one of the fastest growing regions globally. However, it remains highly underdeveloped after decades of military rule.
Adopting elements of China’s “Beijing Consensus” model, with its gradual, managed market reforms, could be more appropriate for Myanmar than the rapid liberalization of the Washington Consensus.
Industrialization is key to driving growth, as in East Asia’s economic miracle economies. Myanmar needs to plug into regional production chains to avoid over-specializing in resources.
Successful industrialization and redistributive policies could enable Myanmar to develop quickly without high inequality, learning from China’s experience.
Africa has grown rapidly in recent decades but poverty remains widespread. South Africa’s post-apartheid transformation demonstrates the potential of institutional reforms, though challenges around inequality and unemployment persist. Sustaining growth and making it inclusive will determine progress on poverty.
Decades after the end of legal racial discrimination in South Africa, black South Africans remain worse off economically compared to whites. This shows the slow pace of change due to path dependence and how institutions change gradually even after barriers are removed. Disadvantaged groups start from a weaker position.
South Africa faces development challenges of a third world economy within its first world financial system. Further reform of economic and political institutions is needed to address inequality and poverty, as in other African nations.
North would say institutions can persist and advantage some without benefiting all. Laws alone don’t change behavior or culture. Building good institutions suited to domestic contexts takes time as informal rules and norms change gradually.
North advocated studying how societies and minds work to better understand institutional evolution. His work opened economics to consider institutions crucial for development. Scholars like Acemoglu/Robinson examine how extractive institutions undermine growth.
Successes in developing equitable institutions show history is not predetermined. With understanding of institutional impediments to growth, more countries may develop successfully and global poverty may one day be eradicated. But challenges remain in reforming institutions and overcoming inequality.
Some economists warn of permanently slower growth in advanced economies due to aging populations which will be less productive. This is known as “secular stagnation” and was described by Lawrence Summers.
Slower population and labor force growth means fewer workers and less need for things like office buildings and equipment, depressing investment and growth prospects. Labor force growth has slowed significantly in the US and UK.
There are concerns the future in major Western economies could resemble Japan in the early 1990s, when stagnation was revealed after the bursting of a real estate bubble. Japan’s problems were compounded by a shrinking population.
Slow productivity growth is a major issue, as highlighted by Robert Solow’s influential economic growth model. Productivity gains from technology are needed to sustain growth as populations age.
Solow showed growth requires adding workers, capital and technological progress. If technological progress stalls as seen recently, it raises the risk of long-term stagnation rather than just slower growth rates. So the outlook is worrying if productivity cannot be raised.
Robert Solow observed in the 1980s that computers and information technologies did not seem to be raising overall economic productivity, despite their widespread adoption, known as the “Solow paradox.”
Endogenous growth theorists criticize Solow for treating technological progress as external to his model rather than something generated internally through R&D and human capital investment.
Solow remained skeptical of some endogenous growth assumptions, like technology and economic growth always advancing at the same rate.
The Solow model can explain cross-country income differences and theoretically predicts convergence, but empirical evidence is mixed.
Advanced economies face a “productivity puzzle” since the 2008 crisis, with output per hour growing much slower than expected.
Reasons include low business investment, mismeasurement in services, hoarding of workers during recession, and inefficient resource allocation like “zombie firms” surviving on low rates.
Secular stagnation concerns persist for developed nations as the slow recovery reveals risks of a protracted slow-growth future without solutions to boost productivity.

Here are the key lessons for others based on Japan’s experiences with prolonged economic stagnation:

Ending deflation/price declines is extremely difficult and requires consistent monetary stimulus over many years, not just sporadic efforts.
Fiscal policy changes like tax increases can paradoxically suppress growth if done too quickly after an economic crisis. Gradual steps are safer.
Structural reforms to improve productivity take a long time (potentially a decade) to impact growth, so sustained efforts are needed over many governments.
Ageing populations and shrinking workforces pose major challenges for growth that require innovative solutions to boost labor force participation and immigration.
Raising investment, both public and private, is crucial for stimulating demand and productivity but takes determined policy measures to achieve.
Uncertainty from factors like Brexit can deter companies from investing. Providing long-term policy clarity is important.
Low wages can depress investment by incentivizing hiring over capital spending. Addressing weaknesses in wages and labor markets is integral.

