New growth theory
According to the new growth theory, creativity is the main driver for economic development.
This new theory must prevent the return of wrong ideologies. For example, Marxism, dominated 20th century economic thought: It was applied by the Soviet system, by its European satellites and in the third world. It was professed by all Communist parties. It influenced a large number of intellectuals in the Western world. As we have just seen, this theory had given everywhere catastrophic results an had driven to death about 80 millions people.
Obviously, we need a new economic theory adapted to the modern world in order to prevent the return of such events. The new growth theory is based on the following golden rule:
FREEDOM- CREATIVITY-TECHNICAL PROGRESS- DEVELOPMENT
Creativity is today the most important factor of production because it improves labor and capital and extends resources. What is more, creativity increases the quantity of final goods and some of them in turn enlarge the creativity! Finally, creativity tends to abundance.
Along this survey, we shall meet a lot of new and fascinating concepts such as the law of increasing returns, the artificial resource base, the distinction between spiritual and material goods, the magic goods and so on.
HOT WARNING: This short survey could merit a book but we only trust on the Internet to diffuse our ideas. Well, this theory is more and more known in the US and the English speaking world. The new growth theory brings new concepts for economists and enable them to find the right solutions to the sustainable development.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODEL - 3-CREATIVITY IMPROVES LABOR AND CAPITAL - 4- CREATICITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
The classic growth model is out dated. It's largely based on scarcity of resources. It was adapted to describe the past. It does not fit to the modern world.
The main feature of todays economical development is technical progress and creativity. The very aim of creativity is to produce abundance. We need therefore a new growth theory based on knowledge and creativity.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODEL - 3-CREATIVITY IMPROVES LABOR AND CAPITAL - 4-CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
2-NEW GROWTH THEORY AND CLASSIC MODEL
The new growth theory shows how creativity reduces scarcity to satisfy requirements. It means that creativity will replace scarcity as a new paradigm in economics.
First, we have to recall the main features of the classic model.
21-The classic model
The classic model is out dated. More precisely, the description of the factors of production such as labor and capital is a legacy of the former centuries and its explanation of growth does not apply any more to the modern world characterized by creativity.
The conception of labor is inherited of the history of economic thought: Labor has been mainly conceived as a physical labor.
Thanks to physical labor, you extract goods from resources but in counterpart labor requires energy i.e. food. As we have seen in the historical module, the production of a man deprived of tools equals to the food he needs to live. The "iron law" results from this empirical observation:
The amount of food produced in a working day is equal to the amount of food the laborer consumes to be able to work along a day
It means that exploitation is the condition of progress and profit: let's suppose that a laborer needs 1 kg of bread to carry out 1 day of work, so that he can reconstitute his working strength. Let 'suppose that he produces 1 kilo of bread in a working day. To get a profit you have to pay him with a salary lower than 1 kg of bread. It means that the profit comes by exploiting the laborer.
This labor value and the notion of exploitation provide a good description of the past. Today, they no longer apply.
The conception about the capital is also out dated and unclear. For classic economists and notably for Marx, a tool is just a quantity of labor integrated in a thing. Marxists call it dead labor: Whatever the level of economy, tools always require labor to be fabricated: For example, you spend 10 working days to make up a tool.
As any output implies a labor, it is therefore assumed that the tool can only provide an output of goods equal to the integrated dead labor. Consequently the tool can only produce an amount of good equivalent to 10 working days. Knowing that a working day produces 1 kilo of bread, our tool will produce 10 kilos of bread!
The explanation of growth which results of this analysis does not apply any more to the modern world.
According to this model, economic growth results in first by adding more labor to get more goods. As resources are limited, labor suffers diminishing returns and the additional amount of food decreases. As population grows, you get less and less food despite the increase in labor.
Along the history, capital (tools and machines) appears but it's mainly conceived as dead labor. As dead labor cannot be exploited like active labor, more the machines are implemented and more the profits are expected to diminish: That is the marxist law of the decreasing profits!
