The Reluctant Economist

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1 The Reluctant Economist Perspectives on Economics, Where is rapid economic growth taking us? Why has its spread throughout the world been so limited? What are the causes of the great twentiethcentury advance in life expectancy and of the revolution in childbearing that is bringing fertility worldwide to near replacement levels? Have free markets been the source of human improvement? Economics provides a start on these questions, but only a start, argues economist. To answer them calls for merging economics with concepts and data from other social sciences and with quantitative and qualitative history. Easterlin demonstrates this approach in seeking answers to these and other questions about world or American experience in the last two centuries, drawing on economics, demography, sociology, history, and psychology. The opening chapter gives an autobiographical account of the evolution of this approach and why Easterlin is a reluctant economist. is University Professor and Professor of Economics in the Department of Economics at the University of Southern California. He is a member of the National Academy of Sciences, past president of the Population Association of America and Economic History Association, a Fellow of the American Academy of Arts and Sciences, and a former Guggenheim Fellow. He is editor of Happiness in Economics (2002) and author or coauthor of Growth Triumphant: The 21st Century in Historical Perspective (1996), The Fertility Revolution (1985), Birth and Fortune: The Impact of Numbers on Personal Welfare (1980, 2nd ed. 1987), and Population, Labor Force, and Long Swings in Economic Growth: The American Experience (1968).

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3 The Reluctant Economist Perspectives on Economics, RICHARD A. EASTERLIN University of Southern California

4 32 Avenue of the Americas, New York ny , usa Cambridge University Press is part of the University of Cambridge. It furthers the University s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence. Information on this title: / This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2004 Reprinted 2006 First paperback edition 2006 A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data Easterlin, Richard A., 1926 The reluctant economist : perspectives on economics, economic history and demography / Richard Al Easterlin. 1st ed. p. cm. Includes bibliographical references and index. isbn (cloth) 1. Economic history. 2. Demography 3. United States Economic conditions. I. Title hc26.e dc isbn Hardback isbn Paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

5 For my mentors in economics, Moses Abramovitz and Simon Kuznets in economic history, Daniel Thorner in demography, John D. Durand and Dorothy Swaine Thomas in social psychology, Elliot Aronson

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7 Contents List of Tables and Figures Preface Acknowledgments page ix xiii xix part one. economics 1 The Reluctant Economist 3 2 Economics and the Use of Subjective Testimony 21 3 Is Economic Growth Creating a New Postmaterialistic Society? 32 part two. economic history 4 Why Isn t the Whole World Developed? 57 5 Kuznets Cycles and Modern Economic Growth 74 6 Industrial Revolution and Mortality Revolution: Two of a Kind? 84 7 How Beneficent Is the Market? A Look at the Modern History of Mortality 101 part three. demography 8 An Economic Framework for Fertility Analysis New Perspectives on the Demographic Transition Does Human Fertility Adjust to the Environment? Population Change and Farm Settlement in the Northern United States 184 vii

8 viii Contents 11 America s Baby Boom and Bust, : Causes and Consequences Preferences and Prices in Choice of Career: The Switch to Business 219 Epilogue 247 Bibliography 251 Index 279

9 List of Tables and Figures tables 3.1. Life Expectancy, Fertility, and Literacy, Less Developed Countries, to Major Less Developed Regions: Share of World Population in 2000 and Indicators of Change in Economic and Social Conditions, 1950s to 1990s Gap between More Developed Countries (MDCs) and Less Developed Countries (LDCs), Various Indicators of Economic and Social Conditions, ca and ca Indicators of Political Democracy, Major Areas of the World, and (from Minimum of 0 to Maximum of 1.0) Estimated Primary School Enrollment Rate, by Country, (Percent of Total Population) Major Locational Determinants of Manufacturers and Locational Outcomes before and after the First Industrial Revolution Discoveries in the Control of Major Fatal Infectious Diseases since 1800: Mode of Transmission and Causal Agent Discoveries in the Control of Major Fatal Infectious Diseases since around 1800: Vaccines and Drugs Death Rate and Percent Distribution of Deaths by Cause, England and Wales, (Age Standardized) Natural Fertility, Child Survival Ratio, and Potential Family Size of Women in Rural Karnataka and Bangalore, 1951 and ix

