Friday, April 11, 2008

Why teach growth theory? 

Recently John Palmer and William Polley and others debated whether the Solow growth model was a good subject for teaching macroeconomics. When I was in grad school, the first half of my second macro course consisted of working through Solow's monograph (and Harrod, and Domar.) And while so much of the rest of our macroeconomics textbooks have changed, the basic Solow model sits there almost untouched (some books will have some Romer at the end, like an appendix that can be removed just as soon as that goes out of fashion.)

The reason to teach it, I think, is simple: Growth is just too damn important to be pushed aside in an intermediate textbook. As Romer says here, possibilities don't add up, they multiply. Why they multiply is what students should learn. I often use Easterly's Elusive Quest for Growth with this because Easterly's organization is very close to what John says is the problem with Solow -- it doesn't tell us much. But it does help us shoot down some bad ideas in development, like project aid and population control. It makes you focus on the A in AF(K,L) and get away from the K and the L. The property rights, entrepreneurial culture, the transactions costs, the quality of government -- those are all in the A. That's where the action is, and you can use Solow to get you there.

Bill and I teach that section of the course in roughly the same way. I've pretty much given up the golden rule portion of Solow (like anyone ever made policy that way!) and Harrod and Domar are gone completely, but it's an easy entrance to the good stuff, until someone makes a better one.