Finally, growth is determined by the production possibility frontier. For a given limited resource, the optimum of goods and service depends only on the precedent factors of production both affected by the law of diminishing returns. Growth must halt when the marginal value of goods produced equals the cost of labor and capital used to produce them.
What is more, this model is unable to explain the economic growth experienced since the beginning of the century!
Using the classical tools of the model, R. Solow calculated the rates of growth between 1909 and 1949 in the USA. He concluded that average growth was 1.5. However, the actual GDP increased by an average of 3% during this period, i.e. a difference of 1.5%.
This difference called the "residue" is very important relating to the evolution of the well being. Assuming that the population growth rate is 0.8, we find for the growth rates of the GDP per capita 0.7 (1.5-0,8) according to classical calculations and 2.2 (3-0.8) according to the reality.
In the first case, GDP per capita would have doubled in 100 years. In reality it has doubled in 30 years! This illustrates the importance of the "residue"!
it means that the current model cannot explain the economic growth. Of course, economists give a role to technology or human capital but it's quite unclear: Globally, the academic model remains largely based on the scarcity of resources and is inspired by a thought inherited from the past.
22-New growth theory
We shall therefore propose a new growth theory based on ideas and creativity.
Mankind is better defined by its mind power than by its physical strenght.Then, mind power must come in first before the physical labor in the hierarchy of production factors.
In economics, creativity is the expression of mind power: It is the capacity to produce new ideas such as inventions and innovations. An invention is a discovery while an innovation is the application of the invention to produce new goods and services.
We claim that
- creativity is today the most important factor of production because it integrates ideas in labor and capital. As a result, ideas increase the amount of goods produced through labor and capital.
-Creativity is today the main resource because it creates an artificial resource base.
-Creativity tends to abundance because it benefits of the law of increasing returns.
As creativity is a by-product of free thought, the limits of growth can only come from a backward step of freedom.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODEL - 3-CREATIVITY IMPROVES LABOR AND CAPITAL - 4-CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
3-CREATIVITY IMPROVES LABOR AND CAPITAL
Creativity is today the most important factor of production because it integrates ideas in labor and capital. As a result ideas increase the quantity of goods produced through labor and capital.
31- Creativity and labor
Without any additional labor or capital, the ideas added to labor increase the production.
Let us suppose that we have 3 farms, one belonging to A, one belonging to B and one belonging to Mickey. Each farm spends its entire time working (for example 200 days) in order to ensure its own subsistence (for example 200 kilos of bread).
The production value is equal to production cost, since all the bread is consumed in order to reconstitute the working strength of the farm.Then, the production value of each farm is either 200 days, either 200 kilos of bread.
Let's us suppose that Mickey have a new idea and just changes the way he works (for instance by sowing earlier). Then, he gets a production of 300 kilos as illustrated by the following graph:
Obviously, the rise in production does not come from the quantity of labor which remains unchanged. It is only due to the Mickey idea. We get therefore the equation below:
Quantity of labor (200 days) + creativity = production value: 300 days
The creativity has therefore given rise to a gain of 100 kilos or 100 days, but it is impossible to quantify its cost . It may have been enough for Mickey to simply think about the problem for 1 hour to increase the value by 100 days!
It follows that all things being equal, creativity is here the sole reason for the increase in production
We must now extend this example to the real world. The following drawing compares the structure of labor as factor of production in the classical model and in the new growth theory:
As you can see, ideas are integrated to labor and as a result they produce a rise in production. Without ideas, physical labor is just good to produce the energy it consumes!
32-Creativity and capital
We shall show that ideas integrated in the tools enable to multiply the production
Mickey decides to built a plough. He has to spend 6 working days for the fabrication. These 6 working days represent a dead labor integrated in the plough and a cost equivalent to the food consumed i.e. 6 kilos of bread. The plough will increase the production by 25 kilos of bread.
