so good afternoon that this is one of the meetings for the la Frontera meeting Benjamin Friedman is one of the most important economists he has been a teacher at the University of Harvard he used to be the president of the Department of Economics but he's also very practical person who worked as an adviser for Morgan Stanley for the Federal Reserve and he's a member of the committee the Britannica he is a great American and he is a person who can really go beyond the borders of economics with a wider approach as a discipline of society following by political economics of Ricardo Anna Smith one of the most important texts translated into Italian which you can by the entrance of this wonderful renesis be being ethical value of growth here we consult economics and literature hey quotes Fitzgerald more than Adam Smith this is to say that the focus and the heart of his lecture is a devoted to ethics ethics in the widest sense civil and political social effects so that just the presentation is the idea that economic advance economic development characterizing human societies can pave the way to a more open tolerant and democratic society talking about one of the most important issues of this discussion the one stating that growth on the contrary creates social discomfort and disintegration in this society and it's exactly the opposite as Professor Friedman will demonstrate so economic growth is a key element for the well-being and this is demonstrated by what's happening in the Italian society to generate Unity's were opening tolerance and democracy become one of the most central and widest aspects so the floor to you thank you very much for that extremely warm and very generous introduction and I think also the organizers of this meeting for having given me the opportunity to come and speak to such a distinguished audience and also in such a lovely place it's always very daunting for Americans to come to lovely places like this and Europe and be made consciously and visibly aware of how young our society is and how much in the way of grandeur and tradition went before us and this splendid place is a very living memory and reminder of that fact the question that I would like to address with you this afternoon is one that I would hope would be of primary interest to any economist or anyone interested in economics that is to say what is it that economics and especially economic performance and behind the economic performance economic policy has to contribute to the general welfare of our societies most of economics is either microeconomics by which we mean studies of efficiency in other words how can we produce and distribute and consume in such a way as to lead firms to be as close as possible to their existing frontier of available production and households to exist as close as possible to their frontier of utility that is possible and in macroeconomics we also have studies that are oriented toward keeping the economy as a whole as close as possible to the frontier mostly by the use of monetary and fiscal policy and also in macroeconomics we're interested in what policies the public authority might take to expand the frontier over time we think of this as growth policy and clearly if we look at the mood of the body politic in either your country or my own we discover that failures of economic policy to deliver the kinds of economic performance either in the short or in the long run that the public requires are taken very very seriously but the question I want to address is why we place this great and emphasis on the efficiency aspect of staying close to the frontier and especially why we place such emphasis on policies and performance oriented toward expanding the frontier over time now the very first thing to say is that if we were among opor haps four-fifths of the world's population the answer to this question that I'm posing would be both immediate and obvious because across the great majority of the distribution of income in the world improvements in material living standards economic growth as we call it translates immediately and directly into improvements in such human basics as how long people live what diseases they suffer from how many of their children die and infancy how many of their adult fellow citizens are malnourished and so forth but the truth of the matter is that long before a society reaches the material standard of living that you in Italy enjoy or that we in the United States enjoy virtually all of these connections between increasing material living standards and improvements in the human basics have pretty much played themselves out so to pick one country that happens to be familiar to me and maybe many of you have visited it South Korea South Korea has a living standard in material terms that's approximately half of ours in the United States the koreans live just as long as we do in the united states which is to say almost as long as italians live we do we in the united states do not enjoy quite the life expectancy that italians have but the koreans live just as long as we do their morbidity experience is essentially identical to ours it's embarrassing for an american to admit it but in korea with again half of our standard of living the infant mortality rate is lower than ours in the united states so it's very clear that the improvement from a standard of living like Korea's to a standard of living like ours in the United States or yours in Italy would not bear on these basic human dimensions of life to take another country that's even closer at hand right across the Adriatic not long ago I went to a conference in Croatia so I looked up the statistics for Croatia Croatia has a standard of living approximately one-third of what you enjoy here in Italy but even the Croatians have a life expectancy almost as long as ours even the Croatians have a lower standard of a lower rate of infant mortality than we do in the United States so I return to the question for a rich country on the planet like mine or like yours in which we live on a material level that is not only so much greater than what most of the population of the world enjoys but far far above anything that our ancestors of a hundred years ago could have imagined why is it that we place such great emphasis on economic growth and as a moral question are we right to do so is there something that justifies the kind of emphasis that we place in our value structure on economic performance and is there something that justifies again as a moral concern the kind of importance we attach to economic policies that intervene in the economic