Economics Term Papers - Simon Kuznets, Father of GDP

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Kuznets immigrated to the United States in 1922; 15 years after his father had emigrated. His father changed the family name to Smith, but the young Kuznets favored his unique name. He was educated at Columbia University, in receipt of his Ph.D. in 1926.

After completion of graduate studies, he spent a year and a half as Research Fellow of the Social Science Research Council (1925-1926). In 1927 he joined the National Bureau of Economic Research, working with its founder, Wesley Mitchell. As a member of the staff of the National Bureau of Economic Research, from 1927 to the early 1960s, he worked mostly on national income and capital formation in the United States and as Chairman of the Social Science Research Council Committee on Economic Growth (1949-1968). It was there that Kuznets developed his groundbreaking studies of U.S. national income and his more general work on economic time series, resultant in comprehensive studies of the economic growth of nations. He afterward taught at a number of universities University of Pennsylvania, 1930-54; Johns Hopkins, 1954-60; Harvard, 1960-71. (Simon Kuznets, November 1992)

His work emphasized the difficulty of fundamental economic data, stressing the significance of large numbers of comments and the limitations of simple models based on one stage of historical experience. According to Kuznets, economic data must include information on population structure, technology, the excellence of labor, government structure, trade, and markets in order to give an accurate model. In particular, he stressed, on the source of the statistical series that he accumulated, how little of economic growth can be attributed in the conservative way to the buildup of labor and capital. He also described the existence of recurring variations in growth rates now called "Kuznets cycles" and their links with fundamental factors such as population. (Simon Kuznets, November 1992)

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Simon Kuznets is best recognized for his studies of national income and its components. Previous to World War I, measures of GNP were rough deductions at best. No government agency collected data to compute GNP, and no private economic researcher did so methodically, also. Kuznets changed all that. With work that began in the thirties and long-drawn-out over decades, Kuznets computed national income back to 1869. He busts it down by industry, by final product, and by use. He also measured the distribution of income between rich and poor.

Kuznets's development of measures of savings, consumption, and investment came the length of just as Keynes's ideas about how national income is strong-minded created a demand for such measures. Thus, Kuznets helped go forward the Keynesian revolt. Kuznets's measures also helped go forward the study of econometrics recognized by Ragnar Frisch and Jan Tinbergen.

Simon Kuznets is certainly not a familiar name in the current debate on social transformation in western cities. This is almost certainly explained by his naturalistic move toward, his preoccupation with nations and his emphasis on industrialization. It is important to notice, though, that the center model has been extended to comprise education, energy consumption, population features and political rights. An updated version of the Kuznets curve is thus based on a number of factors that are relevant to present-day urbanization. More significant is the fact that later hypothetical developments have rendered 'laws of succession' so devalued that they appear to belong to a prehistory of trivialities. That reason alone, but also the subject-matter, makes it useful to appraisal modern frameworks and theories next to the backdrop of Kuznets' model.

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Kuznets' notion that a flourishing economy adds to progressive redeployment seems particularly unsuitable from the point of view of polarization theory. In the formulation of its leading advocate, the polarization thesis contends that we are entering a phase of 'centers and eccentricity', whereby increasing poverty and increasing wealth coexist in the same cities, often in adjacent neighborhoods. The decline of the manufacturing sector and the following rise of the service sector have produced two trends: first, a growing upper tier of high-skilled jobs with high wages and, second, a huge expansion of low-wage, often temporary, and part-time service jobs. The latter trend is recognized as a structural result of the first, generated through a demand for consumer services such as catering, cleaning, clothing and observation. It is also an explicit assumption that polarization in the labor market leads to increasing overall disparity of earnings. This is of course basically at odds with neo-classical theory, which assumes that a rise in the relative demand for consumer services will strengthen the position of workers inside those labor market segments, and thus hold back or completely counterweight the pressure towards greater disparity. According to Sassen, such a simple competitive model does not capture the prototype of change. (Simon Smith Kuznets, January 1938.)

