By Arnold Kling and Nick Schulz
The discipline of economics is not what it used to be. Over the last few decades, economists have begun a revolutionary reorientation in how we look at the world, and this has major implications for politics, policy, and our everyday lives. For years, conventional economists told us an incomplete story that leaned on the comfortable precision of mathematical abstraction and ignored the complexity of the real world with all of its uncertainties, unknowns, and ongoing evolution.
What economists left out of the story were the positive forces of creativity, innovation, and advancing technology that propel economies forward. Economists did not describe the dynamic process that leads to new pharmaceuticals, cell phones, web-based information services—forces that fundamentally alter how we live our daily lives.
Economists also left out the negative forces that can hold economies back: bad governance, counterproductive social practices, and patterns of taking wealth instead of creating it. They took for granted secure property rights, honest public servants, and the willingness of individuals to experiment and adapt to novelty.
Invisible Wealth is not Tipping Point or Freakonomics. Those books offer a smorgasbord of fascinating findings in economics and sociology, but the findings are only loosely related. Invisible Wealth on the other hand, tells a big picture story about the huge differences in the standard of living across time and across borders. It is a story that draws on research from the world’s most important economists and eschews the conventional wisdom for a new, more inclusive, vision of the world and how it works.
"The central thesis of this book is that mainstream economics, with its emphasis on labor and capital and its focus on the efficient allocation of an economy's output, is not so much wrong but utterly misleading in its understanding of modern economies, especially that of the United States. By rough analogy with computers, it is the software rather than the hardware -- the intangible assets rather than the tangible -- that really makes a modern economy run: rules, customs, norms, standards, and, above all, entrepreneurship. These factors have raised societies' standards of living to previously unthinkable levels, improvements that are well documented in the book. Over half the text is devoted to interviews with ten well-known economists. (Four have won Nobel Prizes.) All of them underline the importance of technological change, more than savings and investment, in assuring economic progress."
Video with the Authors
This book was originally published in hardback in 2009 as "From poverty to prosperity: intangible assets, hidden liabilities and the lasting triumph over scarcity." The video below, made by libertarian non-profit Reason Foundation, shows an interview with the authors.
About Arnold Kling and Nick Schulz
Arnold Kling earned his Ph.D in economics from MIT in 1980. He was an economist on the staff of the Federal Reserve Board from 1980-1986.
Nick Schulz is a journalist who served as the DeWitt Wallace Fellow at the American Enterprise Institute (AEI), where he researched political economy and technology issues.
Table of Contents
Chapter 1 - An Introduction to Economics 2.0
- Economics 1.0 vs. Economics 2.0
- The Software Layer
- The Plan of the Book
- About the Hardware / Software Metaphor
Chapter 2 - Economics 2.0 in Practice
Chapter 3 - From the Meadow to the Food Court
Chapter 4 - Bugs in the Software Layer
- Insecure Property Rights
- The Curse of Unearned Income
- Lack of Knowledge and Skills
- Interview with Douglass North
- Interview with William Easterly
Chapter 5 - The Hearth that Pumps Innovation; The Role of the Entrepreneur
Chapter 6 - Financial Intermediation
Chapter 7 - Adaptive Efficiency and the Role of the Government
- Education and Health Care
- Interview with William Lewis
Chapter 8 - Challenges for the Future
- Intellectual Property
- The Transition to Modernity
- Extreme Technological Advance
- Interview with William Baumol