4 ms·

>"Most importantly, Romer won the Prize for seeing how the non-rival nature of ideas can boost ongoing and indeed “endogenous” economic growth. Romer also show

by nonbel 8y ago

>"Most importantly, Romer won the Prize for seeing how the non-rival nature of ideas can boost ongoing and indeed “endogenous” economic growth. Romer also showed mathematically that this process of growth is bounded, namely that it does not explode without limit" Is it common to assume economic growth can proceed at an infinite rate?

agumonkey 8y ago
ignore more than assume
- nonbel 8y ago
  Are you saying economic growth can proceed at an infinite rate?
  - agumonkey 8y ago
    I meant that trendy economic theories spread thanks to ignorance about reality, there's no deep thinking when they become the norm.
e12e 8y ago
Not certain how common it is these days, but it was supposedly commented on by Kenneth Boulding: "Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist."
- gowld 8y ago
  No one cares about "forever". In the long run, we're all dead, and there's no theoretical limit to exponential growth until we're all dead.
  - btrask 8y ago
    Especially if we ensure that the end of exponential growth will kill us.
twoodfin 8y ago
I’m not sure what you mean by “infinite rate”. Clearly, the economy is not growing at an infinite rate today! For the US, it’s somewhere around 3% a year. Can global economic growth proceed at a modest positive average rate for centuries? It might not, but there’s no obvious reason to believe it can’t.
- nonbel 8y ago
  >"I’m not sure what you mean by “infinite rate”." I quoted the sentence that claims this guys main discovery was that the process of economic growth does not "explode without limit".
deleted 8y ago
[deleted]
saosebastiao 8y ago
Just to point out the misconception most people have here, that quote does not imply that growth is not infinite. Take, for example, compound growth that grows at a rate that declines over time asymptotically approaching 0%. That is infinite growth even if returns decline over time. It isn't just a hypothetical exercise. This sort of relationship with returns over time is common in both economics and finance. I, for example, experience it as a futures trader. It's not uncommon for successful day traders who intentionally limit their trading capital to get returns averaging 1% per day. Those returns, however, are completely infeasible when talking about trading capital even on the small end of mutual funds. When your trading capital increases, it becomes much harder to grow at the same rate, and returns rates diminish greatly. But they still may have positive returns. No economist I know of would ever presume that growth can happen without limit or diminishing returns. Reasonable economists will inevitably disagree on parameterization of their models though, which is entirely to be expected.
- nonbel 8y ago
  The quote refers to the "process of growth", which I took to refer to the rate of growth rather than growth for an infinite amount of time.
marcosdumay 8y ago
It is always better when your model does not have unrealistic corner cases.
DenisM 8y ago
>Is it common to assume economic growth can proceed at an infinite rate? Infinite rate = adding wealth at infinity dollars per hour. Clearly absurd. Unbounded growth = adding 100 dollar per hour without an end date in sight. I can argue this is feasible: Let's say you and I are trading loaves and fishes between us (using dollars as a medium of exchange). This makes a stable economy grounded in tangible goods. Then we introduce notion of intellectual property: I make paintings and you make software. Each year you make better software and sell it to me at higher price, then I make better paintings and sell them to you for the higher price. The price of bread and fish remains the same, so when the government comes in to measure the CPI they will see that the food price did not go up, therefore there is no inflation. So the dollar value of all transactions is going up, but the inflation is not going up. This can easily go on forever because it doesn't rely on any kind of natural resource that could be exhausted, apart from your hunger for better paintings and my desire for better software.
- mikekchar 8y ago
  Sometimes I find this kind of thing pretty weird (keep in mind that I have a very naive understanding of economics). For example, food prices as a ratio of average income keep falling. So our standard of living is improving! The same goes for a lot of goods -- like clothes. People have better access to food, more clothes, better houses and more disposable income to boot. It has struck me, though, that this standard of living increase is actually dependent upon a very specific system of production. I live in Japan and I have an interest in traditional Japanese clothing. I can buy traditional Japanese clothing made the same way it was always made, but I can't afford it. So in a way, we are not comparing apples to apples when we measure our increase in standard of living. The very fact that an artisan making traditional goods in the traditional way desires the same increase in standard of living as I have means that their goods are at least as expensive (as a ratio of average income) as they always were. Sometimes because they have a very limited market, their prices are considerably higher in order to achieve an acceptable income. In that way, I think economic growth is a bit of an illusion. We can still improve efficiency a lot -- how many people are limited in their life because they simply lack capital? I would argue that the vast majority of people on the planet fall into this category. We can grow the economy in very real terms by ensuring that more people get access to more capital. But a lot of it is smoke and mirrors. Externalities are not accounted for -- whether it be environmental degradation or simply loss of lifestyle and culture. Our march of progress steamrolls things that are valuable, without much thought.