Partly, there are flaws in the labor market due to a functionally coordinated supply of low-skilled immigrants. Partly, the new economy is based on an absolute exploitive institutional setting: Finally, much work that was once standardized mass production is today more and more typified by customization, flexible specialization, networks of subcontractors, and in formalization, even at time counting sweatshops and industrial home-work. In brief, the changes in the supply obvious in major cities are a function of new sectors as well as of the reform of work in both the new and the old sectors”. Similar statements are rather frequent in labor market changes, and they could be rephrased understandingly as follows: firms have changed the way they utilize labor in reply to an unsure economic environment. (Simon Smith Kuznets, July 1989)

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Thus, at one level the polarization thesis contrasts completely with the Kuznets model. The suspected way of change is conflicting, and modernization is portrayed in terms of fragmentation, rivalry and split interests rather than integration, agreement and mutual benefits. The latter distinction stems from different views on advanced technology. Simon Kuznets placed substantial emphasis on long-term effects of shifts in the labor force from agriculture to the modern sector of the economy. Given that agrarian and industrial technology correspond to a high respectively low level of disparity, a rather simple deduction follows: overall disparity will at any point in time depend on the family member size of each sector, the degree of inequality within each sector and the dissimilarity in mean inequality between the two sectors. Polarization theorists, by difference, perceive a dualism within the modern sector, that is, within the new service economy. Though the causal chain is overly complex, there seems to be in the end a quite simple notion of dual technological requirements. To be spirited, firms need to maintain a pool of highly skilled labor, but they do no longer need to connect in the fate of low-skilled labor. (Anindya Datta June 1987)

The skills mismatch thesis and its derivative, the spatial mismatch thesis, are easier to go with Kuznets proposition. The variables accountable for increasing disparity are found in technology, economic restructuring and global competition. The basic supposition is that the post-industrial society requires less 'muscle labor' and more 'smart labor'. Because there is a lack of the latter, at least in a middle phase, one of the inevitable results is an increase in the wages of workers with high skills. By the same logic, less skilled or unsuitably skilled workers suffer relation wage losses or, worse, are excluded from the labor market.

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A supply and demand clarification of this kind does not evoke notions of essence or fundamental needs: there are no implications in terms of institutional rule or a permanent shift in the sharing of income, wealth or job opportunities. Instead, disparity of each kind could be interpreted as 'short swings' in a steady-state development or, alternatively, as episodes in the contingent development of history. The first understanding offers a slight possibility of full agreement with Kuznets' model. It is not hard to imagine a fundamental chain that starts with economic depression, continues with skills mismatch and increasing disparity, continues further with supply side changes, and leads back to square one with economic recovery and moribund inequality. The second interpretation provides a common ground, though minimal, in the postulation of transitional effects. Kuznets was quite aware of complications related to the communication between population growth and the growth of capital. In fact, population growth due to decrease in death rates is almost certainly a major reason why the curve bends.
(Simon Smith Kuznets, September 1965.)

Many economists consider that Kuznets got his 1971 Nobel Prize for his measurement in national income accounting, and surely that was enough to merit the prize. But in fact, he got the prize for his experiential work on economic growth. In this work Kuznets recognized a new economic era which he called "modern economic growth" that began in northwestern Europe in the last half of the eighteenth century. The growth spread south and east and by the end of the nineteenth century had attained Russia and Japan. In this era per capita income rose by about 15 percent or more each decade, amazing that had not happened in earlier centuries.

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One of Kuznets's more startling findings was the result of economic growth on income distribution. In poor countries, found Kuznets, economic growth greater than before the income difference between rich and poor people. In wealthier countries, economic growth narrowed the difference. In addition, Kuznets examined and quantified the recurring nature of production and prices in distances of fifteen to twenty years. Such trade cycles, while doubtful, are often referred to as "Kuznets cycles."


References

Kuznets, Simon, “Economic Development, the Family and Income Distribution: Selected Essays”, Cambridge University Press, July 1989.
Datta, Anindya, “Growth and Equity: A Critique of the Lewis-Kuznets Tradition, with Special Reference to India”, Oxford University Press, Incorporated, June 1987.
Kuznets, Simon, Fogel, Library Binding, University of Chicago Press, November 1992.
Kuznets, Simon Smith, “Commodity Flow and Capital Formation”, National Bureau of Economic Research, Incorporated, January 1938.
Kuznets, Simon Smith, “Economic Change: Selected Essays in Business Cycles, National Income, and Economic Growth”, Greenwood Publishing Group, Incorporated, June 1983.
Kuznets, Simon Smith, “Economic Growth and Structure”, Norton, W. W. & Company, Inc. / September 1965.
Kuznets, Simon, “Autobiography” August 8, 2002 http://www.nobel.se/economics/laureates/1971/kuznets-autobio.html

 

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