The Solow Model and Ideas
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- เผยแพร่เมื่อ 20 ก.ค. 2024
- More Solow Model from MRU’s Macro course: the power of ideas in driving economic growth.
A deeper dive into what helps spur the creation of ideas.
According to our previous videos in this section, the Solow model seems to predict that we’ll always end up in a steady state with no economic growth.
But, the Solow model still has one variable unaccounted for: ideas.
So, can ideas keep us growing?
Ideas do one thing really well: they give us more bang for our buck.
This means we get more output for the same inputs of capital and labor. Ideas are a way of upping our productivity, increasing output per worker across different industries.
Just how much extra output are we talking about?
Well, imagine changing the A variable of the Solow model from 1 to 2. This means a doubling of our productivity.
This shifts the entire output curve upward. When output doubles, so does investment. Once investment comes in faster than depreciation, we end up accumulating capital once again.Thus, the economy keeps growing, which further boosts output.
Now, think of what would happen, if ideas continually improved. With each improvement, ideas would keep shifting the output curve upward, which will continually increase investment as well, and allow us to keep to the left of the steady state.
And when we stay to the left, that means we keep growing.
What all this means is, growth at the cutting edge is determined by two things.
First, it's determined by how fast new ideas are formed, and second, by how much those ideas increase productivity.
You now have a complete picture of our simple Solow model. It's a model that accounts for catching up growth, due to capital accumulation, and cutting edge growth, due to the buildup of ideas.
Now, since ideas foster growth at the cutting edge, we're left with the question that naturally follows: what factors help spur the accumulation of ideas?
That's what we'll discuss in the next video, so hang tight!
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This concept is so brilliantly explained. Never really got it straight from my macro book but after watching this everything just fell into place.
Universitys should be putting some of their investment into videos like these. So much more efficient way of learning compared to sitting in a hall with a boring old man speaking you to sleep
The fact is that visualizing Economics concepts using videos and animations like this (instead of by looking at static textbooks) can be considered as increase in A and therefore increases productivity growth... I think I've got the A! (or I mean, idea)
WOW WOW this is amazing. Your series on SOLOW is so simple and insightful. LOVE it
Gratitude Sir, I was never interested things like this since I was from science background throughout my education life. You drove me with that deep. These are very valuable videos should be funded. Thanks! From #Bangladesh
us brother, im so lucky i found this channel
4 years later, this has been cristal clear for me to getting my macro classes, respect from Mexico
Thank you!
How'd the rest of your classes go?
The whole explanation of the Solow model is brilliant and shockingly clear. Thanks!
Thank you so much Sir.May God bless you
i cannot believe how amazing this explanation is. Thank you so much. Incredible.
Thank you so much sir 🙏❤️
From a country that is catching up on growth !
India .
One of the best videos about Solow Growth Model I have been watching. It is very interesting and insightful!
Thanks so much!
Thank you for putting up the video for free, really helped me in learning the materials that I struggles a lot and can't afford to spend tons of time in grasping the concepts.
You guys are genius. A computer science major digging Economics here. Thank you so much!
I think you saved a lot of students!
who else is here a week before exams smh. Just a brilliant video. Thanks a lot
You can't imagine how much easier you have made it for me to understand this! Thanks a lot
Just 5 minutes video provides very clear explanation and summary of solow model.Thank you so much Sir.
Thank you so much! You really boost my passion for this topic!
Mine too. I'm almost crying at how beautifully it all fits together.
Thank you so very much for this video. This is practically the most simplistic explanation of the Solow Growth Model that I have ever seen 👏👏👏
What a great page for explaining these topics in a simple and easy to follow way
Thankyou very much for these series. It helps me a lot than my boring macro e-book🙂
This is my favorite video on the internet. Thank you sir. THANK YOU SO MUCH
Thank you. The fog has cleared. No one explained this Model so well before to me. Wonderful.
You guys are on another level of explaining things, I finally got It 😭
Thank you, it was explained splendidly and engaged me from the first video. It's really well done, thank you for the videos.
Thank you so much for the amazing videos!