growth process either for good or bad the answer I would like to suggest to you this afternoon goes beyond the scope of economics narrowly construed it is that when the broad cross-section of a society's population are enjoying an improvement in their material standard of living and further when they have some confidence that that improvement will continue into the future and even some degree of optimism that that improvement will be enjoyed further on by their children that is the condition under which in most societies that we see around the world people also exhibit characteristics that Western society has interpreted not merely as positive but as morally positive ever since the Enlightenment of the 18th century let me be specific first I have in mind openness of opportunity a crucial test for any society yours mine any is whether the young people who are given an opportunity to get ahead are merely the sons and daughters and the nieces and nephew of those who have already occupied the highest places in the society or whether opportunity is made available more broadly my argument today is that when the bulk of the society is enjoying an increase in its material standard of living this is the condition under which the society not only can afford to make opportunities available more broadly but actually does so second I have in mind tolerance tolerance is a very particular a very parochial concept as an American as I'll make clear in due course I think of tolerance in terms of race relations as an America and I think of tolerance in terms of attitudes toward immigrants as an American I think of tolerance in terms of religious prejudice I am aware that all of these factors play some role in European society though in very different ways and perhaps to different extents than they do in my own the argument I want to make is that when the majority of a society citizenry is enjoying an improvement in its material standard of living that is the condition under which more often than not people will also be inclined toward acceptance and tolerance of people who are different from themselves third I have in mind fairness in the sense not just of distributive justice but also of generosity toward those whom the economic process leaves behind after all we all are aware that it's all very well and good to provide opportunity but inevitably there will be people who for one reason or another simply are not able to take advantage of the opportunities that a market society provides and what then what provision does the society make for them my argument is that the broad majority of a society citizens are enjoying an increase in their material living standard and are optimistic about that improvement continuing into the future then they are more likely to be willing to share part of what they have with those who are less fortunate and finally I have in mind a commitment to democracy which in a country like Italy or my country means the nurturing and preservation of our democratic political institutions and freedoms but in many countries around the world doesn't mean that at all but rather means the creation anew of completely new innovations in political structure and freedom that a country has not known before here again the hypothesis is that when the broad bulk of a society citizenry enjoys an increase in its material standard of living that society's commitment to either preserving the democracy that it already has or building a new set of democratic institutions will be heightened now as I hope people are well aware economists me included are very reluctant merely to posit a hypothesis without having some kind of materials behavioral story behind it in the interest of time I'll only sketch the model very briefly that stands behind these this hypothesis because I want to spend most of my time elaborating several key implications of this hypothesis if it is indeed true but in brief the model has three elements two of which we find enormous support for in the empirical evidence and then the third that is simply as an assumption the first-ever piece of the model for which we have ample empirical evidence is that when people consider how well-off they are most of the time they think of this is a mad of relative incomes and relative consumption standards where the benchmark that they immediately have in mind is how well they and their families have lived in the past so the first part of the model is a kind of habit formation argument of utility in which people feel better off by living better than they or their families have in the past and conversely people whose material living standard falls below their prior standard or their family's standard or feel that they are not doing well the second element for which we also have ample material or ample empirical support is that people in addition to comparing their current living standard to what they and their families have known in the past also derive utility from living better than people against whom they compare themselves contemporaneously perhaps their fellow workers perhaps their friends perhaps their neighbors once again there's enormous there's an enormous body of empirical evidence for this phenomenon now if we have two arguments in a utility function we have to decide whether these two arguments are substitutes or complements in the standard mode of consumer demand Theory namely if I have just eaten a piece of apple pie does this make me more or less eager to have a cup of coffee probably more equal and therefore this makes coffee and apple pie substitutes and conversely if I've just had a cup of coffee does this make me more or less eager to have a cup of tea probably less eager so this makes coffee and tea substitutes instead of complements the crucial assumption then that is the third element of the model behind the hype Etha sees on explaining is that these two sources of utility one from living better than other people around me and the other from living better than I or my family lived in the past our substitutes for one another not compliments as a result if I see that I'm living better than people around me this reduces the urgency that I associate with living better than I or my family did in the past well of course it's impossible for everyone or even for a majority of people to live better than everybody else around them by contrast what is possible is for the majority of people to live better than they or their families have lived in the past and if these two sources of utility are substitutes for one another when they do the awareness that they are