Once again, there is no constant between the production cost of the plough (6 kilos of bread) and the additional output which is equal to 25 - 6 = 19 kilos. This difference (19kilos) is only due to creativity (the idea of the plough, its design and so on)
We must now extend this example to the real world. The following drawing compares the structure of capital as factor of production in the classic model and in the new growth theory.
As you can see, with technical progress, ideas take a growing share into the capital structure . As a result, a modern machine which includes a large amount of creativity produces thousands times the dead labor it integrates.
It means that thanks to creativity, the law of diminishing returns cannot apply any more to the modern capital.
1-INTRODUCTION - 2-NEW HROWTH THEORY AND CLASSIC MODELE - 3- CREATIVITY IMPROVES LABOR AND CAPITAL - 4-CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
4-CREATIVITY SPREADS THROUGHOUT ECONOMY
We shall show now how creativity spreads to other economic units through concentration, specialization and exchange and as a result increases production.
41-Creativity and concentration
Let us suppose that Mickey integrates farms A and B. he can now apply to them the method he used to increase production on his own farm.
It means that through concentration it is possible to integrate ideas in the labor of other people.
42- Creativity and specialization
Let us suppose that there are two farms, each producing 1.5 tons of wheat and 100 liters of milk with 250 hours of work. Each farm divides his time as follows:
In order to ensure the subsistence of these 2 farms, we need an overall total of 3 tons of wheat and 200 liters of milk, for which we have 500 hours of work.
Given these figures, Mickey's best interest is to specialize in wheat, whereas B should specialize in milk: Then, Mickey produces the required 3 tons of wheat in 200 hours while B produces the required 200 l of milk in 200 hours. Finally the two farms both spend 400 hours instead of 500.
Time is saved due to the fact that Mickey benefits from B's productivity for milk, and B benefits from Mickey's productivity for wheat.This exchange makes it possible to spread the results of creativity gained in one farm to all the other farms.
The same phenomenon occurs in international exchange.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODELE - 3- CREATIVITY IMPROVES LABOR AND CAPITAL - 4- CREATIVITY SPREADS THROUGHOUT ECONOMY - 5- CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE- 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
5- CREATIVITY EXTENDS RESOURCES
Creativity rearranges the resources and creates an artificial new resource base. As a result, resources become unlimited.
In classic economy, resources are limited. The existing resource includes available and unavailable resources. The consumption decreases the existing resources and as they are no renewable, we can expect a limit of growth .
51-Creativity rearranges resources:
Even if the existing resources are limited, creativity enables us to get more from it by rearranging the resources.
You must consider that people do not want land, wood, coal or oil. They want food and energy. To produce energy, you are not obliged to use wood. Thanks to technical progress, you can always use another resource larger than the precedent to satisfy the same requirement. It means that you rearrange your resources.
For example, in olden times people used wood for energy. It was a limited resource whatever the technical progress in chopping wood. When people jumped from wood to coal, the existing resource to get energy increased on a far extend. It was only possible thanks to a great step in scientific progress.
52-Creativity creates an artificial resource base:
Beside the limited natural resources, creativity can create an artificial resource base. This new resource is unlimited.
Right now, chemist know how to mix selected atoms elements at different temperatures in order to get artificial stuff. For example, supra conductor comes from research in this field.
Given the fact that the periodic table contains about one hundred different types of atoms, Paul Romer has calculated that it authorizes about 330 billions combinations between elements! It just means that the technology enables us to construct an unlimited artificial resource base made up with combination of elements.
The same can be said about vegetal and animal kingdom. Genetic enables us to clone creatures and to produce food without land by using some chemical liquid. As for energy, its amount is just limited by the duration of the sun!
In summary, the relevant resources rely in our mind power rather than in some physical things.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODELE - 3- CREATIVITY IMPROVES LABOR AND CAPITAL - 4- CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
6-CREATIVITY TENDS TO ABUNDANCE
Time is coming to introduce some very new and fascinating concepts that I can summarize as follow:
-Creativity reduces scarcity of final goods.
