The importance of the growth rate increases, the further into the future we look. If a country grows at two percent, as opposed to growing at one percent, the difference in welfare in a single year is relatively small. But over time the difference becomes very large. For instance, had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990. At a growth rate of five percent per annum, it takes just over eighty years for a country to move from a per capita income of $500 to a per capita income of $25,000, defining both in terms of constant real dollars. At a growth rate of one percent, such an improvement takes 393 years.
1 thought on “Quote of the Day”
All too true.
Then again, you won’t be able to find an economy where you have a long-term growth-rate of one percent. Either they’ll get tired of the low growth-rate and get a grip on themselves, or they’ll turn on each other in redistributive conflicts, leading to negative groth-rates and eventual systemic breakdown.
By the way, did I mention that Germany has experienced growth rates of one percent in the last years (with last year being an exception)?
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