living better than they lived in the past reduces the urgency that people attach to living better than other people around them so the core of the model is that under economic growth by which I mean sustained improvements in living standards broadly distributed across the population people's urgency of living better than others around them is reduced and therefore many of the kinds of behaviors that grow out of the competitive desire to live better than other people are in turn sublimated compared to other objectives for the society now I'd like to spend the remainder of my allotted time by elaborating four implications of these hypotheses if they are true the first is a very positive one if I'm right that what stands behind the society's tolerance and and commitment to democracy is not just how rich people are but whether they have a sense of moving ahead in their lives then the implication is that many countries around the world where incomes are far below ours in the United States or yours in Italy will not have to wait until they achieve Western levels of income and Western living standards before they begin to democratize with a small D and liberalize with a small L I mentioned South Korea a moment ago incidentally I'm not sure how many people here are aware that when the Korean Peninsula was partitioned at the end of World War two what became South Korea was the poor agricultural part of the peninsula such industry as there was was primarily located in the north which as a consequence was richer than South Korea that incidentally is the clearest demonstration I know that in economics it's possible to make first magnitude mistakes that have consequences that go on for generations but my objective at the moment is not to talk about North Korea but rather South Korea South Korea when the country was formed in 1946 had a standard of living that by Western standards even then was pretty much negligible beginning in the 1960s and continuing up through the middle of the 1980s the koreans underwent a quite remarkable economic transformation that took their standard of living up to about at that point a third of what ours was in the United States it's also then the case that when South Korea was newly formed as a nation in late 1940s the country was to call it what it was a one-party military dictatorship under general syngman rhee and this continued to be the case for about a decade or two but beginning in the late 1960s and going up through the early 1990s South Korea also underwent a quite remarkable political transformation that took the country from being a one-party military dictatorship to what it is today namely a well developed political democracy in which there is genuine competition for the levers of power and in which the standard Western freedoms freedom of assembly freedom of political action freedom of speech freedom of the press freedom of religion are widely recognized my argument is that it is not an accident that South Korea underwent this 25 year or so political transformation with some lag after its economic transformation and I think many countries around the world even including China which by coincidence is the country in the developing world that I know best will in due course evolve in that direction when I first visited China more than 25 years ago people there had no freedom to choose where to work no freedom to choose whether to work could not choose where to live could not hire anybody to work for them could not start a business today with the exception of the freedom of where to live all those freedoms are broadly enjoyed in China and in eleven of the provinces the hukou restrictions that limit where people are allowed to live have all been removed China today at the village level is moving in the direction of democracy China now does have contested elections at the village level and mind in a country with more than 700,000 villages this is not a small but today china at the national level is still non democratic but my hypothesis suggests that if the Chinese continued to move in the direction in which they have been moving economically with the greatest sustained increase in living standards over the last quarter century that the Western or any other world has ever seen then I think it's clear that the Chinese also even at the national level will move in the direction of some form of liberalisation and democratization which does not necessarily mean that their form of liberal democracy will look like ours in the United States or yours in Italy that's not the point the point is that some liberalisation and democratization I think will occur now this may sound optimistic and if so that's because it is optimistic the line of thinking that I'm developing with you that runs from scientific progress or progress in knowledge as we would call it today to economic progress to political social and ultimately moral progress is very much a form of enlightenment thinking which always always had as its basis a kind of fundamental optimism about the human enterprise now economics itself as a discipline was of course a product of Enlightenment thinking but as we're all aware sometime in the 19th century some somewhere between Malthus and Ricardo and Mill and Marx economics took a different path and became the dismal science but I would argue with some vigor that the objective circumstances to which Malthus and Mill and Marx and Ricardo were all responding do not describe the world in which we live today and I think the time may well have a for economics to cease being the dismal science and to reclaim the kind of optimism about the human enterprise that is after all the birthright of our discipline as a product originally of enlightenment thinking the second implication of the hypothesis that I want to develop with you this afternoon is however more sobering if I'm right that what matters for things like tolerance and fairness and democracy is not just how rich a society is but whether the broad bulk of the population is moving forward then it's very sobering to realize either in the United States or in Italy for that matter that the broad bulk of the population is not these days particularly moving forward in my country for example the median family income in 2006 which is the most recent year for which we have median income data was below where it was at the beginning of the decade the family right in the middle of my country's income distribution has lost ground after allowing for inflation throughout this decade Italy is a similar story the nice people at the banca d'Italia were kind enough