Economic Growth Basics

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Definition: Economic growth is the increase in the standard of living over time

The standard of living is measured as GDP per capita

Other indicators: longevity; average height; transportation

Most growth since 5000 BC has taken place in the past few hundred years

Bags of flour example: in 1500, it took 3 days of work to produce the equivalent of one 5-pound bag of flour. In the U.S. today, we produce the equivalent of 400-450 5-pound bags with 3 days of work

Growth is a compounding process. The rule of 72 can be used to estimate doubling time. If the standard of living increases at x percent per year, then the standard of living will double every 72/x years. At 2 percent per year, standard of living doubles every 36 years.

Growth is due partly to capital accumulation, mostly to recipe (knowledge) accumulation; does not come from rich stealing from poor

Major differences across countries: for example, North Korea is poor, South Korea is rich

No magic formula for lifting underdeveloped countries out of poverty

My view: three ethics of growth--work ethic, public service ethic, learning ethic

We will not run out of resources, including oil

We are not headed toward environmental catastrophe (1970's "limits to growth" discredited)

Current source of growth--Moore's Law

Future growth--computer power, nanotechnology, biotechnology

We will not run out of jobs--but leisure is likely to increase