When compounded over many decades, small absolute differences in rates of economic growth add up to substantial differences in real GDP and standards of living. Consider three hypothetical countries—Alpha, Bravo, and Charlie. Suppose that in 2002 these countries have identical levels of real GDP ($6 trillion), population (200 million), and real/GDP capita ($30,000). Also, assume that annual real GDP growth is 2 percent in Alpha, 3 percent in Bravo, and 4 percent in Charlie. How will these alternative growth rates affect real GDP and real GDP/capita over a long period, say, the 70-year life average life span of an American? By 2072 the 2, 3, and 4 percent growth rates would boost real GDP from $6 billion to: $24 trillion in Alpha; $47 trillion in Bravo; and $93 trillion in Charlie. For illustration, let’s assume that each country experienced an average annual population growth of 1 percent over the 70 years. Then, in 2072 real GDP/capita would be about: $60,000 in Alpha, $118,000 in Bravo, and $233,000 in Charlie. Economic growth rates matter!

17.2 Technological change and economic growth

Economist J. Bradford DeLong points out that technological change has brought forth goods and services that would have been simply unimaginable a century ago. (1) I believe there is…insight to be gained [on this matter by] examining Edward Bellamy’s (1887) Looking Backward. Although the prose is wooden to our sensibilities, the book was a best-seller in the late nineteenth century, because it gave a very hopeful vision of how economic growth would bring us utopia. The narrator goes forward in time from 1895 to 2000, and his host of the future asks, "Would you like to hear some music? The narrator expects his host to play the piano—a social accomplishment of upper-class women around 1900. Instead, the narrator is stupefied to find his host "merely touched one or two screws," and immediately the room "filled with music; filled, not flooded, for by some means, the volume of the melody has been perfectly graduated to the size of the apartment. ‘Grand!’ I cried. ‘Bach must be at the keys of that organ; but where is the organ?’" He learns that his host has called the orchestra on the telephone. In Bellamy’s late twentieth-century utopia you can dial up a live orchestra and then put it on the speakerphone. You even have a choice of orchestras—there are four at any moment. Bellamy’s narrator then says, "if we [in the nineteenth century] could have devised an arrangement for providing everybody with music in their homes, perfect in quality, unlimited in quantity, suited to every mood, we would have considered the limit of human felicity [ecstasy] already attained …" What if someone were to take Edward Bellamy to Tower Records today? His heart would stop. Yet we do not give thanks for our [CD players] and our CD collections for having brought us to the limit of human felicity. We rarely think about them at all: we take them for granted ... Modern economic growth has been so great as to carry us off the scale of measurement that past generations could have imagined. J. Bradford DeLong, "How Fast is Modern Economic Growth?" Economic Letter (Federal Reserve Bank of San Francisco), October 16, 1998, pp. 1-2.

Photograph courtesy of: (c)Nance Trueworthy;