-Among final goods, creativity increases spiritual goods versus material goods.
-On turn, spiritual goods increase creativity.
61-Creativity reduces scarcity of final goods.
Creativity has yet reduced scarcity for primary goods in the most developed countries
Primary goods correspond mainly to food and raw materials: For example, technical progress such as combine harvesters to replace sickles has caused a significant increase in production of food.
Although Eating and drinking represent the greatest utility for our survival, these physiological requirements are quickly saturated. Nobody puts 100 kg of sugar in their coffee. Nor is it possible to drink a barrel of wine with every meal!
As a result, the relative price of goods coming from the primary sector (farming and so on) decreases rapidly. In Middle Age, a laborers daily wages represented just enough to buy 1 kg of bread. Today, buying bread represents scarcely 2% of the daily wages of a non-qualified worker.
Clothing and lodging (secondary sector) are more difficult to satisfy and their relative value does not decrease as in the primary sector. The requirements such as education (tertiary sector) are quite unlimited and their relative value increases.
This evolution is illustrated by the structure of the aggregate demand in relation with the income. Let us suppose that a country's GDP increases from 100 to 375. The relative value of primary, secondary and tertiary goods changes as below:
This evolution shows the impact of creativity on the scarcity of goods that correspond to our basic requirements.
62-Creativity increases spiritual goods.
I have discovered from many empirical observations a new evolution based on a distinction between spiritual goods and material goods.
-Material goods satisfy physiological or basic requirements: Eating, drinking , housing, moving and so on.
-Spiritual goods satisfy Reason, Ethics, or Esthetics: It can be a book, a fine painting, a music festival, and any increase in knowledge and Ethics.
This distinction does not correspond to the primary, secondary and tertiary goods that we have just examined above: For example, a Japanese bunch of flowers belongs to the primary good (horticulture) but is nevertheless a spiritual good because it satisfies mainly Esthetics and meditation. On the contrary, an X movie although it belongs to the tertiary goods is nevertheless a material good because it only satisfies basic instincts.
Considering these definitions, I have observed a relationship between the level of education and the proportion of spiritual goods into the final goods: Educated people consume more spiritual goods than uneducated who consume mainly material goods.
For example, let's suppose two categories of people having the same given high income: People with low education will consume furniture's, appliances, yacht, luxurious cars, noisy music. With the same income, high educated people will save much more and consume antiques, books, library, museums, classical music, cultural adventures and so on.
Consequently for any given income, the quantity of spiritual goods consumed increases according to the rise in education. Look at the graph below:
As education is growing in all countries, it means that the quantity of spiritual goods would increase greater and greater. For example the drawing 13 shows the increase of spiritual goods in relation with a rise in education in a constant given income.
You could object that it's not realistic to increase so much the proportion of spiritual goods into a constant given income: If this income is very low, the residual material share would be insufficient to cover the basic requirement. I answer that high educated people enjoy so much their spirituality that they do not hesitate to sacrifice their basic needs: Recall of Plato, Diogene, San Francisco and many hermits.
What is more, this question is fruitless because income is growing everywhere: The drawing 14 shows the report of the percentage obtained above in an increasing GDP changing from 100 to 375.
The objective consequences of that increase are quite important for growth future.
63-Spiritual goods increase creativity.
-Material goods are rivalry goods. It means that each consumer reduces the availability of the good: For example, when you buy a flight ticket, you occupy a seat and then the number of seats available for other consumers is reduced. As a result, material goods do not propagate their benefits: The meal you are eating does not feed your neighbor!
-Spiritual goods contain mainly ideas or esthetic feelings. When you use an idea, you don't reduce its power for other people. When you contemplate a painting, you don't reduce its beauty. It means that spiritual goods are not rivalry goods. As a result they propagate their benefits to other people: You can communicate the idea you just have gotten from a book and your neighbor in talking with you can also enjoy this idea.
