The piece that most caught my attention this morning was Jane Shaw Stroup’s post at the American Institute for Economic Research. It’s about economists’ futile search for an explanation of why and how economies grow. It’s hard to excerpt but here’s a snippet:
The elevation out of poverty did not come about because of “take-off” or “balanced growth” or any such thing. As Connors, Gwartney, and Montesinos make clear, cost-reducing innovations—from the container ship to the internet—created a transportation-communication revolution that boosted the volume and extent of trade around the world.
Trade itself increases wealth, but more trade had other effects as well: It led to greater labor specialization, rewarded entrepreneurship and good business management, and pressured governments to adopt better policies.
And it even led to a “virtuous cycle of economic development.” As wages increased, families had fewer children (the opportunity cost of bringing them up had risen). This meant that a higher proportion of the population was in the prime working ages and had greater interest in developing human capital through education and skills training. These improvements built upon themselves.
Waayyy back when I was taking economics classes (I don’t remember whether it was Intro to Econ or Intro to Microeconomics) the prof said something that stuck with me: “We don’t know how to create growth but we do know how to produce shortages”. As the linked post illustrates things have not changed much in the more than half century that has elapsed since then.
Actually, in fairness we do know more. We know that public debt overhang slows economic growth. Suffice it to say that isn’t free trade or free markets more generally or government subsidies.
In the interest of science let me harness Occam’s Razor to the task and propose the simplest possible explanation: energy production makes economies grow. Not only does that explain why England’s economy and the U. S. economy grew when they did it also explains why African economies (for example) have grown so slowly. Consider Nigeria’s per capita energy production and per capita GDP. If I had the time and the energy I’d plot them against one another.
