“Why, Indeed, in America?,” Paul Romer, 1996

Short AER P&P on why America reached world economic supremacy between 1870 and WW2. Argues that economic theory should work through Dawkins’ “hierarchical reductionism”, where the goal of a model is to split a process into its constituent parts, argue how they work in aggregation, and once understood, split the parts into their own parts for closer examination. Contends that the neoclassical split – public versus private goods, then technology versus capital and labor, is incorrect since a better “split” is to divide goods into rival and nonrival, or “things” and “ideas.” Notes that when technology is endogenous, the scale of a market is enormously important to the incentive to invest in production of a new good. The US had a very large, integrated market – the largest in the world – and intensive resource utilization, which led to faster growth. Savings and educational attainment in the US and Britain were similar from 1870 to WW2, but nonetheless the US jumped very far ahead of the UK in per capita income.


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