by nonbel 8y ago

agumonkey 8y ago

ignore more than assume

nonbel 8y ago
Are you saying economic growth can proceed at an infinite rate?
- agumonkey 8y ago
  I meant that trendy economic theories spread thanks to ignorance about reality, there's no deep thinking when they become the norm.

e12e 8y ago

Not certain how common it is these days, but it was supposedly commented on by Kenneth Boulding: "Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist."

gowld 8y ago
No one cares about "forever". In the long run, we're all dead, and there's no theoretical limit to exponential growth until we're all dead.
- btrask 8y ago
  Especially if we ensure that the end of exponential growth will kill us.

twoodfin 8y ago

I’m not sure what you mean by “infinite rate”. Clearly, the economy is not growing at an infinite rate today! For the US, it’s somewhere around 3% a year. Can global economic growth proceed at a modest positive average rate for centuries? It might not, but there’s no obvious reason to believe it can’t.

nonbel 8y ago
>"I’m not sure what you mean by “infinite rate”." I quoted the sentence that claims this guys main discovery was that the process of economic growth does not "explode without limit".

deleted 8y ago

[deleted]

saosebastiao 8y ago

Just to point out the misconception most people have here, that quote does not imply that growth is not infinite. Take, for example, compound growth that grows at a rate that declines over time asymptotically approaching 0%. That is infinite growth even if returns decline over time. It isn't just a hypothetical exercise. This sort of relationship with returns over time is common in both economics and finance. I, for example, experience it as a futures trader. It's not uncommon for successful day traders who intentionally limit their trading capital to get returns averaging 1% per day. Those returns, however, are completely infeasible when talking about trading capital even on the small end of mutual funds. When your trading capital increases, it becomes much harder to grow at the same rate, and returns rates diminish greatly. But they still may have positive returns. No economist I know of would ever presume that growth can happen without limit or diminishing returns. Reasonable economists will inevitably disagree on parameterization of their models though, which is entirely to be expected.

nonbel 8y ago
The quote refers to the "process of growth", which I took to refer to the rate of growth rather than growth for an infinite amount of time.

marcosdumay 8y ago

It is always better when your model does not have unrealistic corner cases.

DenisM 8y ago

>Is it common to assume economic growth can proceed at an infinite rate? Infinite rate = adding wealth at infinity dollars per hour. Clearly absurd. Unbounded growth = adding 100 dollar per hour without an end date in sight. I can argue this is feasible: Let's say you and I are trading loaves and fishes between us (using dollars as a medium of exchange). This makes a stable economy grounded in tangible goods. Then we introduce notion of intellectual property: I make paintings and you make software. Each year you make better software and sell it to me at higher price, then I make better paintings and sell them to you for the higher price. The price of bread and fish remains the same, so when the government comes in to measure the CPI they will see that the food price did not go up, therefore there is no inflation. So the dollar value of all transactions is going up, but the inflation is not going up. This can easily go on forever because it doesn't rely on any kind of natural resource that could be exhausted, apart from your hunger for better paintings and my desire for better software.

mikekchar 8y ago
Sometimes I find this kind of thing pretty weird (keep in mind that I have a very naive understanding of economics). For example, food prices as a ratio of average income keep falling. So our standard of living is improving! The same goes for a lot of goods -- like clothes. People have better access to food, more clothes, better houses and more disposable income to boot. It has struck me, though, that this standard of living increase is actually dependent upon a very specific system of production. I live in Japan and I have an interest in traditional Japanese clothing. I can buy traditional Japanese clothing made the same way it was always made, but I can't afford it. So in a way, we are not comparing apples to apples when we measure our increase in standard of living. The very fact that an artisan making traditional goods in the traditional way desires the same increase in standard of living as I have means that their goods are at least as expensive (as a ratio of average income) as they always were. Sometimes because they have a very limited market, their prices are considerably higher in order to achieve an acceptable income. In that way, I think economic growth is a bit of an illusion. We can still improve efficiency a lot -- how many people are limited in their life because they simply lack capital? I would argue that the vast majority of people on the planet fall into this category. We can grow the economy in very real terms by ensuring that more people get access to more capital. But a lot of it is smoke and mirrors. Externalities are not accounted for -- whether it be environmental degradation or simply loss of lifestyle and culture. Our march of progress steamrolls things that are valuable, without much thought.