10 x List of Tables and Figures 9.2. Potential Family Size, Desired Family Size, and Motivation for Fertility Control of Women in Rural Karnataka and Bangalore, Motivation for Fertility Control and Costs of Regulation for Women and Percentage of Women Ages and Controlling Fertility in Rural Karnataka and Bangalore, 1951 and Percentage of Women Ages and 35 9 Controlling Fertility and Children Ever Born, for Women in Rural Karnataka and Bangalore, 1951 and Selected Fertility and Fertility Control Measures for Women Ages 35 9 in Taiwan, Index of General Marital Fertility Rate by Agricultural Occupation, Rural Karnataka, 1951 and Date of Specified Event in Settlement Process and Years Intervening between Event and Date When State Was 90-Percent Settled, Six Selected States Contrasting Movements in Aggregate Demand and Labor Supply before and after World War II Ceteris Paribus Effects of Shifts in Scarcity of Younger Adults Relative to Older Ones Business Jobs as Share of All College Jobs, Projected Change in Business Jobs as Share of All College Jobs, Life Goals, Job Preferences, and Job Expectations of High School Seniors by Plans to Attend Four-Year College, 1976 and 1987 (Percent) 235 figures 4.1. Primary School Enrollment Rate, by Country, (Percent of Total Population) Percentage of Population in Urban Places, Europe and Asia, Residential Construction and Labor and Capital Inflows, United States, Sources of Economic Growth (Solow 1957) and Sources of Increased Life Expectancy (Preston 1975) 90

11 List of Tables and Figures xi 6.2. Number of Discoveries in Physics and Microbiology, (Rate per Half-Century) Shortfall of Urban Life Expectancy; Specified Country and Period (in Years) Body Mass, History of Infection, and Age of a Rural Gambian Infant Average Life Expectancy at Birth, Developing Countries, by Region, to Average Real GDP per Capita, Developing Countries, by Region, to Number of Countries and Territories in Which Smallpox Is Endemic, by Continent, Indicators of Progress in Disease Control, Developing Countries, by Region, to Output Compared with Demand Interpretation of a Positive Income Fertility Relationship Hypothetical Trends in Fertility Variables Associated with Economic and Social Modernization Hypothetical Illustration of the Effect on Motivation by Age of Increase in Potential Family Size during Modernization Age-Specific Marital Fertility in Taiwan for the Cohort Aged 35 9 in 1960, 1965, and Age-Specific Marital Fertility Rates for Bangalore City, 1951 and Hypothetical Illustration of the Effect on Motivation by Socioeconomic Status of an Increase in Potential Family Size during Modernization Measures of Economic and Demographic Change, Six States, Child Woman Ratio and Stage of Settlement for Five Settlement Classes and Six States, Average Monthly Money Earnings with Board of Farm Laborers in Specified States, Selected Dates, Total Fertility Rate (TFR), ; Relative Employment Experience of Young Adult Males, ; and Relative Income Experience of Young Adult Males,

12 xii List of Tables and Figures Labor Force Participation Rates (LFPR) of Females Aged 20+ by Age Group, Decennially, ; Quinquennially, ; and Index ( = 100) of Fertility Rates for Specified Age Groups, Quinquennial Averages, to Homicide and Political Alienation among the Young, Percent of College Freshmen with a Probable Major or Career in Business, Percent of College Freshmen with a Probable Major in Business, , and Business Share of All Bachelor s Degrees Four Years Later Percent of College Freshmen with a Probable Career in Engineering and Indicators of Returns to Engineering or College Education, Percent of College Freshmen with a Probable Career in Education and Indicators of Returns to Teaching or College Education, Percent of College Freshmen with a Probable Career in Business and Indicators of Returns to Business or College Education, Percent of College Freshmen Planning a Business Career and Percent That Consider Being Well-Off Financially Essential or Important, Freshmen Aspirations to Make Money, , and Adults Dissatisfaction with Their Financial Situation Five Years Earlier and Economic Conditions Five Years Earlier High School Seniors Concern about Emphasis on Profit Making,

