## Mass Flourishing and Economic Dynamism

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**Canonical URL:** [Mass Flourishing and Economic Dynamism](https://www.imf.org/-/media/files/publications/fandd/article/2024/09/phelps-pov.pdf)

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### Thesis and core concepts
- Central thesis: higher national dynamism—the desire and capabilities of people to innovate—explains why some nations experience mass economic flourishing while others do not.
- Modern values that fuel dynamism:
  - Individualism (desire for independence and to make one’s own way).
  - Vitalism (energetic initiative to “act on the world,” relish discovery and challenge).
  - Self-expression (gratification from using imagination and creativity).
- Contrast: societies dominated by traditional values—conformism, fear of taking risks, service to others, focus on material rather than experiential gains—exhibit lower dynamism, innovation, and job satisfaction.

### Empirical findings on innovation and values
- Indigenous innovation rates during the post–World War II high-innovation period:
  - US: 1.02
  - UK: 0.76
  - Finland: 0.55
  - Germany: 0.42
  - Italy: 0.40
  - France: 0.32
- Country groups with high-strength doses of modern values and relatively high indigenous innovation: US, Ireland, Australia, Denmark, and to a lesser extent Switzerland, Austria, the UK, Finland, and Italy.
- Zoega’s statistical findings on values and economic performance:
  - Trust matters.
  - The following contribute positively to economic performance (measured by TFP growth, job satisfaction, male labor force participation, and employment): willingness to take the initiative, desire to achieve on the job, teaching children to be independent, and acceptance of competition.
  - Teaching children to be obedient reduced economic performance.

### Historical patterns and slowdown
- Historical comparison of cumulative TFP growth in the US over 20-year periods (Bojilov’s calculations):
  - 1919–39: 0.381
  - 1950–70: 0.446
  - 1970–90: 0.243
  - 1990–2010: 0.302
- Since about 1970 innovation and growth have slowed relative to earlier periods of spectacular growth (circa 1870s–World War I and post–World War II).
- Recent breakthrough innovations (examples): artificial intelligence and electric vehicles—concentrated mostly in high-tech regions (e.g., Silicon Valley).
- Specific forecast cited: Daron Acemoğlu commented that AI would add no more than 1 percent to US economic output over the next decade.

### Economic and social costs of lost innovation
- Economic consequences:
  - Near stagnation of wage rates relative to previous expectations of intergenerational improvement.
  - Capital investments encountering diminishing returns, discouraging capital formation.
  - As real interest rates sank, asset prices (such as houses) rose relentlessly from about 1973 to 2019, reducing affordability.
- Social consequences:
  - Reported job satisfaction in the United States has been on a downhill slide since 1972 (General Social Survey data).
  - Emergence of “despair” linked to economic developments (Anne Case and Angus Deaton’s findings).

### Causes and proposed direction for policy and research
- Principal cause identified: deterioration of modern values (individualism, vitalism, self-expression) and the rise of a “money culture,” weakening national dynamism.
- Ongoing interest and research direction:
  - Scholars and organizations (example: Melissa Kearney and the Aspen Economic Strategy Group) are shifting focus toward strengthening dynamism.
- Policy recommendation:
  - Economists should design an economy high in dynamism where people can experience mass flourishing from the grassroots up.

*Source: Edmund Phelps, "Mass Flourishing and Economic Dynamism," F&D, September 2024.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/09/phelps-pov.pdf_