As the quantity of spiritual goods increases, more and more ideas are propagated at no added costs through more and more users in the entire society. As creativity is made up of ideas coming from men, it finally means that final goods increase the creativity tank!
In some ways, spiritual goods become by themselves factors of production and enlarge creativity. Clearly, we have an exponential process which tends to abundance.
64-Creativity benefits of increasing returns.
Creativity increases goods and extends resources. On turn final goods increase creativity: More you use creativity, more you extend it.
-Clearly, it means that creativity benefits of the law of increasing returns!
According to the classic theory, the law of diminishing returns is the following " when increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factors, after some point the resulting increase in output of product becomes smaller and smaller"
Very often the classic theory uses agricultural example to illustrate the law: when you apply increasing amount of fertilizer to a constant area with unchanged labor, yields begin to increase and then fall quickly.
To illustrate the law of increasing returns, I shall keep the same example: Let 'suppose a garden plot cultivated with potatoes. We have two factors of production which will remain constant: the land and my own physical labor. Now, I shall apply increasing amounts of creativity (ideas) to these unchanged resources and I shall get in return greater and greater money!
-Idea 1: Instead of using fertilizers, I take some rest and I sell my potatoes under the label of ecological products. As a result I double my receipt.
-Idea 2: I cultivate some scarce and beautiful flowers. Certainly I will get more money than in selling potatoes.
-Idea 3: I'm tired to harvest and to sell. I would have better to make visiting my garden. People pay to visit. Money increases!
-Idea 4: I remove some flowers and add a few plants of potatoes in order to produce a philosophical garden dedicated to the esthetic contemplation of beauty (flowers) mixed with ugly potatoes. Foreigners come to visit it. Price ticket are increasing. I begin to make good money. (Don't laugh: I have visited such a philosophical garden in Japan!)
-Idea 5: I get the idea to paint my philosophical garden and I sell my paintings the entire world. The plot garden is now an art model: We are far away from farming and I make big money.
-Idea 6: Abstract painting is more and more fashionable. I paint some color patches I title it "The garden". As a result: Exponential earnings!
You can observe that I have kept fixed amounts of production factors: Unchanged labor and constant amount of land. The only variable is the increasing amount of creativity materialized by increasing returns in money.
But the story is not yet finished. I have to show that my spiritual goods will propagate their benefits and in in turn increase creativity.
One of my japanese customer is a scientist. Contemplating the abstract painting of my plot garden make him thinking to a new theory of chaos. He delivers it to the scientific community and few years later this theory finds broad applications in plasma business!
Of course, it's a joke but it illustrates nevertheless one fundamental truth: Creativity benefits of increasing returns.
-As a result, creativity tends to abundance!
Thanks to its increasing returns, the marginal cost of creativity as a factor of production tends to be free. As in the whole economy, the share of creativity increases, it results that the marginal cost of all factors of production (labor+capital+ creativity) is globally going to fall.
On the other hand, the spiritual goods propagate their benefits at no added costs, and tend to be free: A good example is given by the fast development of free goods and services on the world web. As in the whole economy, the share of spiritual goods increases, it results that the marginal value of all the final goods (material goods+spiritual goods) is also going to drop.
It means that the two curves instead of crossing, keep a parallel path. Consequently, we can expect unlimited growth and future abundance.
What should be the interest of produce if most of the goods are for free? In present economy, to produce often implies hard work. Then people who produce expect a profit to reward their work.
Now, try to imagine the future society with its high educated population. In such a society, to produce spiritual goods is no more harmful: For example, in producing this survey, I enjoy the flow of ideas which are going through my mind. I would not like to exchange it again any flow of material goods. It means that I get my profit just in producing for free this spiritual good.
In a high educated society, it is the same to produce creativity and to consume and enjoy it.
65-Overview of the new growth theory
We can know summarize the new growth theory:
In summary, nothing can prevent creativity to perform abundance except a backward step of freedom. What is more we must emphasize on the role of education: A slow pace in education would delay abundance.