13 Preface Everyday life for most Europeans and Americans today is a world apart from human experience throughout most of history. Our predecessors worried about having enough food to get through winter; we lose sleep over putting children through college. In the past, scarcely one child in two lived to be an adult; today almost all do. Families formerly had as many children as they could; now they intentionally limit their childbearing. At one time people lived almost entirely in the countryside; these days they are mainly concentrated in cities and their environs. This book is my attempt to make sense of these and other striking changes in human experience some of them worldwide in scope, others largely or wholly American. The first substantive chapter (Chapter 3) reviews the recent history of modern economic growth, which is a phenomenon that in the past two centuries has totally transformed material living levels in such areas as food, clothing, and shelter. The unabated rate of advance raises the question of where economic growth is taking us. Some would answer in terms of a happy postmaterialistic society; others would stress presumed adverse effects such as environmental deterioration or globalization. I suggest that there is no movement toward higher nonmaterialistic ends, nor are the bads commonly attributed to economic growth the principal concern. Rather, the fundamental problem is systemic: that we are caught up in a process of unending economic growth. This process drives us onward toward ends that are not rationally considered, but instilled by economic growth itself. The improvement in our material lives is the result of potent new production technologies that have been developed and adopted over the last two centuries. The limited spread of the new technologies in xiii

14 xiv Preface the world before 1950 leads to the problem addressed next, Why Isn t the Whole World Developed? (Chapter 4). The answer, I suggest, is the enormous diversity in the capabilities of societies worldwide to master the new production methods when they first came into use a diversity in cultural heritage that is proxied in the chapter by international disparities in schooling. The root of such differences must be sought in the markedly different histories of the various cultural areas of the world in the centuries preceding the appearance of the new techniques. Where they were adopted, the new techniques transformed material living levels, the work people did, and where they lived. The forces underlying the new concentration of population in and around cities, and the tendency for urbanization in free market economies to occur in wavelike movements is the subject of Chapter 5. Though the possible relevance of these wavelike movements to contemporary experience is frequently overlooked or dismissed, I suggest that today s developing world may replicate the longer-term fluctuations common to the historical experience of the developed countries. What of the modern improvement in survival prospects that has so greatly lengthened life expectancy? Is it simply a byproduct of economic growth? My answer is no, that this Mortality Revolution was a development analogous to, but largely independent from, the Industrial Revolution, building on an evolving technology of disease control due to advancing biomedical knowledge. This growth in biomedical knowledge lagged the breakthroughs in physical knowledge underlying the onset of modern economic growth; hence, the Mortality Revolution occurred later than the Industrial Revolution (Chapter 6). Free market institutions, which are much credited these days for promoting economic growth, were of dubious help in fostering the marked advance in life expectancy. Instead, governmental intervention was essential. Such intervention has successfully raised life expectancy noticeably even in the absence of economic growth. A view of human improvement that weights life expectancy equally with economic advance leads to a more noncommittal view of the benevolence of free markets than currently prevails among economists and economic historians (Chapter 7). The free market bias of these disciplines, I believe, reflects their preoccupation with industrial revolutions and ignorance of the mortality revolutions whose significance for human improvement deserves much greater recognition.

