The Wealth of Nations in
the 21st Century
Robert E. Lucas, Jr.
Barcelona GSE
May 21, 2014
• Main economic events of the second half of the 20th century were
— the continued steady growth of the US and the UK–wher...
1880 1900 1920 1940 1960 1980 2000
6.5
7
7.5
8
8.5
9
9.5
10
10.5
INCOME CONVERGENCE, EIGHT COUNTRIES
LOGPERCAPITAREALGDP
C...
• Living standards in the US, UK have grown at average rate of about
2% per year for 150 years or more
• Still have not be...
1950 1960 1970 1980 1990 2000
0
5
10
15
20
25
30
35
INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES
PERCAPITAGDP,THOUSAN...
1950 1960 1970 1980 1990 2000
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES
LOGPER...
1950 1960 1970 1980 1990 2000
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIE...
• Where to go for rest of 21st century ?
• Can OECD economies keep it up for another century or more? Who
can say?
• Some ...
• Focus on China
• Too late for South Korea, Taiwan: already rich!
• China now growing much faster than others
• Extrapola...
1960 1980 2000 2020 2040 2060
6
7
8
9
10
11
12
13
LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES
LOGPERCAPITAGDP
Da...
• Made this mistake with Japan in 1960s
• Many now making it with China
• This is not the way it works
• Useful formula fo...
1960 1980 2000 2020 2040 2060
6
7
8
9
10
11
12
LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES
LOGPERCAPITAGDP
Dashe...
• If this projection is accurate, then average living standard of Chinese
people in 2050 will equal living standard in U.S...
• Economic growth is not a zero-sum game
• Post war recovery of Europe, miracle of Japan, rest of capitalist East
Asia hav...
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1750 1800 1850 1900 1950 2000
Figure 7: European Shares of World
Production and Populati...
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Robert Lucas - The Wealth of Nations in the 21st Century

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Slides from a roundtable on "The Wealth of Nations in the 21st Century," organized by the Barcelona Graduate School of Economics and FemCat Foundation.

Robert Lucas (University of Chicago, Nobel Laureate in Economics) is a member of the Barcelona GSE Scientific Council.

Read about the Scientific Council: http://j.mp/1hXEm6L

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Robert Lucas - The Wealth of Nations in the 21st Century

  1. 1. The Wealth of Nations in the 21st Century Robert E. Lucas, Jr. Barcelona GSE May 21, 2014
  2. 2. • Main economic events of the second half of the 20th century were — the continued steady growth of the US and the UK–where the industrial revolution began — the growth “miracles” of Germany, Japan, southern Europe — the end of the European colonial age and the miracles of some more non-European countries • Next figure, based on Angus Maddison’s estimates of per capita gdps, illustrates this
  3. 3. 1880 1900 1920 1940 1960 1980 2000 6.5 7 7.5 8 8.5 9 9.5 10 10.5 INCOME CONVERGENCE, EIGHT COUNTRIES LOGPERCAPITAREALGDP COUNTRIES ORDERED BY 1870 INCOME LEVELS United Kingdom United States France Germany Canada Italy Spain Japan
  4. 4. • Living standards in the US, UK have grown at average rate of about 2% per year for 150 years or more • Still have not been surpassed, though levels equalled by many others • Many of most exciting examples from East Asia
  5. 5. 1950 1960 1970 1980 1990 2000 0 5 10 15 20 25 30 35 INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES PERCAPITAGDP,THOUSANDSOF1990USDOLLARS Countries Ordered by 1950 Incomes United States United Kingdom Hong Kong Singapore Japan Taiwan South Korea China
  6. 6. 1950 1960 1970 1980 1990 2000 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES LOGPERCAPITAGDP
  7. 7. 1950 1960 1970 1980 1990 2000 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11 11.5 LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES LOGPERCAPITAGDP
  8. 8. • Where to go for rest of 21st century ? • Can OECD economies keep it up for another century or more? Who can say? • Some are concerned that the really good ideas have already been ex- ploited • Will have to take what we can get, but the exciting progress will be in the currently poor economies that will attain the productive levels of the rich
  9. 9. • Focus on China • Too late for South Korea, Taiwan: already rich! • China now growing much faster than others • Extrapolate into future?
  10. 10. 1960 1980 2000 2020 2040 2060 6 7 8 9 10 11 12 13 LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES LOGPERCAPITAGDP Dashed Lines: Extrapolations Assumed US, UK growth rate = .02 Assumed Chinese growth rate = .07
  11. 11. • Made this mistake with Japan in 1960s • Many now making it with China • This is not the way it works • Useful formula for reasonably free, well-governed countries is your growth rate = .02 x ³ US income level your income level ´
  12. 12. 1960 1980 2000 2020 2040 2060 6 7 8 9 10 11 12 LOG INCOME LEVELS IN US, UK, SIX EAST ASIAN COUNTRIES LOGPERCAPITAGDP Dashed Lines: Extrapolations Parameter Values  = .02  = .67
  13. 13. • If this projection is accurate, then average living standard of Chinese people in 2050 will equal living standard in U.S. today • A breathtaking achievement, given the number of people involved • By 2050, of course, US will have grown too, but over time this gap will continue to close • A threat to US, OECD countries? Possibly, but not on economic grounds alone
  14. 14. • Economic growth is not a zero-sum game • Post war recovery of Europe, miracle of Japan, rest of capitalist East Asia have all been hugely beneficial to US • Can only wish good luck to China • On to rest of Asia and to Africa!
  15. 15. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 1750 1800 1850 1900 1950 2000 Figure 7: European Shares of World Production and Population Production Population 25-Jan-1998
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