to give me data on median incomes and what I can tell you is that in 1989 the median household income in Italy this is in 2000 year 2000 euro equivalents was twenty two thousand five hundred euros as recently as 2004 the median household income in Italy was twenty 1700s as recently as 2004 the median household income here had actually fallen over a 15-year period and the most recent year for which the banca d'Italia had data at least as of a week ago was 2006 in which finally finally the median income here rose above where it was in 1989 to recall 1989 stated in 2000 euros was twenty two thousand five hundred and in 2006 that 17 years later the median income was twenty two thousand seven hundred so the entire gain not per annum but the entire gain in seventeen years has been barely one percent now this phenomenon has had a number of consequences I read with great interest the article that Professor Tito berry and also Andrea Brandolini from the banca d'Italia wrote titled the age of discontent and quoting from part of what they write they write about the malaise of the Italian middle class which they attribute to and here again I'm quoting disillusionment and frustration generated by the uncertainty of their children's future this is Italy but the same could be said and it has often been said about the United States as well now what are some of the manifestations that history tells us might emerge if we continue either in your country or mine in this direction in which the majority of the population is not enjoying any increase in its standard of living to repeat from before I think the answer is a movement away from the kind of society that enlightenment thinking has led us to attribute as positive in the or else fear a movement away from tolerance democracy generosity fairness mobility openness of opportunity let me give you just one example from my own country's experience which may or may not resonate with issues that are current here in Italy as you may know the United States has always been a country of immigrants the country was founded originally by immigrants and immigration has always been a large part of the American Society and the American economy as you might also guess however attitudes toward new immigrants among the children and grandchildren and great-grandchildren of those who came before have exhibited a fair amount of ebb and flow over the years so consider the following sequence of events that roughly describes the evolution of American attitudes toward immigrants going back to the first great wave of immigration after America was a new country we had in the United States in the 1840s and especially the 1850s a wave of outright violence against immigrants these were primarily German immigrants at the time although some Irish as well in the 1860s and 1870s that violence went away it simply disappeared and immigrants were welcomed and used for labor and many of them got ahead economically things changed in the 1880s and 1890s again there were large numbers of immigrants in the 1880s and 1890s many of them incidentally from Italy but there was a return at that time not of violence but of really very ugly anti-immigrant agitation things changed again after the turn of the 20th century in which again immigration including from Italy continued to be extremely large America was at that time receiving well over a million new immigrants a year on the population of less than a hundred million total so this is in immigration equal to more than one percent of the population per year but throughout this period in the early year decades of the 20th century the attitude was to welcome and to use the vocabulary of the day to Americanize the immigrants things changed again in the 1920s and on into the 1930s when the United States put in place not only the numerically most restrictive but also the most discriminatory immigration legislation that my country has ever known the crucial piece of legislation was the so-called National Origins Act of 1924 what national origins meant was that the ease with which you could come to the United States depended on your national origin even within Europe so that if you were coming from Britain or the north of Germany that was okay and there were ample quotas if you were coming from the south of Germany or from Italy that became very difficult if you were coming from Greece or the Balkans that became extremely difficult if you were be coming from Poland or the western frontier of the Russian Empire this became more difficult still it is impossible to look at the specification of the quotas under the 1924 act and not see written very clearly the religious map of Western Europe the reason for the quotas was that in northern Germany and in Britain they were primarily Protestants in southern Germany and Italy they were primarily Roman Catholics moving to the east and the Balkans they were primarily Eastern Orthodox and moving up into the western fringes of the Russian Empire they were primarily Jews who were emigrating this was the characteristic of American immigration policy from 1924 onward for fully 40 years this system was thrown out in the 1960s and replaced by a much more liberalized system in which national origins basically had nothing to do with it and issues like family unification political asylum and other more humanitarian reasons for immigrating became much more of the fore then beginning in the 1980s and on into the 1990s we started to see pushback against immigration again including movements in high immigration states like Florida and California and Texas to deny various kinds of public benefits even to legal immigrants who had emigrated through the official channels and then miraculously all this went away in the course of the 1990s so that the one candidate there was only one candidate in the year 2000 who chose to run for president of the United of the United States on an explicitly anti-immigrant platform namely Pat Buchanan and he got so few votes even in the Republican Party primaries that he had to change parties before the primary season was over and now here we are again in 2008 and it's clear that immigration is again the most bitterly contentious domestic policy issue that we face now it would be foolish to pretend and I'm not going to pretend that every little twist and turn of this 160 170 year experience of American attitudes toward immigrants was narrowly or deterministically driven by the underlying ebon flow of economic progress and stagnation but I think it would be even more foolish to look at the evidence and pretend that economic