[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

GROWTH IN THE ECONOMY’S CAPITAL STOCK
Economic growth occurs when workers have more capital goods to work with. The
success of many of the newly industrialized economies of Asia is due in large part
to thier high rates of saving, which allowed them to invest and accumulate capital
goods rapidly.
TECHNOLOGICAL CHANGE
Perhaps the most important sources of economic growth and rising standards of
living are the productivity increases that arise from innovation and technological
change.
Are There Limits to Economic
Growth?
In the early 1800s, the famous British economist Thomas Malthus envisioned
a future in which the ever-increasing labor force would push wages down to the
subsistence level, or even lower. Any technological progress that occurred would,
in his view, raise wages only temporarily. As the labor supply increased, wages would
eventually fall back to the subsistence level.
Over the past century, there has been a decrease in the rate of population growth
in developed countries, a phenomenon perhaps as remarkable as the increase in the
rate of technological progress. We might have expected improved medicine and
health conditions to cause a population explosion, but the spread of birth control
and family planning has had the opposite effect, at least in the more-developed countries.
Today family size has decreased to the point that in many countries population
growth (apart from migration) has almost halted. Those who worry about the limits
to growth today believe that exhaustible natural resources—such as oil, natural gas,
phosphorus, or potassium—may pose a limit to economic growth as they are used
up in the ordinary course of production.
Most economists do not share this fear, believing that markets do provide incentives
for wise use of most resources—that as any good becomes more scarce and
its price rises, the search for substitutes will be stimulated. Thus, the rise in the
price of oil led to smaller, more efficient cars, cooler but better-insulated houses,
and a search for alternative sources of energy such as geothermal resources and
synthetic fuels, all of which resulted in a decline in the consumption of oil.
Still, there is one area in which the price system does not work well—the area of
externalities. Without government intervention, for example, producers have no
incentive to worry about air and water pollution. And in our globally connected
world, what one country does results in externalities for others. Cutting down the
rain forest in Brazil, for instance, may have worldwide climatic consequences. The
less-developed countries feel that they can ill afford the costs of pollution control, when
they can barely pay the price of any industrialization. Most economists do not believe
that we face an either/or choice. We do not have to abandon growth to preserve our
600 ∂ CHAPTER 27 GROWTH AND PRODUCTIVITY