In demonstrate how economists are divided into
In”Why, indeed, in America? Theory, history, and the origins of modern economicgrowth”, Romer starts off by stating that new growth theories must go hand inhand with history of economics, and one must be considered when looking intothe other.Thefirst two parts of the article demonstrate how economists are divided intoseveral islands. Economists on one island consider economic history useless anddo not take into account that their new theories might be inconsistent when checkingthem up with the past.
As an example, Paul mentioned the neoclassical model of growththat nowadays is the favoured model. The main assumption of this model is thattechnology is the same everywhere and that different growth rates in differentcountries is explained by other factors. However, when we take this idea backto the twentieth century, this might not have been true. Moreover, theassumption of same level of technological growth itself seems odd, as sometreat it as a substantial factor in economic growth.
The party on the other island takes a differentapproach. They believe that theories must be understood and refuse any kind onformalisation of those theories. A representation of this is Dawkins idea of hierarchicalreductionism, where a matter can be divided into several other matters that areinterconnected with each other. Dawkins believed that formalisation doesexactly this and there is no need for it.Thepaper moves onto explaining how neoclassical growth theory defines factors asbeing technological and conventional, and then divides the conventional oneseven further. The problem with this is that there is an impasse with technology.Later, this view was adjusted, making the initial division- a split betweenideas and things.
Romer then explains the difference between them and statesthat new economic growth theories arise from ideas transforming things. Thethought of scale effects was also recognised.Thefinal part of the paper explains why industrial growth first started inAmerica. The starting point was that America had a very large quantity ofnatural resources. They combined this with the scale effects to achieve highlevels of production.
PaulRomer concluded that all in all, when we take the new growth theories and usethem smartly with the past history, we can come to big results, just like theAmericans did in the industrial market.