Abstract
Emergent properties are outcomes of complex systems of interaction that are not easily understood in terms of the behaviors of individual components of the system. The idea is perhaps most readily comprehended in the natural sciences: life forms have behaviors that cannot be understood in terms of any of the chemicals that together constitute that life form. Emergent properties are often surprising: if chemicals could think they would be amazed at the behaviors of the life forms they constitute. In the social world, individuals may interact in ways that generate results that no individual wants or expects. Emergent properties emerge when there are differences among the constituent elements of the system, and when interactions generate both positive and negative feedbacks. This chapter discusses two possible emergent properties of systems of economic interaction: first poverty traps and then business cycles.
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Notes
- 1.
He performs detailed calculations on 288-306, and argues that the United States could finance this effort alone by merely reinstating tax cuts for those with incomes over half a million dollars.
- 2.
Temple (1999) notes a third possible reason: factor price equalization through trade liberalization. That is, trade theory suggests that wage rates and interest rates should converge across countries as trade expands. In practice, factor price equalization occurs very little in the world, perhaps because trade flows are not in fact driven by comparative advantage (see chapter 7).
- 3.
The present status of less developed countries looks less bleak if one turns from GDP to the United Nations’ Human Development Indicator. This includes GDP but also measures of literacy and life expectancy. Less developed countries still look bad, but not by as wide a margin. In HDI terms they are better off than Europe in 1870 (Snowdon 2002, 19).
- 4.
One exception involves discussions of a ‘political business cycle’ that might result from increased government spending before elections. Recent research suggests that politics does influence macroeconomic performance but not as much as older political business cycle theories suggested (Alt and Alesina 1998, 663).
- 5.
Long cycle theorists and others have posited that innovative activity fluctuates with economic cycles. Forrester has argued that innovation is most likely in business cycle upswings: people are too pessimistic during downturns and too complacent during booms. Alternatively, Mensch (1979) argued that depressions encouraged radical thinking. Kleinknecht (1987) notes that research expenditure did not surge during the Depression, but there may have been a shift toward radical innovation (but this hard to define and measure). All of these approaches tend to abstract away from the technological opportunities at any point in time. While innovations do tend to clump historically, they do not seem to do so at any particular point in the cycle.
- 6.
There is also cross-section evidence that countries experiencing more rapid productivity growth experience less severe cycles. One possibility is that innovation generates many investment opportunities (and/or keeps expectations high). In North America, some of the postwar experience can be attributed to demography: the entry of the baby boom into the job market in the 1970s increased both the scope and volatility of unemployment as younger workers are more likely to move in and out of employment than are the middle aged.
- 7.
Process innovation will generally be deflationary (though firms are often slow to lower prices). Product innovation is trickier, because its effect on aggregate prices depends both on how the new products enter the measurements and to what extent they complement or substitute for other goods. New products generally require investment (as does much process innovation), and investment is inflationary (since investment goods are not included in the calculations, but the income earned in capital goods industries is spent on consumption).
- 8.
Those who critiqued structural arguments in the 1960s usually attacked straw men rather than the more subtle arguments of proponents of the idea (142).
- 9.
Could the Depression happen again? The analysis here suggests that the answer depends on how balanced product and process innovation are through time. This is not a question that economic theory itself has much to say about. Szostak (1995) argued that the unfortunate interwar time path of innovation reflected the confluence of developments in the GPTs associated with the Second Industrial Revolution of the 1880s, and perhaps also the tendency of industrial research laboratories to stress process innovation at the time. As the research enterprise becomes more diversified, such an imbalance between product and process innovation becomes less likely.
- 10.
Bruton (1997) argues that reducing unemployment increases the incentive to develop labor-saving technology.
- 11.
Durlauf, Johnson, and Temple (2005, 574) note that it is common to observe double-digit drops in output in poor countries, though such downturns are almost nonexistent in postwar developed countries. This might cause investment rates to be much lower in poor countries.
- 12.
Cornwall and Cornwall (2001) maintain that institutions encouraged demand growth in the 1950s and 1960s but not thereafter.
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Szostak, R. (2009). Emergent Properties of the System of Causal Links. In: The Causes of Economic Growth. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-92282-7_10
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DOI: https://doi.org/10.1007/978-3-540-92282-7_10
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