It's a supplementary argument in favor of the global learning system.
Do you agree? Do you not agree? Send your comments right now.
1-INTRODUCTION - 2- NEW GROWTH THEORY AND CLASSIC MODELE - 3- CREATIVITY IMPROVES LABOR AND CAPITAL - 4-CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
7-THE LIMITS OF GROWTH
According to the new growth theory, objective limits do not exist, and psychological limits are not linked to economics. The only threat comes from political limits.
71-The objective limits
Some economists say that growth is limited in space (undeveloped countries) and could halt in the future because limited resources and negatives externalities.
The growth does not widen out to the entire world, because the undeveloped countries do not benefit from freedom and creativity.
Our historical module shows that the economic growth of the west was preceded by the surge of individual freedom and creativity. Of course, representative government and universal suffrage have often been implemented in the 20th century but the freedom of consciousness appeared by the end of the 18th and was the cause of technical progress and growth.
Unfortunately, in many areas of the present world, authoritarian governments and dictatorships are impeding the surge of freedom. What is more, most of these governments have followed the advices of marxist scholars and have consequently adopted an economic model based on protectionism and autarky.
As a result, these countries remain poor and fall in the malthusian trap. They have failed to implement the basic policies: human rights, democratic governance, large education, property rights and free market.
It means that Un development is mainly a political problem.
712-Limited existing resources:
In 1972 the club of rome predicted that the limits of growth in population, industrialization,and so on will be reached in the next hundred years.
We have shown that this malthusian analysis was wrong because creativity rearranges resources and creates a new artificial base.
It is said that the westerner spoils resources. In fact, the westerner creates more resources, especially knowledge and technology, than he consumes.
713-Increase of negative externalities:
Some people assert that the increase in negative externalities such as pollution, congestion in town, noise and so on, could constitute a serious limit to the economic growth.
In fact, creativity reduces these negative externalities: For example, air pollution has dramatically decreases in USA, Europe and Japan. Once again it's wrong to say that the riches more pollute than the poor's.
What is more, as education raises, people consume more spiritual goods. This evolution authorizes a sustainable growth: Material goods use resources and bring negative externalities such as pollution. On the contrary, spiritual goods which are mainly made up of ideas, need a few resources and have only positive externalities.
The long run growth is better guaranteed with educated persons than with low educated people.
Finally we can conclude that the objective limits do not exist.
It is largely said that affluent society does not bring happiness: Depressions and teen suicides increase.
In fact, this situation is due to a deficient education. Real education does not improve as fast as the technical progress.
Educated people have a good awareness of the law of diminishing benefits: For example, the first $100,000 make you happy, the second $ 100,000 has not the same taste and the third does not matter. Educated people know that money and goods can partly avoid misery but do not bring happiness or a sense to life.
So, when they have satisfied their physiological requirements such as food, warm, home, they are not eager to accumulate material goods any more and they look for spiritual goods such as increase in knowledge and spirituality. As a result, you do not observe many depressions or suicides among the scientists and the professors of University!
On the contrary, for many uneducated people, money and material goods play the same role as the fetishism in the primitive society. As ideas are more and more integrated into the final goods, they appear like magic goods.
For example, take a primitive tool such as an harpoon: It's mainly dead work. As a result, when you buy it, you will need to be trained maybe during one year before to be able to catch a fish! On the contrary, a TV set integrates mainly ideas. Although it is a far complicated machine, any person can use it immediately and very easily. He has just to push a button!
Then, people worship goods and consumerism like a new religion. When they realize that the accumulation of material goods is a non sense, they fall into depression. Uneducated people such as top model, actor movie, sportsmen, winner of lottery are exposed to this phenomenon.
This situation does not mean that the affluent society brings psychological misery. Economic growth has no responsibilities. Once again, advances in education are the right answers to solve this problem: It enables to shift the consumption from material goods to spiritual goods.
The political topics represent a real threat for the future of growth because of the rising hostility against inequalities and the increased role of State.
