Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Freedom Spawns Prosperity Economic Growth Depends on Freeing Our Natural Creativity

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Freedom Spawns Prosperity Economic Growth Depends on Freeing Our Natural Creativity

Article excerpt

Is economic growth over?

Gross Domestic Product has grown 3 percent a year, on average, for the last century. But tax hikes and spending cuts next year will likely send the economy back into recession, the Congressional Budget Office estimates.

The recession triggered by the subprime mortgage crisis was just the "overture," said investment guru Peter Schiff. "The opera is coming" next year, or in 2014, he said.

So batten the hatches. A big storm's coming. Will growth return to "normal" if misguided policies are reversed, as most conservatives think?

No, says economist Robert Gordon. "The rapid progress made over the past 250 years could well turn out to be a unique episode in human history," he wrote in a paper for the National Bureau of Economic Research.

For most of history, wealth barely grew. "It is fairly clear that up to 1800 or maybe 1750, no society had experienced sustained growth in per capita income," wrote Robert Lucas, a Nobel laureate in economics.

The annual rate of growth in the 18th century was just one third of 1 percent. Then, suddenly, growth spurted. World economies grew three times as fast in the 19th century. World production grew at an average annual rate of 2.4 percent in the first half of the 20th century, 4 percent in the second half.

Wealth exploded because of the vast increase in productivity generated by the inventions of the Industrial Revolution. But productivity gains from many of those innovations can happen only once, Mr. Gordon said, and they're petering out. Growth rates will plunge chiefly because population is growing more slowly, and resources -- particularly energy -- are more expensive.

Our old GDP growth rate is "gone forever," agreed Jeremy Grantham, chief investment strategist for an asset management firm. Future GDP growth will average less than 1 percent a year, he predicts.

If they're right, things will get ugly. Before the Industrial Revolution, people thought the only way to get more wealth was to take it from someone else. This sparked class conflict and wars of conquest.

Why -- after thousands of years of stagnation -- did the Industrial Revolution break out where and when it did? That's the key question, but Mr. …

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