Stagnation: Arnold Kling, "intangible factors are important determinants of economic outcomes."

 Arnold Kling comments on a recent conversation between Paul Krugman and Tyler Cowen. One of the topics that came up was increasing returns. Kling:

Context: This year, the Nobel Prize in economics went to Paul Romer and William Nordhaus, both of whom contributed to our understanding of economic growth. What facilitated the large increase in living standards in recent centuries, and what explains the large differences in living standards across countries?

Kling then gives us six short paragraphs of textbook background, worth reading. But I'm more interested in Kling's response:

In the video, Paul and Tyler point out some problems with the narrative of ideas and increasing returns. It seems to imply that economic growth will just get faster and faster, as we have more people combining more ideas. But measured economic growth, while still positive, appears to have slowed in recent decades. Also, since ideas can be used without being used up, why are some countries so backward in their use of ideas?

The answers to these sorts of questions take us out of the realm of typical economic factors. At one point, Paul quotes Robert Solow as saying that these discussions end up in a “blaze of amateur sociology.”

Solow’s name comes up in any discussion of economic growth. In the Solow model, the economic driver of productivity is savings. But there is a “residual” driver of economic growth, that Solow equates to pure advances in technology.

My own view is that intangible factors are important determinants of economic outcomes. I believe that they have become increasingly important in recent years. This limits our ability to explain economic growth on the basis of the measurable components of the Solow model.

Well, yeah, amateur sociology. But if that's where the answer is, then better look there than in professional economics, where it isn't. No?

And of course my favorite source of intangible factors is conceptual systems, specifically, the theory of cultural/cognitive ranks that David Hays and I worked on for a couple of decades in the previous century. There's nothing amateur about it, though it IS speculative. Anyone can ferret out facts using tried-and-true methods, even amateurs. It takes a real pro to speculate in a coherent manner. Here's what I said about speculation in the Preface to Beethoven's Anvil (p. xii):

Thus I like to think of this book as an exercise in speculative engineering. Engineering is about design and construction: How does the nervous system design and construct music? It is speculative because it must be. The purpose of speculation is to clarify thought. If the speculation itself is clear and well-founded, it will achieve its end even when it is wrong, and many of my speculations must surely be wrong. If I then ask you to consider them, not knowing how to separate the prescient speculations from the mistaken ones, it is because I am confident that we have the means to sort these matters out empirically. My aim is to produce ideas interesting, significant, and clear enough to justify the hard work of investigation, both through empirical studies and through computer simulation.