There?s some discussion on the usefulness of the Solow model: the initial question over at William Polley?s blog [hyperlink], with a series of responses. Then there?s also Robert [hyperlink] with a quote by Kaldor which argues that the ?whole structure? of neoclassical economics crumbles once one introduces increasing returns.
Anyway. I?m in the You Should Teach The Solow Model crowd. Why? Because Socrates would?ve taught it. Socrates thought there were two, maybe three, kinds of people in the world and that you could arrange them in a hierarchy:
1. Those who don?t know but think they know.
2. Those who don?t know but know they don?t know.
And the lucky ones:
3. Those who know and know they know.
There aren?t many people in the third category. But for some reason, we always expect our models to move us from the second to the third. And we?re not satisfied if the movement is from the first to the second.
The Solow model basically says that ?it ain?t capital accumulation? that causes sustained growth, it?s something else, the magical so-called ?Solow residual? which could include technology, policy, change in institutions, etcetera.
Many people have concluded that since the Solow model doesn?t ?explain? growth (because it lumps its major cause into an exogenous residual), it is useless. But, people?when you thought you knew (it?s capital accumulation!) and then you learn that you don?t know (it can?t be capital accumulation!), you?ve learned something just as important and valid.
And before Solow, lots of people did think that all it took for growth to take place was a higher saving rate and more investment. It?s good to know that you can get milk from cows. But it?s also good to know that you can?t get milk from chickens?particularly if you were under the impression that you could.
YouNotSneaky!
notsneaky.blogspot.com
