Thursday, February 28, 2013

Population Growth and Technology Growth

I was reading my Krugman-Wells textbook this morning about GDP and left with some insights.  Krugman maintains that the population growth and technology growth aren't equal.  Technology is increasing faster so output per worker is increasing.  As Q/L increases, GDP per capita increases.  Krugman's approximation is that GDP has increased 7 times since 1900. 

After a Google search, I found the following cool discussion:

In the absence of market frictions, the maximum attainable economic growth rate is (1+P)*(1+T)-1 where P is the population growth rate and T is the productivity growth rate.

If market frictions exist and then decrease, the realized growth rate will exceed (1+P)*(1+T)-1. If frictions increase, then the realized growth will be less than (1+P)*(1+T)-1.
 The market frictions are such things are workers in between jobs and workers inability to find a job that suits their endowments.  Structural unemployment results from changes in the industry that make the workers skills obsolete. shows real GDP growth at -.1% and the population rate increasing.  This means less pie for everyone as measured by the GDP per capita.

Have we reached the point where technology can no longer elevate the standard of living?  Have we reached the point where less workers are needed per unit of capital?  Krugman makes the point that many of the technological improvements that boosted the economy were the result of industry finding ways to make use of new technology.  Also, Krugman mentions that not all technology was a new whiz-bang computer.  Improvements like the sticky note and flat bottom paper bags significantly boosted output. 

Yet, I see the post office losing workers to technology.  I see teachers being replaced by online classes where enrollment can reach 500 students in a class.  I see significant changes in the structure of the economy and the economy's ability to produce goods and services.  Has the US reached a steady state?

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