Why Are Rich Countries Rich?
This is the question that the academic study of Economic Growth tries to answer. I just finished reading Introduction To Economic Growth by Jones and Vollrath. They put this question forward as the central motivation of the subject.
They go into many different models. At a fundamental level, it boils down to several factors: the number of people, how good a set of tools/factories/land the people have access to, and how good the technology is to combine everything into products.
Some of the ideas seem like common sense. For instance, if your population grows faster than your ability to create capital (tools/factories/etc) then overall each person becomes poorer. This is one of the reasons China implemented its one-child policy, they need population growth to slow down so they could catch up. Now they face the consequences, but it provided a rapid rise in living standards over the last 40 years.
It is really hard to measure how life is getting better or not. Currently, we use GDP (gross domestic product) and hours worked to calculate the growth in the economy and living standards. But by those measurements, the US economy grows around 3.3%/year. There seems to be no real impact from all the technology that has been created in the last 70 years on the growth rate.
I think there is a fundamental disconnect based on measuring GDP in dollars. An example is my iPhone (or Android). I can make phone calls from anywhere for $120/month in the U.S. I remember calling long distance as a kid and my grandparents hanging up because they were worried about the bill. So in real dollar terms, the phone is cheaper and has massively more utility. It also provides a GPS map which we didn’t have. My wife and I would get into endless arguments over navigating the car in the 90s. So if you priced out all the things you would have to buy in 1990 to replace everything your phone can do it would be tens of thousands of dollars.
None of this is picked in GDP. I don’t fault the measurement. It definitely captures something, but I don’t think it tells the whole story. I am not sure how you can create a “fair” number that captures the reality without it being too complicated.
The authors did a good job explaining the academic discipline and giving me the lay of the land. There was a lot of math that I didn’t take the time to master, but even skipping through it I was able to grab the main takeaways, so I can remend it for anyone curious about the topic