So in summary, overcoming prolonged slow growth requires consistent, multi-pronged efforts over many years to stimulate demand, investment and supply-side reforms - there are no quick fixes. Sustained policy focus and clarity are needed to turn around stagnating economies.

The amount and direction of capital formation is affected by the business cycle through changes in gross investment and equipment scrapping. Low investment often follows financial crises as banks lent less and firms invested less.
These business cycle effects can influence the long-term growth potential of the economy. Prolonged slumps, like Japan’s post-1990 crash or the 2008 crisis, reduced future growth.
Related high unemployment, like in the eurozone after 2010, also reduces future growth. Long-term unemployment (“hysteresis”) renders workers’ skills obsolete and shrinks the productive workforce.
According to Solow’s growth model, investment is key for technological progress and economic growth. Most new technologies only boost output when embedded in new capital equipment. Low investment thus hinders growth.
Reversing post-crisis declines in investment is urgent to avoid a slow-growth future. Government policies can stimulate investment to support faster growth through technology transfer.
Whether we face slow or fast growth depends on policies that increase investment and employment, as these factors drive productivity and innovation per Solow’s model. Demography alone does not determine economic destiny.
Globalization and trade liberalization have contributed to discontent in many Western countries by disrupting industries and jobs, especially for those without college educations. This helped fuel populist and anti-establishment sentiments.
The election of Donald Trump as US president reflected this backlash against globalization. Trump vowed to put “America First” and reform trade policies to benefit US workers and industries.
In response to slowing progress at the WTO, countries are pursuing more regional and bilateral free trade agreements instead of multilateral deals. Examples include the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.
However, regional FTAs do not provide the same benefits as a truly global agreement under the WTO. They also risk excluding major economies like China.
Achieving new trade liberalization while also addressing the concerns of those negatively impacted by globalization will be an important challenge going forward. Finding ways to help the “losers” from globalization is seen as key to easing public discontent on this issue.

Technological advances and globalization have dramatically changed the job market. Jobs at the high and low ends of the skill spectrum are growing, while mid-skilled manufacturing jobs are declining. This is due to automation replacing mid-skilled jobs and trade allowing other countries to produce goods once made domestically.

This has resulted in stagnating living standards for many middle-income Americans, contributing to dissatisfaction and support for Trump. The documentary maker visited a farming community in Virginia and found that while global trade benefited some Exporters, many blue-collar workers felt squeezed by declining mid-skilled jobs.

Addressing inequality should be a domestic rather than trade issue through policies like infrastructure investment, skills training, and moderate redistribution to help the losers of globalization. Globalization has benefits like reducing poverty worldwide, so restricting trade further could backfire. While classical economists would support free trade, others may see the need for domestic reforms to tackle inequality arising from globalization and technology changes.

The Smoot-Hawley Act in the US imposed high tariffs that worsened the Great Depression by reducing international trade. Fisher would be concerned about how rising anti-globalization sentiment could increase economic uncertainty and impact government borrowing costs.
Keynes would advocate for active government spending to create jobs and help those negatively impacted by globalization. He supported domestic policies to address anti-globalization backlash and boost growth.
Schumpeter agreed open and competitive markets spur long-term growth through “creative destruction.” Openness to the world was essential for strong nations, per his views during the Depression/WWII era.
Hayek and Friedman advocated for free markets and ensuring political events like Trump’s protectionism or Brexit didn’t compromise market operations. Hayek saw globalization enabling innovation and catch-up growth.
North would examine where trade deals failed stakeholders and reform them, and stress history/path dependence in managing Brexit.
Solow supported investment and liberalizing services trade rules to boost growth and jobs.
Most economists strongly advocated continued liberalization given globalization’s growth benefits, though addressing its unequal impacts on “losers.”
Paul Samuelson’s seminal trade theories remain influential. His work could help address the backlash by examining globalization’s distributional effects and supporting redistributive policies.

The passage discusses the contributions of great economists to the field of economics over the past few centuries. It states that these economists set the foundations for economics by formulating general models to explain how the economy works, from Adam Smith’s invisible hand model to the Solow growth model.

The great economists were also known for pushing the boundaries of economics to develop models that better reflected the real world. And they applied their analyses to the most important economic issues of their time, aiming to offer solutions - for example, David Ricardo’s trade theory contributed to policies, while Keynes addressed the Great Depression.