15 Preface xv There has been a fertility revolution, too. In the past most parents throughout the world had as many children as they could. Now in many places the number of offspring per household is approaching two or less as parents deliberately limit family size. To understand the radical change in childbearing behavior requires more than the version of the economics of fertility that has become standard in the economics literature. In Chapter 8, I try to expand this theory to encompass a much broader range of fertility behavior in time and space. Chapter 9 applies this expanded version specifically to two less developed areas to find out why, after centuries of unregulated fertility, parents began to control family size deliberately. The single most important reason suggested by the analysis is the unprecedented improvement in the survival prospects of infants and children brought about by the Mortality Revolution. In the remainder of the book, the geographic scope narrows to American experience. Two centuries ago, Thomas Malthus speculated that the rapid population growth engendered by America s plentiful supply of land would eventually be brought to an end by higher mortality as diminishing returns to labor set in. Malthus was wrong; the adjustment of population to farming opportunities in the United States was largely accomplished by farm parents voluntarily reducing childbearing. This was brought about by their concern for giving their children a proper start in life. The adjustment of family fertility to the environment, and the interplay between economic and population change in the settlement of farming areas of the United States, are the subjects of Chapter 10. Chapter 11 turns to the most vivid feature of America s post World War II demographic history: the remarkable baby boom and subsequent baby bust characterized by economist Bert Hickman as perhaps the most unexpected and remarkable social feature of the time (Hickman 1960, 161 2). This fertility swing was the result of a sharp break after 1940 with the labor supply and demand conditions that had prevailed throughout most of U.S. history. The pronounced twists in age structure caused by the fertility swing have had widespread ramifications affecting women s labor market entry; divorce, crime, and suicide rates among the young; and political alienation (Chapter 11). College enrollments in business rose dramatically in the 1970s and 1980s. Why? The usual explanation offered by economists of career decisions, changes in relative wages, does not fit. Rather, young

16 xvi Preface people s preferences changed. They started to place greater importance on money as a life goal and saw business training as a means to that end. The relation between prices and preferences in choice of career and the causes of preference change are taken up in Chapter 12. This essay illustrates especially the possibilities of using subjective data on motives, attitudes, and expectations in economic research. Chapters 3 through 12 exemplify my approach to research. A common element of these chapters is an attempt to understand historical experience, whether in the large, or more narrowly focused in time and place. Quantitative time series help define the problem and test hypotheses. In the absence of such data, the historical record is prone to loose and dubious interpretation. But quantitative time series must be supplemented by qualitative history. The analyses here turn most often to economic history and demographic history, my particular areas of specialization, but, according to the dictates of the topic, they draw also on the literatures of the history of education, history of science, social history, history of public health, and American colonial history. Such work provides qualitative facts, insights into cause and effect, and suggestions as to motives and feelings of the agents. As indicated in Chapter 2, I deplore the mainstream economics paradigm that rejects subjective testimony, whether qualitative, as in historical documents, or quantitative, as in social science surveys. It seems to me that an economics model is fundamentally flawed if its presumed cause effect relations are belied by the subjective testimony of the agents. Psychologists listen carefully to what people say about their motives, feelings, and expectations and learn from such information. Perhaps it is time for economists to do the same. I stress here the importance of an historical approach because it is so rare in economics these days. Prodigious efforts by national and international agencies have generated an enormous and valuable body of quantitative data in recent decades that provides a basis for international point-of-time (cross-sectional) comparisons on topics such as those examined here. But to my mind, such cross-sectional work can be used as a basis for inferring historical change if, and only if, the cross-sectional relationships among countries are consistent with individual countries historical experience. I am puzzled by the lack of a disciplinary stricture to this effect. On many of the topics studied here, the simple crosssectional relations currently observed among countries for example,

