2 ms·
This is really cool, what you have just described is actually a pretty important concept in macroeconomics and is described in the Solow-Swan model [1]. As you
by octodog 6y ago
This is really cool, what you have just described is actually a pretty important concept in macroeconomics and is described in the Solow-Swan model [1].
As you say, infrastructure (and all physical capital) depreciates, so some amount of savings must be allocated towards replenishing it. Any leftover savings can be invested into more physical capital (be it tractors, roads, computers), which creates economic growth. However, if you assume that there are diminishing returns to physical capital, then eventually the capital required to replenish depreciation will be equal to the entire income saved (total income less consumption) by an economy. At this point, known as the "steady-state", economic growth falls to 0.
If you are interested in knowing more about the Solow-Swan model I'd recommend these introductory youtube videos [2]. The first three in the playlist in particular outline the basics pretty well.
It must be noted that the Solow-Swan model is quite a simple model and it doesn't completely explain how economies work. For example, the role of human capital (education) and technological advances aren't fully captured. However, it is useful for understanding some of the factors that drive economic growth, particularly in the cases of post-war Germany and Japan or modern day China.
[1]: https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model
[2]: https://www.youtube.com/playlist?list=PL-uRhZ_p-BM6L_I3IHvE85NHooK2Ln9Rm https://www.youtube.com/playlist?list=PL-uRhZ_p-BM6L_I3IHvE8...