Although these economists sometimes disagreed, they shared the goal of developing general models to tackle major challenges. Their legacy demonstrates that economic ideas can have a lasting impact on society. Testing ideas empirically and analyzing failures to improve is how they made their mark. Their insights remain relevant to addressing today’s globalization and other economic problems.

Here is a summary of the references:

Burns and Hart (1977) edits The Collected Works of Jeremy Bentham, including commentaries on his works.
Cairncross (1993) is a biography of British economist Austin Robinson.
Caldwell (1998, 2004) analyzes why Hayek didn’t review Keynes’ General Theory and provides an intellectual biography of Hayek.
Campbell (2008) is a biography of British Prime Minister Margaret Thatcher.
Chamberlin and Yueh (2006) is a macroeconomics textbook.
Churchill (1974) includes a 1947 speech on economics.
Clement (2002) interviews American economist Robert Solow.
Colander and Landreth (1996) discusses how Keynesianism came to America through interviews.
Collier (2007) analyzes poverty in developing countries.
Cooper (1973) interviews American economist Paul Samuelson.
Crafts (2005) analyzes the first industrial revolution.
David (1990) discusses computing technology and productivity.
De Vecchi (2006) analyzes Hayek’s views on Keynes’ General Theory.
Dworkin (2015) argues Marx can save capitalism.
Ebenstein (2001, 2007) are biographies of Hayek and Friedman.
Fisher works discuss business cycles, monetary policy, and deflation.
Friedman works discuss inflation, capitalism, monetary policy, and interviews.
Goodridge et al. (2013) analyzes UK productivity and intangible investment.
Groenewegen (1995) is a biography of Alfred Marshall.
Hansen (1939) discusses declining population growth.
Hausmann and Sturzenegger (2007) analyze global wealth and imbalances.
Hayek interviews and writings discuss capitalism, socialism, and liberty.
International Labour Organization reports analyze global wages.
Keynes works include articles, books, and collected writings.
King (2013) is a biography of David Ricardo.
Krugman (1998) analyzes economic hangovers.
Marx works include Communist Manifesto and analyses of capitalism.
McCraw (2007) discusses Joseph Schumpeter and creative destruction.
Milgate and Stimson (1991) discusses Ricardian political economy.
Minsky (1992) discusses the financial instability hypothesis.
Mitchell (1988) includes British historical statistics.
Muro et al. (2015) analyzes American advanced industries.
Nasar (2011) discusses the history of modern economics.
Nobelprize.org includes Friedman and Hayek’s speeches.

Here is a summary of the key points from the sources provided:

Robert Solow was awarded the 1987 Nobel Memorial Prize in Economic Sciences for his contributions to the theory of economic growth. In his prize lecture, he discussed the development of growth theory since his seminal 1956 paper introducing technological progress as a driving factor of long-run growth. He reflected on extensions and refinements made to the basic neoclassical growth model in later decades.
Douglass North received the 1993 Nobel Memorial Prize for his research on how institutions and institutional change shape political and economic performance. His work emphasized the role of institutional frameworks in determining the performance of economies. He explored how institutions structure incentives and how path dependence leads to persistence in institutional arrangements.
Other sources discussed various economists’ contributions to topics like institutions and economic growth, inequality, taxation, intangible assets, and the relationship between wages and productivity. Specific economists mentioned include Adam Smith, David Ricardo, Alfred Marshall, John Maynard Keynes, Joseph Schumpeter, Paul Samuelson, Robert Solow, Thomas Piketty, and others.
Sources also covered economic history and the development of economic theories over time. Concepts discussed include Ricardo’s theory of comparative advantage, Marshall’s marginalist revolution, Keynes’ theories of effective demand and government intervention, and neoclassical growth models incorporating technological progress.
Historical figures and works discussed included Dugald Stewart’s account of Adam Smith’s life and writings, Joan Robinson’s contributions to imperfect competition and critiques of mainstream economics, and Joseph Schumpeter’s work on innovation, entrepreneurship and capitalism.