stagnation versus prosperity had nothing to do with it and when you look at the evidence again and again and again whether the issue is immigrants or race relations or opportunities for women or generosity to the poor religious prejudice again and again and again the same pattern emerges even the most fundamental aspects at least in my country of the democratic political system question ask questions like when did women get the vote in my country when did blacks get the vote in my country when did blacks really get the vote in my country after after all one of the anomalies of the American historical experience is that there was a 95 year gap between the de jure granting of the franchise to black citizens and the effectuation of that right to vote again and again and again no matter which one of these issues you choose you cannot come away with a sense that while there are exceptions the predominant tendency is for the society to move in directions that we would take to be morally positive in the Enlightenment sense when the majority of the citizens are enjoying an increase in their standard of living and have confidence that it will continue and conversely not just in the United States but in many countries around the world when people lose this sense of forward progress in their material living standard and moreover have no confidence that it will return or that even their children after them will see an improvement that is the condition under which not only is there no progress in this moral sphere but all too often the consequences are rigidify patient retrenchment retreat sometimes with truly catastrophic results and all of this I think is extremely daunting and sobering either given the pace of improvement which is negative in the United States for the majority of families or given the pace of improvement in Italy which is very very small now before finishing let me highlight briefly to further implications of this hypothesis that's true one is a sharp implication for economic policy we often hear that in matters of economics and in particular in matters relating to things like economic growth the best stance for public policy is simply to stand back to do as little as possible and to let the market mechanism perform its magic and through this marvelous procedure that those of us in the room who are economics professors take delight in explaining to new students year after year the families will decide how much they want to save and the businesses will decide how much they want to invest and the intersection of the aggregate of what the families save and what the businesses invest will deliver up an aggregate investment rate for the economy and that will have something to do with the aggregate rate of productivity growth and that will have something to do with the aggregate rate of wage growth and that in turn will determine for the majority of the population the improvement in the standard of living a sharp implication of the hypothesis that I'm elaborating this afternoon is that that line of thinking is false the optimal rate of economic growth is not identical to this market rate of economic market determined rate but different from in particular faster than the market determined growth rate and the reason basically is an externality argument if it's true as I'm suggesting that economic growth brings these additional moral benefits generosity democracy fairness tolerance then we have to realize that there is no reason for either the individual families deciding how much to save or the individual businesses deciding how much to invest to take those externalities into account in their internal economic decision-making and therefore for reasons that are exactly analogous to the reasons why the market left to its own devices over provides things like pollution and noise and congestion the market left to its own devices would under provide the economic growth that delivers tolerance and democracy and fairness after all there is no market where we can get a bid ask price for tolerance there is no place to get a contract or find a price or get it get even a shadow price on democracy and therefore if we value these aspects of our society which for 250 years we've been doing and if it's true that they are at least in part byproducts of improvement in material standards of living then it's appropriate for economic policy to pursue pathways that cause the growth rate of median incomes and incomes of the majority of the population to be faster than they otherwise would have now to say the obvious if the only ways that we knew to make our economy grow faster were to take steps that were somehow inimical to or that undermined the fairness and democratic character of the society then of course it would make no sense whatsoever to say that our objective is to achieve improvement in these moral dimensions but we're going to do that by economic policies that undermine those moral dimensions that would be absolutely foolish but I would argue very strongly that certainly for my country and I would suspect for Italy and other European countries as well there is no lack no lack of policy instruments that we can pursue that at the very least would be able to spur economic growth without undermining the democratic and tolerant character of the society and that in many ways offer a kind of win-win situation by simultaneously making the economy grow faster and also fostering a more democratic fairer structure of the economy and that's exactly what we should do the final implication of the hypothesis that I'm advancing to you this afternoon is I think the most fundamental one of all if I'm right about the connection between rising standards of living and these moral characteristics of the society then I think certainly in my country and I suspect here as well we need to change the way in which we conduct our public conversation about economic growth and also about economic policies that are either conducive to or inimical to economic growth what I have in mind is this over the course of the past several decades we have become increasingly aware of the negative aspects of various manifestations of the growth process like industrialization and growth through globalization to which we have appropriately attached a moral overtone I have in mind especially environmental degradation but there are others as well because of our increasing sensitivity to these drawbacks of the economic growth process the normal the customary way in which people in the public sphere discuss economic growth today rests on the assumption that economic