17 Preface xvii between economic growth, on the one hand, and life expectancy, fertility, and school enrollment, on the other are not replicated in historical experience (Easterlin 2000). The evolution of my approach to research is described in the autobiographical essay of Chapter 1. I have already mentioned as elements the use of history, quantitative measurement, and subjective testimony. Reference by an economist to the central role of economic theory is perhaps superfluous. Economic theory is important in providing basic concepts and a framework suggesting possible cause effect relations. Economic theory often needs to be supplemented, however, by conceptual and empirical work in other disciplines, and several of the present chapters draw substantially on work in demography, sociology, and psychology disciplines I have found especially relevant to the subjects covered here. Chapters 2 and 3 are previously unpublished. Chapter 7 has been expanded to include material on less developed countries deleted as irrelevant by the editors of the economic history journal in which it first appeared. The other published articles were originally prepared for specialized audiences and appeared in journals in economics, economic development, economic history, and demography half since 1995; the rest, in the 1970s and 1980s. I have shortened and reworked many of them to focus on the substantive analysis and results and to make them more accessible to the nonspecialist. Those interested in technical details should consult the originals. The chapters are grouped into three parts economics, economic history, and demography but the reader will find that there is considerable overlap among the divisions. Research is much like solving a mystery, that is, assembling and sifting through various clues and speculating on how they might fit together to explain the problem posed. I have enjoyed working on the mysteries investigated here and learned something along the way. I hope the reader shares some of my enjoyment and learns a little, too. Pasadena, California May 2002

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19 Acknowledgments This work has benefited from the ideas and help of many, especially my wife, Eileen M. Crimmins. Other family members have contributed in numerous ways Andy, Barb, Carolyn, Dan, Matt, Molly, Nancy, Peter, and Sue. I owe much to my mentors to whom this volume is dedicated. Dennis Ahlburg, Lance E. Davis, Diane J. Macunovich, Christine M. Schaeffer, and Morton O. Schapiro have invariably contributed both ideas and encouragement. As always, the technical assistance of Donna Hokoda Ebata has been invaluable. I have been fortunate, too, to have had many excellent research assistants over the years such as, most recently, Paul Rivera, Pouyan Mashayekh-Ahangarani, and John Worth. Colleagues or former colleagues at the University of Southern California who have been especially helpful are Nauro B. Campos, Richard H. Day, David Heer, Timur Kuran, Bentley MacLeod, Vai-Lam Mui, Jeffrey B. Nugent, James Robinson, and Yasuhiko Saito; at the University of Pennsylvania, George Alter, Gretchen A. Condran, James C. Davis, Vartan C. Gregorian, Alan Heston, Frank R. Lichtenberg, Almarin Phillips, Robert A. Pollak, Samuel H. Preston, Robert Summers, Etienne van de Walle, Michael L. Wachter, and Michael Waldman. Individual chapters here have especially benefited from suggestions by Lee J. Alston, Tommy Bengtsson, Ed Diener, William Easterly, Stanley Engerman, Robert E. Gallman, Robert Higgs, Alex Inkeles, Dean T. Jamison, Dirk van de Kaa, Arie Kapteyn, Allen C. Kelley, Kenneth Land, Ronald D. Lee, Joel Mokyr, Larry Neal, Douglass C. North, Warren Sanderson, Roger S. Schofield, and E. A. Wrigley. xix

20 xx Acknowledgments I am grateful for permission to publish the following articles in revised form: The Story of a Reluctant Economist, The American Economist 41:2 (Fall 1997), 1 11; Why Isn t the Whole World Developed? Journal of Economic History, XLI:1 (March 1981), 1 19; Locational Restructuring and Financial Crisis, Structural Change and Economic Dynamics 11 (2000), ; Industrial Revolution and Mortality Revolution: Two of a Kind? Journal of Evolutionary Economics 5:4 (1995), ; How Beneficent Is the Market? A Look at the Modern History of Mortality, European Review of Economic History 3:3 (December 1999), ; An Economic Framework for Fertility Analysis, Studies in Family Planning 6:3 (March 1975), 54 63; New Perspectives on the Demographic Transition: A Theoretical and Empirical Analysis of an Indian State, , (with Eileen M. Crimmins, Shireen J. Jejeebhoy, and K. Srinivasan), Economic Development and Cultural Change 32:2 (January 1984), ; Population Change and Farm Settlement in the Northern United States, Journal of Economic History 36:1 (March 1976), 45 75; What Will 1984 Be Like? Socioeconomic Implications of the Recent Twists in Age Structure, Demography 15:4 (November 1978), ; Preferences and Prices in Choice of Career: The Switch to Business, , Journal of Economic Behavior and Organization 27:1 (June 1995), 1 34.