Arnold Kling  

Phelps on Dynamism

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Edmund S. Phelps writes,


My thesis is that the degree of dynamism in a nation's economy hinges on its development of some key economic institutions - company law and corporate governance, the population's preparation for business life, the development of financial instruments such as the stock market and so forth. Such general institutions as the rule of law and provision of enough personal and national security to safeguard earning, saving and investing are needed for any market economy, even market socialism; they are insufficient for dynamism.

The way I would put it is that a dynamic economy needs to be able to reward success and to discard failure. If an eager entrepreneur cannot succeed and an incumbent firm cannot fail, then dynamism will be inhibited.

For Discussion. What institutional traits make the U.S. economy more dynamic than many European economies?


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COMMENTS (10 to date)
Lawrance George Lux writes:

The lack of regulation of Products purchased, and Investment opportunities which are allowed. City planning is alive and well in this Country, but nothing of the order existent in Europe. The United States regulates Product quality and Safety procedures for its production, but at variance from necessary approved Production schedules still existent in Europe. lgl

Tim Shell writes:

As I understand it, it is more expensive to fire workers in Europe, so European companies are less likely to expand their payrolls even times of growth; they might stick with recession level payrolls all the time, which prevents them from fully exploiting the opportunities that arise when the economy is doing well.

The US corollary to this is not simply that US companies fire more workers. It is that US companies constantly eliminate less productive jobs, while constantly creating new jobs in response to new economic opportunities. This results in US labor being utilized more efficiently over the long run than European labor, as evidenced in the higher average output of US workers.

Steve writes:

-->The US corollary to this is not simply that US companies fire more workers. It is that US companies constantly eliminate less productive jobs, while constantly creating new jobs in response to new economic opportunities.

Steve writes:

--> As I understand it, it is more expensive to fire workers in Europe, so European companies are less likely to expand their payrolls even times of growth; they might stick with recession level payrolls all the time,

Tim Shell writes:

Over the last three years, employment in the US has grown from 137,846,000 in January 2001 to 138,603,000 in November 2003, a gain of 750,000, not a loss of 3 million. This according to the Bureau of Labor Statistics, which is the official source:
http://data.bls.gov/cgi-bin/surveymost?bls

Lawrance George Lux writes:

Tim,
Your data lacks percision, to say the least! There is no indication it has been adjusted to Part-Time labor. A study reviewed in my distant past indicated a porporinate 0.1 Average Hours worked, would indicate approximate full-time jobs lost. It was based upon a Labor enrollment of years ago, so would not be of help here, but no similar data is appearing today. I do not think your raw data should be assimilated without serial adjustment. It does not convince me that Bush is not the worst Job performance President since Taft. lgl

Steve writes:

You're right, LGL... A gain of 750,000 McJobs (not to mention probably 3 million former "jobs" that are now "McJobs") should not impress anyone, nor cause anyone to vote for the GOP.

Tim Shell writes:

LGL - it's not my data, its the US Department of Labor's Bureau of Labor Statistics' data. Maybe it lacks precision, but I can't do anything about that.

Steve - you've gone from saying 3 million jobs have been lost, to saying 750,000 jobs have been added, but those jobs don't matter. That's progress, I guess.

I admit, 750,000 jobs added in three years is not good. It's quite bad when the population is expanding by 3 million people a year. But it's not 3 million jobs lost, as lots of people are claiming.

Steve writes:

Tim---You got me.

3 million more unemployed people. Either way, it is the worst since Hoover.

nkem writes:

the theory of malthus robart

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