Thursday, April 26, 2007

The Effects of Economic Growth....

Back in 1900, the Ladies Home Journal, a US publication, asked society leaders what they expected the US to look like in the year 2000. The results are very amusing, and insightful into just how far the world economy has developed in the last century.

Take, for example, Prediction #2: The American will..... live fifty years instead of thirty-five as at present.

Wow! If I was born just a century earlier, I'd probably be dead already! But more importantly, just imagine how a life expectancy of 35 years would influence human capital. One of the crucial differences between human capital and other inputs into the production process is that when you die, your human capital dies with you.

If you expect to live to only 35, you're unlikely to stay at university until you're in your early 20's, let alone stay until you're almost 30 to get a PhD.... there are just not enough years left after that to recoup the opportunity cost that a university education represents. In such a world, a university education could best be thought of as a luxury consumption good accessible only to the rich, rather than an investment. Maybe that's why many of the traditional disciplines of the university seem to have little useful purpose in the marketplace (latin? history?), since market relevence was not what the students demanded. That may also explain why some of those same disciplines struggle to attract large numbers of students today.

So increased life expectancy has changed the University from being a playground of the rich to a source of human capital for a wide spectrum of society. But more importantly, increased life expectancy has increased average levels of human capital. This growth of human capital is the most important input into economic growth: worker productivity increases both as a direct result of increased human capital, and indirectly as well, via improved technology developed by a more highly skilled workforce. Thus understanding increased life expectancy is crucial to understanding economic development.

Thanks to Marginal Revolution for the pointer; the original list is here.

3 comments:

lysistrata said...

oh the good old days...
Longer life expectacy has made it possible for us to get couples of PhDs and still be categorized "young". Just imagine 20 years later, how many PhDs you have to get in order to get a decent job!

Cindy said...

As life expectancy continues to grow, some 50 years later we will probably have to create higher degrees... Maybe people will study in universities until their 40s or 50s~~

lysistrata said...

and according to the diminishing marginal return theory, PhDs will hit negative marginal return before long. Well, I have to say a Master degree is enough for me already...