Here are summaries of the relevant passages from the sources provided:

Dugald Stewart, 1793, ‘Account of the Life and Writings of Adam Smith, LL. D.’, read to the Royal Society of Edinburgh and published in Adam Smith’s posthumous Essays on Philosophical Subjects of 1795, London and Edinburgh: T. Cadell Jun and W. Davies, pp. lxxx, lxxxi.
- Provides an account and overview of Adam Smith’s life and major works. Notes the publication and impact of The Theory of Moral Sentiments in 1759 and The Wealth of Nations in 1776.
Smith, Wealth of Nations, bk V, ch. 1, pt III, art. II, para. 8.
- Discusses the impact of taxation on the price of goods and how some taxes are ultimately paid by consumers rather than manufacturers/merchants.
Irving Fisher, 1934, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica 1(4), pp. 337–57.
- Proposes the debt-deflation theory to explain the Great Depression, where falling asset and commodity prices lead to debt liquidation, distress selling, and further price reductions in a deflationary spiral.

So in summary, these passages discuss Adam Smith’s life and works, the effects of different types of taxation, and Irving Fisher’s “debt-deflation” theory about how declining asset prices can exacerbate economic downturns.

Here is a summary of the key points from the selected sources on Friedrich Hayek:

Hayek was a prominent Austrian-British economist who argued against Keynesian economic theory and government intervention in markets. He is known for his work on capital and business cycle theory and criticism of totalitarianism.
Hayek had debates with John Maynard Keynes over the merits of government spending versus reliance on markets to recover from crises like the Great Depression. Hayek argued spontaneous market forces were better equipped than governments.
Works like The Road to Serfdom warned against the concentration of power in centralized government and argued free markets protect individuals’ economic and political liberties.
Hayek helped establish the Austrian School of economics and stressed the importance of dispersed information and spontaneous order of market prices in efficiently allocating resources.
He had influence on conservative leaders like Margaret Thatcher and helped popularize free market ideals through groups like the Mont Pelerin Society.
Hayek argued financial crises stem from excessive monetary expansion by central banks, not inherent problems with capitalism, and that governments should allow recessions to run their course instead of trying to prevent them.
His lifelong body of work challenged the efficiency of government intervention and central planning while advocating instead for competitive markets and spontaneous economic orders.

Here is a summary of the key points about Arthur Seldon from the passages:

Arthur Seldon was a British economist and founder of the Institute of Economic Affairs (IEA) in London. The IEA became an influential free market think tank.
Seldon believed economic freedom and personal liberty were inextricably linked. He advocated for limited government and free market policies.
Along with Ralph Harris, Seldon helped establish the IEA in 1955 to promote the principles of free market economics. The think tank influenced policymakers and the public with its research papers and conferences.
Under Seldon’s leadership in the 1950s-1970s, the IEA played a major role in shifting British economic policy in a free market direction. It helped expose Britain’s post-war economic problems and made the case for liberalization.
Seldon served as the IEA’s director general from 1955 to 1979. He was hugely influential in disseminating free market ideas and rebutting arguments for socialism and interventionism. The IEA became one of the earliest and most successful free market think tanks worldwide.
Seldon helped popularize Friedrich Hayek’s work in Britain. He advocated for policies based on principles of individual choice, voluntary exchange, price signals and minimal government intervention in the economy.

That covers the key details about Arthur Seldon provided in the context passages. Let me know if you need any clarification or have additional questions.

Here are summaries of the suggested readings:

Ecca Lai’s New York Times article from 2016 analyzed exit poll data from the 2016 US presidential election, finding that white, middle-aged voters without college degrees significantly favored Donald Trump over Hillary Clinton.
Derek Thompson’s 2009 Atlantic interview with Nobel laureate economist Paul Samuelson covered Samuelson’s life and career, including his role in developing Keynesian economics and helping establish economics as a social science in the US.
John Cassidy’s 2009 New Yorker article was a short obituary for Paul Samuelson, remembering his intellectual influence and contribution to economics.
Thompson’s interview explored Samuelson’s perspectives on the past, present and future of economics.
David Colander and Harry Landreth’s 1996 book examined the lives and work of the founding figures of Keynesian economics, including an interview with Samuelson about the development of Keynesian thought.
The Economist’s 2009 obituary also summarized Samuelson’s career and influence, particularly his textbook Economics which shaped how economics was taught globally in the 20th century.
A 1973 article from WNYC discussed Samuelson’s views on monetary policy, scientific reasoning and economics.
A 1986 paper by Samuelson explored the historical returns and future prospects of common stocks as an investment.
Samuelson’s 2005 book On Being an Economist reflected on his life and career in economics.
No index was provided for this list of references.