Couldnt ask for more. I believe Gates should donate for videos like this.
I love it! Also, the animations are so well designed and attractive to the audience.
I'm taking this class online, with the same book, the professor is useless!
but this has helped me so much! :')
I know it's been years, but I came across your comment and I was just curious. How'd the rest of your class go?
Wow, that video saved me a ton of time. Great work
Thank you so much for the information. If only I saw these voideos earlier.
This is amazing! SUPER HELPFUL. thanks!!!!
Listen mate, I just want to say BIG thank you to you and your team for helping me understand this shit for my Disso!
Thank you for these videos! They are really clear and usefull
Thankyou so much, Sir. God bless you
Well explained. Highly appreciated
Great videos, thank you very much !
What a great video! Thanks a lot for helping :)
thank you very much. you made it very easy for to understand
Thank you, Sir. It's really practical
Thankyou so much for the precise and concise info....
These videos are impecable!
This is brilliant, thank you!
this is actually brilliant. Thank you so much
LOVE THIS SO MUCH, SO WELL EXPLAINED
Congratulation for the videos! Helped me a lot
thank you, that was very helpful
you are a life saver!
Thank you for this 😭🙏
This is great content!
Thanks a lot!
Love this. Keep up.
Thanks alot! keeps up the quality!
Thanks for your help great vids
fascinating explanation!
Really good videos!! thanks
Solow büyüme modelini anlamama yardımcı olduğunuz için teşekkürler :)
suzan atalay aynen :D
Thank you a lot!
Nicely explained
Oh man, thanks for putting together these amazing videos and helping our levels of ignorance become...Solow! 😎
Great pun! Thank you.
-Roman
@@MarginalRevolutionUniversity I'm glad you appreciate it. Making puns is just...what I do.
u all r doing a great job,,all students must be greatfull to u,,but if u can just add criticism of solow model in these videos,it would be more usefull..
thank you so much! excelllleeent
Thanks!!
Thanks!
Is there any video on Romer's Model? Can you please help me understand that concept.. It ll be really helpful. Thank you
2:48 I love that you included Bitcoin (in the graphics) as an example of an idea that increases productivity :)
Noticed that too :P
bitcoin was 3 digits i guess back in that time... how bad*** is that ahaha
Very well taught!!!! Sick mon
Me watching this while i do mi test online, good material i hope you produce more !
Hey, were you allowed to receive outside help!? 😀
Excellent
Love you man
Thanks .
Amazing
So what happens to output when you increase labour. I feel like the depreciation curve would shift upwards so there is less output since capital per person decreases and so does the steady state level But, is it possible that output increases and my rationale is wrong?
so good
My Macro professor could never
great!
I have one question, is there a factor that changes the depreciation rate? Because if there is, that would explain further other factors that in economics that don't follow the solow model.
is this model the same with endogenous growth theory?
This which you have shown it includes all growth modal with solow model?
great
Why natural resource (N) is not taken under factors of production?
Holy smokes. I understand now....
Better than my university course!
I'm just curious; how'd the rest of your course go?
@@PunmasterSTP Got better after first year tbh
@@mikus2010 Glad to hear it!
@@PunmasterSTP Do you study economics? If so, what uni do you study at?
@@mikus2010 I tutor in a fair number of subjects and I always try to maintain and build my expertise. I went to The University of Texas at Austin, but I don't think I took any econ classes there. I did take AP micro and macro in high school...
hey man, you are still talking about Human Capital. New conceptualization of Human Capital includes ideas, innovation, creativity...
Wow
do "ideas" not influence the depreciation graph?
Lutti Limburg What do you think, I suppose they should decrease depreciation right?
intuitively that would make sense . i think i commented on that because he didnt mention it in the video
You're gonna have some depreciation no matter what ideas you come up with since you will need to maintain/replace aging capital. Ideas will increase investment greatly but at the same time those ideas produce more capital which leads to a higher steady state.
There probably is some relationship but i think this is just a simple model
I think you should had explained what exactly means an ideia. What can we consider as one? From certains point of views, ideias could be almost everything
joi
+Santa Samanta j
Anything that increases productivity.