growth of course brings material benefits that's part of the definition of growth but that to the extent that there are moral dimensions they're entirely on the negative side and therefore the debate over growth and growth related product is one of weighing material benefits versus moral negatives and people even come away from this conversation with the view that their self-image of where do I stand am I a person who mostly places emphasis on the material aspects of life or by contrast am i someone who more heavily values moral considerations that their their sense of themselves on this material moral spectrum then maps neatly into where they should be in the growth conversation people who see themselves as being more interested in material concerns than naturally think they're supposed to be in favor of economic growth and growth oriented policies and conversely people who think of themselves as being more interested in moral concerns think that therefore they are supposed to be opposed to economic growth and resist policies that would be conducive to growth the hypothesis I've been developing with you for the past our suggests that this too is a wrong way of carrying out the conversation if I'm right about the connection between rising incomes and tolerance and fairness and opportunity and democracy then it simply is not true that all of the benefits of the moral kind are elsewhere and that the benefits of growth are entirely material then it's then true that economic growth has very important moral positive benefits as well and to repeat benefits that Western thinking for the past quarter of a millennium has recognized recognized as positive and taken to be morally positive and similarly it is not true that ones that they're the mapping from one's position on the material versus moral value scale should translate into where one should be in growth debates I think if we can manage to change our public conversation about economic growth to take into account these very important moral positives of growth we will not only be getting it right intellectually which of course is always important but in many countries around the world certainly I believe it's true in mine I suspect it's true here as well in many countries around the world getting the public conversation right is likely in time to lead to the adoption of policies which will indeed restore genuine economic growth and put these countries back on the path to a morally positive trajectory thank you very much multi-schema grazie thank you very much speech we were talking about frontier issue and we attempt to compare the economies of some Western countries the US and Italy some considerations and the ethical and moral dimensions started from there rational expectations and some pioneering studies and fiscal and monetary policies was very much elaborated I really appreciate and congratulate you for your moderate optimism which we very badly need in this country so we'll work on a one-to-one basis so we'll have one question one answer I think that we will degree in in general terms that the economic growth goes well let's say hand in hand with advancement also in on the moral side it seems to me that your talk was mostly focused on let let's say a macro view of this argument I would be interested to hear your comments about the micro view so for example if we assume that we compare democratic societies and the morals in in societies where there is some level of economic growth so it seems to me that it's also a question of how the wealth is distributed within the society right so apart from looking at the average at some kind of level of economic growth it seems to me that the actual distribution makes also a difference so like your comment on that and for example I will think of some kind of comparison between let's say USA and the end Canada which I think there are some differences there thank you let me very much thank you for the question I certainly agree with you that distribution matters and I hope people were sensitive to the fact that when I was quoting income data before both for the United States and Italy for precisely the reason that you were suggesting what I was quoting were median incomes not mean incomes and of course if the distribution remains unchanged then the relationship between the mean and the median remains unchanged but exactly in line with what you are suggesting at least McMichael ear cut than Italy these days but in the United States the reason for the stagnation of median incomes in the current decade and even going back some further has to do with distribution in the six-year period for which we have data since the beginning of this decade in which to repeat the median family income in the United States has gone down the mean income has improved rather nicely the mean income has gone up by about one and a half percent per annum which is not like China to be sure but by the standards of an advanced country like the United States is not all bad now why is it that the mean is rising at a very healthy rate for an advanced economy but the median is not just stagnating but going down the answer is just what you point to its distribution so the fact that the aggregate economic production the incremental production is accruing to only a very small part of the population means that only means that the majority of the population is not enjoying an increase in its standard of living so distribution is clearly involved in the connection between growth in the sense of what's measured in the GDP statistics and whether the average person meaning the person at the 50th percentile of the income distribution is enjoying an increase or not so in that sense I certainly agree with you now it is also possible that distribution even if not changing matters so you pointed for example to the difference between the United States and Canada Canada has a Gini coefficient in the low 30s we now have a Gini coefficient that's about 40 Latin American countries tend to be in the 50 or 60 range Asian countries tend to be back in the 30s or even below it is entirely possible that there's a second tier of what drives these phenomena that I have not explored that has to do with the level of the income distribution even if static but my hypothesis is separate from that so my hypothesis does not exclude does not preclude such an effect but it does not rest on it so there's a sense in which the income distribution if changing is crucial to my line of argument then there's a second possibility which I took to be behind what you had in mind in the US Canada