Simon Kuznets and his curve

Simon Kuznets was born on April 30th, 1901.  He received the Sveriges Riksbank Prize in Economic Sciences (which everyone calls the Nobel Prize in Economics) in 1971 "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development."

What he did was to bring the real world into economics by incorporating empirical data into its findings. He approached a priori and speculative conceptions with deep skepticism, preferring statistical methods of research instead, and in doing so, created quantitative economic history. He was the first, perhaps, of a strain of economists who regard the only valid data in economics as historical data.

He collected data from 14 countries in Europe, the U.S. and Japan over a 60-year period, and used it to determine how economic growth happened differently in different countries. He looked in detail at how growth involved a complete change in many aspects of production, employment, incomes, capital flows, and the make-up of the population. In doing so, he rejected the idea that there is a simple, universally applicable pattern of economic development.

He is most famous for the Kuznets Curve, an observation that when countries develop, income inequality follows an inverted U-shaped graph. It first increases as a shift takes place from agriculture to industry, then levels off and declines as society becomes wealthier.

There is another Kuznets Curve for environmental quality. As a poor country begins to develop, pollution increases because at that stage food on the table to avert starvation matters more than environmental quality. But as the country becomes richer, it can afford to attend to environmental matters and afford cleaner methods of production and measures to improve the quality of its air and its water.

There is a Kuznets Curve for population, in that modern hygiene and medicine lead to a population increase in poor countries as more people survive death in infancy. But as the country becomes richer, fertility declines because families no longer need children to contribute to the family budget or to support parents in old age. They can now afford education and pensions instead, so population levels off and declines.

The Kuznets Curve, founded in empirical, real-world data, is a powerful antidote to the doom-mongers who see only the upward slope of the graph and project it to disastrous heights that take no account of the way it levels off in practice and then declines.