Edmund Phelps of Columbia University, Nobel Laureate in economics, and author of Mass Flourishing appeared on EconTalk. Here's what I took away from the conversation:
Modern values and grass roots innovation
Phelps argues "that it was the birth of modern values that provided the fuel for the modern economies in Britain and America, and later maybe less fuel but nevertheless it was there in Germany and France." The manifestation of this was "grass roots innovation", propelling the rapid rises in living standards over the past two centuries.
Phelps believes that real prosperity consists of: rising wealth emerging from an individual's efforts to improve himself, work that is interesting, exercising initiative. Also, that differences in job satisfaction between countries are the result of differences in dynamism.
Phelps attributes the decline in innovation in the US since 1970 - "a narrowing of innovation to fewer industries" - to a rise of materialism, "an obsession almost with money", a rise of anti-modern values, such as conformism, and "the culture of entitlement rather than feeling that you've got to earn it yourself", along with rampant rent-seeking.
The grass roots innovation that should be going on continually has narrowed to a point where "most of the innovating that we see is that brilliant stuff going on out in Silicon Valley. And really up and down the West Coast, a fairly thin sliver of land along the West Coast."
Phelps raises the question of what kind of economy we'd want to live in, one that's more at rest and stable versus one that's more dynamic.
The Good Life
People really need to be engaged in doing things, doing rewarding things, and having the excitement of striving.
Aristotle's idea is the good life is a life that we admire in others and would like to imitate for ourselves.
In the Renaissance, people started talking about how human beings have creativity and human beings can think for themselves and should think for themselves. And people should be independent; they should have their own bank accounts and make their own living.
The good life is a life of adventure and discovery and exploration and meeting problems, overcoming hurdles. And creating. Creating stuff. For me, that's a good life. I'm sold on that.
Why might innovation cost jobs?
...to a rough approximation we can think of consumer goods as being produced mainly with capital. And capital goods are produced mainly with labor. Now, if the innovation is in the consumer goods sector, then that's driving the price of consumer goods down relative to money wages. So real wages are rising and that pulls up employment. And that's great.
But once you start having innovation in the production of the capital goods, then you've got two things going on. One, labor is physically more productive in making capital goods. But the capital goods that labor makes are now going to be cheaper, in terms of consumer goods. So that's a bummer. And that lowers real wages...
