Wednesday, September 15, 2010

Lucas on "The Industrial Revolution: Past and Future"

The essay on caring about inequality by Branko Milanovic (the topic of the previous post), quotes Robert Lucas as writing about how "to focus on questions of distribution" is "poisonous" and "harmful to sound economics". I had a look at Lucas's essay, "The Industrial Revolution: Past and Future", published on the website of the Minneapolis Fed. The quote Milanovic takes is from the last paragraph, where Lucas writes:
Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.
Of course, just because there has been very little redistribution of resources from the rich to the poor at the global level in the past (and plenty of examples of transfers going in the opposite direction - imperialism was and is not an exercise in philanthropy...), that does not mean that such transfers would be of little help now in speeding up the attainment of the objective that Lucas would like to see.
  Still, Lucas's essay is well worth reading. It struck me when I read it how such a simple and clear account of the key features of the economic history of the last 1,000 years (that he provides) belongs in every introductory economics textbook and yet can be found in almost none of them.