Edmund S. Phelps (2014) - Bringing Dynamism, Homegrown Innovation and Human Flourishing into Economics

Edmund S. Phelps (2014)

Bringing Dynamism, Homegrown Innovation and Human Flourishing into Economics

Edmund S. Phelps (2014)

Bringing Dynamism, Homegrown Innovation and Human Flourishing into Economics

Abstract

The economics practiced today is basically neoclassical with an overlay of Keynesian theory from which the unknowable, animal spirits and long-term expectations have been removed. Abstraction is always fruitful. But this standard amalgamated economics, which met many earlier problems, seems not to meet the syndrome of problems faced by the West in our time; nor some old problems faced by historians. That is because the standard economics excludes the heart of these problems – the sources are hidden in some variables interpreted as “shocks” or some time trend. As a result, this economics offers us the policy tools of the standard models with which we can hope to obtain symptomatic relief from our illness, but cannot expect a cure.
In my theory, prevailing values, or felt needs, are basic to an economy. In any nation there are people who feel the need for individual expression – to exercise their curiosity, ingenuity or creativity; whose vitalism stirs them to “act on the world” and make a difference; and who need careers that are a journey into the unknown – a voyage in which, as they form ideas, create and discover outcomes, they test, discover and create themselves. Such needs fuel a desire to innovate: The extent and intensity of this desire, together with the capacity and talent of people to hit upon new products that would be adopted, and the latitude society is willing to give to innovations, constitute a nation’s dynamism – its ability, or propensity, to innovate. This dynamism largely determines the nation’s homegrown innovation – the supply of it, to be precise, while various market forces impact on the actual innovation achieved. And the nation’s rate of innovation is the main source of the prosperity there – in all its dimensions, including what is called flourishing. By the 1800s, the accretion of modern values gave birth to the dynamism sparking the epoch of innovation in Britain and America, later Germany and France. Now, losses of dynamism have cost us much of our prosperity.

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