comparison which is not part of my model but could be there or not and I've simply not worked on that so you consider them independent for the time being if I get this right for your model I could I could imagine interactions as well so I wouldn't I wouldn't want to go as far as I some it's simply not some it's not a direction in which I've taken the work but I hesitate to jump to the conclusion that they're independent I could I can imagine stories in which once that additional effect or mechanism is put into the model and we know how to do that then there could be interesting interaction forms and I wouldn't want to exclude that either its but just it's just an it's just not a direction in which I've taken the research thank you thank you discuss advocator a la carte easy the present are me because I give me as Fuji introduce yourselves for 200 italiano can you make an example just one country might be Scandinavian countries where the distribution used to be and still is very high but there have been phenomena of uncertainty growth of pessimism can you think of a country like that yes to repeat European countries not just hand in a via but European countries in general have much more egalitarian income distributions than the United States and this has been true for a very long time as I understand it in my work I've focused on the historical experience of three European countries one is Britain which I've studied since the basically since the end of the Napoleonic Wars second is France for which I looked at the experience since the founding of the Third Republic in 1870 and third is Germany which I've studied for the period since the unification of the German Empire in 1871 and as is the case for the United States what my work shows is that the overwhelmingly predominant tendency in each of these three countries is for positive movements in tolerance and democratic structures in generosity to the poor this sort of thing to evolve at a time when the majority of the population is enjoying an increase in its standard of living and for the opposite to be true when people's incomes are by and large stagnant now to repeat these are countries that of traditionally had at least certainly within the 20th century more egalitarian income distributions than the United States and so if it were the case that having an egalitarian income distribution were a sufficient condition to render the hypothesis I've been describing inoperative then I think that would have shown up in the in a contrast between the experience of the European countries I studied and the experience of the United States now to be clear I've only studied three countries and you know one has a finite lifetime and so a positive outcome would be that people in other countries would decide to carry out this line of research for countries not only that I didn't have time to include in my book but for which I wouldn't have the historical the historical knowledge in order to do it getting the economics straight is pretty straightforward for a trained economist getting the politics straight is very difficult and there are many many countries that would be interesting to study that I wouldn't even attempt to do myself because I don't have that expertise but many other people do and so I would encourage anyone who would like to right something testing this hypothesis to Italy for example I think that would be a splendid idea but I'm not capable of doing it gracias Kaname son present 800 Mario Mario Casas non-generic my name is Mario Mario Co journalist of the solemn etiquette Rory Sheboygan aldra see when a man old SATA thank you I have some problems with your thesis most scholars who studies a connection between happiness and per capita income have come to the conclusion said there is no connection at all and therefore I think it's hard to argue that such things as tolerance or commitment to democracy and all these things are more closely connected with per capita growth than happinesses probably one point which may show that it is hard to connect per capita income grows and all these things you mentioned has put forward by an English economist late English economist for eight years he wrote several years ago many years ago book social limb limitations of growth and his main point was says there exists not only material goods but positional goods as he called it - and specific of these positional goods are said they cannot be enlarged without limit that they are you cannot promise everybody to get a nice piece of land at lago de Garda for example therefore growth cannot offer as enlargement of all goods including positional goods and I think this is an important point should be discussed thank you I'm puzzled that you think of this evidence as being counter to the hypothesis that I've outlined or to the model because I think of it as being exactly part of the part of the argument in favor of the model including the Hersh argument with which I'm very sympathetic so let me restate because maybe I wasn't as sharp as I should have been there's no argument in my model repeat no argument in my model that the absolute level of income has anything to do with anyone's utility the reason for this is exactly as you say that repeated studies in the so called happiness literature and were in Italy and Italian economists have been absolutely at the forefront of this line of work within the last 10-15 years so I assume this is well known here just as you say there is little if any evidence that absolute income levels matter for individual utilities what then does matter for utilities one piece of evidence is the habit formation argument that I emphasize namely are people living better now than they were before and then second is the argument that you're identifying with Fred Hirsch and I in my book also drawn Hersh's work because I took it to be and take it to be very supportive Hersh's idea is about living better than other people and he rightly pointed out that not all of the ways in which we care about our status or well-being compared to other people have to do with material things he pointed out that many aspects of what people care about are positional in the sense that it in in effect they're rationed not by deliberate rationing process but by the very the very structure so in a competitive setting only some certain number of people can be at the top of the class or the Olympics will be this summer and only one person will win the gold medal in each event and so on and so forth but this is exactly the what underlies the second argument in the utility function in my