Saturday, February 20, 2016

Crazy as Adam Smith: the Media Discovers the Kaldor-Verdoorn Effect

So Kevin Drum at Mother Jones discovers the Kaldor-Verdoorn effect, and the fact that growing demand might be the main cause of rising productivity, and idea as old as Adam Smith in his vent for surplus model (chapter 3 of the Wealth of Nations says that the division of labor, that is, productivity, which is the basis for development, is limited by the extent of the market, that is, by demand). I posted extensively on that here (all post by date here), and produced, as far as I know, the only methodology to separate the Verdoorn effect (long term trend effect) from the Okun effect (cyclical effect) with one of my graduate students long ago (see here). And yes this is in part why a Bernie type policy would actually lead to significant changes in employment and productivity.

1 comment:

  1. From Gerald Friedman's What would Sanders do?, footnote 18 on page 13:

    "There is a strong positive correlation between productivity growth and levels of unemployment and rates of GDP growth; the R2 in a regression for productivity growth and real GDP growth is 0.65. Higher GDP growth explains all of the higher productivity growth projected here. The association of higher productivity growth and low unemployment is sometimes called “Verdoon’s Law” after the Dutch economist, P. J. Verdoorn ..."

    Among the references provided in that footnote:

    "An empirical test of U.S. data is in Yongbok Jeon and Matías Vernengo, “Puzzles, Paradoxes, and Regularities: Cyclical and Structural Productivity in the United States (1950–2005)