Distribution versus Growth

When I wrote the op/ed on Robert E. Lucas in the Wall Street Journal last week, I was unaware of an article he wrote in 2004 for the Federal Reserve Bank of Minneapolis. It’s Robert E. Lucas, Jr., “The Industrial Revolution: Past and Future,” May 1, 2004.

It’s quite good. (HT2 Art Carden.)

And here is the last paragraph.

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.

The article as a whole, which surveys economic growth over long periods, reminds me of my favorite study by University of California, Berkeley economist Brad DeLong. It’s titled “Cornucopia: The Pace of Economic Growth in the Twentieth Century,” NBER Working Paper 7602, March 2000. DeLong quotes a famous passage from Karl Marx and Friedrich Engels, The Communist Manifesto, in which Marx and Engels waxed rhapsodic about the incredible accomplishments of capitalism in the 19th century. The bourgeosie, wrote Marx and Engels, was:

the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades…. 
[It has], during its rule of scarce one hundred years…created more massive and more colossal productive forces than have all preceding generations together. The subjection of nature’s forces to man, machinery, the application of chemistry to industry and agriculture, steam-navigation, the railways, electric telegraphs, the clearing of entire continents for cultivation, the canalization of rivers, the conjuring of entire populations out of the ground–what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?

Then DeLong writes:

Yet compared to the pace of economic growth in the twentieth century, all other centuries–even the nineteenth century that so impressed Karl Marx–were standing still.

DeLong backs it up, by the way.

The other person who does something similar to what Lucas does, but with an imaginative and illuminating video that shows the connection between income growth and increases in life expectancy, is Hans Rosling. Here’s his “200 Countries, 200 Years, 4 Minutes, The Joy of Stats.” I highly recommend it: educational and entertaining.

Now back to the paragraph from Lucas that I quoted near the start.

The last line is particularly important. If we focused on getting the conditions that lead to economic growth right, then distribution would become less important: a rising tide lifts almost all boats–and has been lifting almost all boats.

There is something missing, though. Economists who see big gaps in prices tend to think of arbitrage. I would have expected Lucas, a first-rate economist if there ever was one, to note that the huge discrepancy between wages and productivity between India and the United States, for example, would lead to a movement of resources–labor–from India to the United States. One way to get a huge increase in world productivity over a time period as a short as a decade is to allow hundreds of millions of, and maybe even a billion, people to move from poorer countries to rich countries. In other words, allow much more immigration. In all the work I’ve read by Lucas, and I read a lot when I wrote his biography in The Concise Encyclopedia of Economics, I don’t recall seeing him say much about immigration.

Do any of you know whether he wrote or spoke in favor of allowing more immigration?

Postscript: If you read Lucas’s article carefully, you’ll notice that someone made a mistake in labeling the vertical axis in Figure 1. It’s labeled “Population Growth Rate.” It should be labeled “Population.”