Here is a summary of the key points from the various topics provided:

China’s post-1949 system involved exploitation of workers and tight government control over the economy and spending.
Exploitation of workers can generate ‘economic rents’ for owners/managers.
Imperfect competition refers to markets with only a few large competitors.
Skill-biased technical change has contributed to rising inequality by increasing demand for higher-skilled workers.
Temporary workers and wage levels have been affected by automation and globalization.
Endogenous growth theories argue long-run growth is driven by factors like innovation and human capital accumulation rather than just capital investment.
Engels documented the harsh conditions faced by the working class in England in his book The Condition of the Working Class in England. He collaborated with Marx on the Communist Manifesto.
The Enlightenment, particularly the Scottish Enlightenment, emphasized reason, science and human progress.
Entrepreneurs play an important role in innovation and economic growth, as argued by Schumpeter.
The Equation of Exchange relates the money supply, velocity of money, prices and real output in an economy.
The euro crisis stemmed from deficits and debt burdens in some eurozone countries like Greece. The European Central Bank and European Commission responded.
Exchange rates can be fixed or floating. The classical gold standard involved fixing currency values to gold.
Fiscal policy involves government spending/taxation decisions and was a key focus of Keynes’s theories.
Endogenous growth theories emphasize the role of innovation, human capital and knowledge in driving long-run growth.
Financial crises can stem asset bubbles bursting and lead to recessions by disrupting investment. Marx also wrote about financial crises.
Hayek was a leading thinker in opposition to Keynesian economics and socialist central planning. He advocated free markets.
Inequality has risen in many countries, driven by technology, globalization, and other factors. This poses economic and social challenges.
Investment drives growth by expanding productive capacity but is influenced by interest rates, demand expectations and credit conditions.
Keynes substantially altered economics with his work on effective demand, aggregate spending and the role of government in stabilizing the economy.
Frank Knight was an early 20th century American economist who helped develop the concept of uncertainty in economics and founded the Chicago school of economics.
South Korea has developed rapidly from a poor country after the Korean War to an advanced economy today, while North Korea remains very poor under a communist dictatorship.
Paul Krugman is a Nobel Prize-winning American economist known for his work on international trade and new trade theory.
Krupp was a German steel and manufacturing company in the late 19th/early 20th century.
Simon Kuznets developed the concept of GDP and national income accounting and ideas about long term economic growth and development cycles.
Labour force growth and increases in labour productivity can impact work incentives and the economy.
Laissez-faire refers to a policy of minimal government interference in the economy.
Landowners were an influential social class in the 19th century that Marx analyzed.
Ferdinand Lassalle was a German socialist theorist who influenced Marx and the early German labour movement.
Latin America experienced a major currency crisis in the early 1980s.
The League of Nations was an early 20th century international organization that preceded the United Nations.
Lehman Brothers was a major investment bank whose collapse helped trigger the 2008 global financial crisis.
Vladimir Lenin was a Russian communist revolutionary leader who helped establish the Soviet Union.
Wassily Leontief developed input-output analysis to study inter-industry relationships.
Arthur Lewis developed early theories of economic development and dual-sector models of developed and developing economies.
Life extension and longevity have important economic implications studied by some institutes.

That covers the main highlights and summary of the key points from the list provided. Let me know if you need any part explained or expanded upon.

Adam Smith advocated for limited government intervention and argued market forces like competition and the “invisible hand” can help rebalance the economy. He is considered the father of modern economics and capitalist thought.
David Ricardo developed the theory of comparative advantage to argue that all nations benefit from free international trade.
Karl Marx criticized capitalism and laid out an alternative economic system of communist socialism. He had a major influence on economics and political ideologies.
Robert Solow developed an influential neoclassical economic growth model incorporating technological progress. He received the Nobel Prize and Presidential Medal of Freedom.
Other economists mentioned include Alfred Marshall, Irving Fisher, John Maynard Keynes, Joseph Schumpeter, Friedrich Hayek, Joan Robinson, and Milton Friedman.
Topics covered include globalization backlash, trade deficits, inequality, inflation, financial crises, wage stagnation, economic growth, institutions, and the role of government intervention vs laissez-faire policies.
The summary touches on each economist’s key ideas and contributions as well as their views on contemporary economic issues and challenges. It provides context for their intellectual legacies and influence on modern economics.

#book-summary

What Would the Great Economists Do - Linda Yueh