All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

1980s: Economic Growth

The Setting

"To raise the nation's capacity to produce ... we must invest, and we must grow.... As a first step we have already provided important new tax incentives for productive investment." _{Kennedy's economic report to congress Jan 21, 1963}

"...a cut in income taxes (which directly helps only those with earned income) will not go largely into savings instead of consumption;" _{Sorensen memo to President Kennedy July 12, 1962}

Questions of the day

1. What is an investment tax credit and what role did it play in the Kennedy tax cuts in the early 1960s.  Why would the tax cut be expected to increase investment spending and why would this have more of a supply-side effect than the personal income tax cut?
2. Explain the key role of productivity growth and what Paul Krugman means when he states: "Productivity isn't everything, but in the long run it is almost everything."
3. What does the cost-disease of the service sector tell us about the future of the education industry?
4. Economics has been called the extension of war. What is your view on this statement and how is it related to Paul Kennedy's concept of "imperial overstretch" and the future of national security strategy?
5. You are to track down the appropriate data and explain the significance to the difference in growth before and after 1973. More specifically, what happened to the growth rate and what happened to the mix between extensive and intensive growth?
6. Convergence - what is it and how do you feel about it? Does where you live in the world affect your views on this one?
7. How is it that everyone seems to have discovered education as a theme for 1997. Maybe it is related to our 'rediscovery' of the importance of economic growth. What role does it play in our 'model' of economic growth?
8. Why did Fall River, a leading center of business in the late 18th century fall so fast in the 20th century? 
9. Why were the per capita income figures so high in the West in the mid 18th century?

An outline

• Kennedy tax cut

• Significance of growth

• Patterns of growth

  • convergence

  • slowdown

  • decomposition (extensive vs intensive)

• Determinants of growth

  • productivity

  • cost-disease of the service sector

The significance of growth

Patterns of growth

• current situation

• equality

• speed of growth

Economic Growth
(GDP annual rates of change)

sources of growth

• decomposition of growth (extensive vs intensive)

(1) Y/P = (Y/L)(L/P)

(2) (y/p) = (y/l) +(l/p)

	y	l/p	y/l	p
48-73	3.92	0.08	2.32	1.48
73-94	2.54	0.84	0.69	0.99
48-94	3.29	0.43	1.57	1.26

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