That's the policy deformation. In the Solow model, private capital and
labor services
do not explain growth. The simplest effort to augment this is with
hand-waving about
knowledge or a stock of human capital (Mankiw, Romer, Weil), either with
obviously
public roots. The formalizations in new growth theory are about
quasi-public inputs
like R&D, spillover effects (another private market failure) with
feedback. I don't
put much in all the elaborate formalizations, unlike Warsh. But all the
trashing about
still seems like a remarkable gloss over the huge dog that doesn't bark
in the literature.
Michael Perelman wrote:
Max, if you were only correct. The public sector "crowds out" productive private
spending, like oil companies buying stock instead of expending money on physical
capital. The public sector distorts incentives. The public sector is wasteful ...
On Mon, Apr 07, 2008 at 11:16:45AM -0400, Max B. Sawicky wrote:
The striking thing to me about the Warsh book re: mainstream growth theory
is the
myriad of means by which economists gloss over the role of the public
sector, even as
explicitly implied by their own models.
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