model namely people's caring about living better than other people so there than others so there's there is no argument in this utility function that has anything whatsoever to do with the as you put it per capita income or the absolute level of income the utility function has two arguments one is about the relative comparison of the individuals living standard today to what it was in the past or what the person's family was in the past and the second which is the one that connects very directly to the Hirsch book which incident wonderful book is about people's comparing their position versus other people and then as I said before then the crucial issue is whether these two arguments in the utility function are substitutes or complements in the sense of having a positive or a negative cross derivative and the jacobian that's what it's about but I just don't see anything that's contradicted by the fact that as you correctly say the happiness literature turns up little if any evidence that absolute incomes matter and indeed it's the it is precisely that finding that leads one not exactly to my model there are many models one could have but it's precisely that fact that empirical finding that you correctly quote that leads in the direction of looking for the arguments of the utility function to be in relative rather than absolute form and that's what leads to my model so I just don't see the I just don't see a contradiction there Sencha sooner algorithm and I'm a prophet O'Dell microphone or you've all gone so apparently there are no other questions I'll take advantage of the microphone to ask you a question myself now as you have arced in your writings professor Friedman data States over the past thirty years have not really played a positive role as regards both the political and economic situation of the world and now we're about we're about to have a crucial vote in the United States and this could mean fundamental change in the United States so if you gaze in the crystal ball what kind of future do you see for the other states and then a second question you are not certainly a fanatic supporter of big government but you do recognize that the state has a positive role to play what could the for the role of public policies be in a context of globalization where states have increasing problems in legislating and legislating and in controlling and what could public policies do positively in order to introduce a restart of growth and of the positive results of growth obviously well let me not pretend to be a political scientist I'm an economist so I will skip the part of your question about looking at the election and the possible post post election future you know there's this are these are Agatha Christie films popular in Italy as well you know the lq of power yeah this is this something that people know about here you you know a fuel car is this detective in the Agatha Christie films and in in in in almost all of the stories there's always a point at which a woman of a SISO was a woman of a certain age who comes up to Monsieur Poirot and says Monsieur Poirot vous souhaite false eh and he looks very abashed and he says oh no no madam I am merely a Belgian well I am merely an economist so I'm I'm going to skip the part of the question that requires a political scientist but what I will do is address the part of your question that's about economic policy my sense is that in many countries certainly including my own but not limited to my own probably the most important policy step that could be taken in the vein of the discussion we're having this afternoon is to intervene in the educational progress process of very young children I would point to Ellen Krueger who is here before and whose work I recommend on this subject but not here at the moment but Krueger and other people have studied the educational project process in many countries and have discovered that especially in the advanced countries today the greatest opportunity for achieving gains in student's ability to become productive members of society and also productive members of the labour force is to focus on two cuts first to focus on children who are as young as possible in the United States we have government-sponsored programs albeit at a very small scale that often start as early as three years old and second to focus on those students who for reasons having nothing to do with their own efforts or interest but rather because of the from which they come are most at risk of not taking advantage of the educational opportunities that other children will use to their benefit so there's a an age dimension along which to cut and secondly there's a dimension that is correlated with income but not perfectly so by intervening in a positive way in the education experience of these so-called at-risk children and moreover by doing so at an extremely young age public policy is achieving two things first by moving children who will then become students who will then become workers from the extreme left tail of the productivity distribution toward and perhaps to the middle of the distribution policy is making for a more productive labor force in the aggregate and therefore contributing to the growth of the economy as a whole but second because the policy is also moving people from the extreme left tail of the distribution into or toward the center policy is at the very same time making the distribution more egalitarian not just in terms of outcomes but remember we're talking about three-year-old children people who can't possibly be held morally responsible for the fact that they're not ready to learn and so regardless of whether one wants to look at equality issues from the perspective of egalitarianism of outcomes or of opportunities there clearly is a pro egalitarian consequence of the policy as well now I don't think this is the right way to go for in the developing world from what I've seen the developing world where people by and large are not even getting primary education much less secondary has a different set of issues but once economies get to the point at which the great majority of citizens at least have a secondary education then my sense of the evidence is that that would be the single recommendation that I would highlight is the one that's most positive both for the economy as a whole and also for the also for the shape of the distribution well DC McGraw TL professor Benjamin Freedman thank you thank you very much professor Benjamin Friedman and so you're a great economist not a Belgian to quote Agatha Christie and enjoy the rest of the festival