731-Hostility against inequalities:
-Growth needs savings and since the amount of saving is related to the income, a fast growth always implies widen inequalities in the income distribution
For example, Let' suppose that we have $450 to distribute between 3 persons and that each of them must consumes $100 for his basic living and $25 for an extra spending. If the sum is equally shared between the 3 persons, each receives $150 and the total saving will amount $75.
Now let's suppose that one people A receives $250 and the other, B and C, only 100 for each of them. When we apply the precedent rule, B and C do not save anything, but A saves 250$ - 125$ = 125$. Now let' suppose that the investment yield reaches 10%: with 125 you get about 250 in 7 years. With 75 you need 12 years to get 250.
It shows that the inequality of revenues favors a faster move toward abundance.
-However, this technical argument is not sufficient because the rising hostility against inequalities appears to be mainly a political topic related with poverty. Then, we must focus on the following facts and arguments:
-Inequalities are not inequalities in basic consumption. In our example, A consumes slightly more than the others (125 $ instead of 100). It is clear that even if he wanted to, he couldn't consume 250 $. Nobody puts 100 kg of sugar in the coffee simply because he is richer than everybody else. On the other hand, B and C have satisfied their basic requirements.
-Poverty which exists in our developed countries is relative poverty: The houses of poor people today contain household equipments that even the Rockefellers or Carnegies of the 19th century did not have.
-It's also selective poverty: In the USA, fragmented or one-parent families had a poverty rate of 37 %. This type of poverty is due to the way in which people manage their private lives.
-It's not an inherited poverty due to heritage: Among the richest 100 Americans in 1996, only 24 % had inherited their wealth from their parents. 76 % were "self made men".
732-Increased role of State:
-In our developed countries, the increase of State regulations since the beginning of the century represents a threat regarding the future of the growth. For example, in some countries, labor regulations inspired by trade unions have become unbearable. Companies hesitate before recruiting. Unemployment remains high even when economy is lacking jobs!
-What is more, the State often penalizes the most creative people such as researchers, engineers, scientists, innovators and so on.
Through the progressive income tax, that middle class is impoverished: Their savings are cancelled out. They cannot invest any more. Consequently, some of them tend to choose leisure rather than work. Abolishing progressive income tax and replacing it with a flat tax is thus an economic necessity to preserve our most important creativity Tank.
-Finally, the State is not doing its best with Education.
As we have seen, Education is a core topic in new growth theory. Despite the increase in the number of pupils and teachers, the same conclusion is drawn everywhere: Results are unsatisfactory. Illiteracy increases. More and more young people are unemployable.
Today, private companies could diffuse primary and secondary Education via internet, at a cost which would be much lower than that paid by parents on books and journeys and by tax payers on public teachers' salaries (Go to global learning system).
Once again, we must recall that Education is the key to growth and abundance.
Do you agree? Do you not agree? Send your comments right now.
1-INTRODUCTION - 2-NEW GROWTH THEORY AND CLASSIC MODELE - 3-CREATIVITY IMPROVES LABOR AND CAPITAL - 4- CREATIVITY SPREADS THROUGHOUT ECONOMY - 5-CREATIVITY EXTENDS RESOURCES - 6 - CREATIVITY TENDS TO ABUNDANCE - 7 - THE LIMITS OF GROWTH - 8 - GENERAL CONCLUSION
8 - GENERAL CONCLUSION
Creativity reduces scarcity and prepares abundance. The main challenge relies on the political limits of growth. A backward step of freedom and creativity would have dramatic consequences.
The defense of liberty is the most important topic regarding the new growth theory.
Learning and education must be improved to maintain a sustainable growth and to reach abundance.
Best links-Click below
www.stanford.edu/~promer: Paul Romer 's web site. Paul Romer is the lead developer of "new growth theory". He was named one of America's 25 most influential people by Time magazine in 1997.
www.enterstageright.com : An e-journal where liberty, individualism and capitalism aren't bad words!