Technology
I don't think you can accurately calculate this model, it may only serve as a visualization. Economics isn't physics, you can't just calculate everything using the same basic units and say "That's the growth rate". For instance, say you have two workers, each of which with one car at their disposal, the only difference being, one car is from 2015, the other from 2010. Assume your business requires them to be running errands using these cars. If your business sticks around for five years or so, you will find no major differences in the output between the two workers. At the same time, the Solow model would have you believe that the 2010 car, being worth less as part of your company's capital, would bring the entire output down. And yet that doesn't apply here because the task you've set both these cars to do is one they can both perform at some 80-90% rate of productivity.
1:59 From an intuitive understanding, how come depreciation doesn't increase here with increase in the investments?
Nevermind, the K(capital) is constant since the ideas will be incorporated in the function of K i.e Y=A√K
isnt the Impact from ideas on the needed education also important? some ideas decrease the needed education. for example the Ford assembly line decreases the needed education, but the discovering on changing dann increases it.
Ideas are are considered as technology?
ideas can be thought of as increasing productivity. Basically ideas allow 1 worker to go from having an output of 1 gadgets to 2 gadgets. Ideas/Patents/Knowledge are output multipliers in this model.
How do ideas increase investments?
“Man cannot survive except through his mind. He comes on earth unarmed. His brain is his only weapon. Animals obtain food by force. Man had no claws, no fangs, no horns, no great strength of muscle. He must plant his food or hunt it. To plant, he needs a process of thought. To hunt, he needs weapons, and to make weapons - a process of thought. From this simplest necessity to the highest religious abstraction, from the wheel to the skyscraper, everything we are and we have comes from a single attribute of man - the function of his reasoning mind.”
― Ayn Rand, The Fountainhead
Better ideas multiply the output from the same capital stock 🎭
Hopefully this will be the last in this solow model 😅
What about foreign investment? The explanation seems to assume that developed economies are isolated in the world. That also explains why developed countries invest in less developed economies where there is a lot to grow still! So much investment in China, India and other countries really has nothing to do with growth?
That premise was proven false by the New Trade Theory as early as the 1970s. Developed countries primarily trade with one another, often with the same goods (Japan imports Fords, the US imports Toyotas and so on). Third World investment forms only a minor part of the overall picture, albeit extremely significant from the viewpoint of the receipient country.
Also, how do you say higher education is a bad investment because of its "diminishing returns" and then you talk about ideas as something completely different? Don´t you think education should be the essential tool society has to help people stimulate their creative, capacity of innovation, etc? This video is well explained, but too reductionist and simplistic.
raul echeita It has to be simplistic, because it is just a short introduction to the model. Also, he never sad that education was a bad investment, but infinite education of course is. It makes very little sense to teach everyone everything about everything, that is not going to make them more productive. So the assumption is that there also exist an optimal level of education of a workforce.
Education itself is subject to Law of Diminishing Returns whereby Idea will stay forever inorder to increase Productivity.
More advanced models connect Innovation to Education, this model is too simple
I think "ideas" should be replaced by "technology"
Clearly ideas are important, particularly in a developed economy. However, growth cannot go on forever as implied here. It is impossible on a finite planet. An additional issue is that economies focused on ideas, outsource their manufacturing because it can be done cheaper elsewhere. But they then struggle to further increase productivity as productivity gains are easier in the physical economy. Yes, computing power has helped, an AI may allow another growth spurt, but ultimately on average productivity improvement in service focused economies will struggle.
this "infinity is impossible on a finite planet" is such a stupid take. We are talking about human scale, the universe is not infinite, but in terms of humankind it might as well be. Untill we dont have dyson spheres, I dont want to hear about that shit
@@thetaomega7816 what I said was infinite growth is impossible on a finite planet. Not sure how you can challenge this. And if you think we can start mining the universe somehow, we’ll maybe in a few hundred years time …
growth in resource and material use on earth is limited. Not just by how much there is, but also by our environmental impacts such as climate change and biodiversity loss. If you don’t want to hear about this, bury your head in the sand.