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Whether one prefers ‘Plan A’ or ‘Plan B’, we’re all agreed that the goal of economic policy is economic growth. Well, everyone except the crustier kind of environmentalist who sees it as a deadly threat to the planet. However, even they must see growth as the default state of industrialised economies, otherwise they wouldn’t be so worried about it.
But what if they’re wrong? What if we’re all wrong – conservatives, liberals, socialists, crusties, just about everyone?
In a fascinating post on the work of the economist Robert Gordon, Tim Harford reminds us that, historically, economic growth is the exception not the rule:
The conventional response is that the industrial revolution ushered in an era in which one innovation leads to another, leading to ongoing improvements in economic productivity and, therefore, growth.
But what if the rate of innovation is now slowing down?
In the short-term, economic growth isn’t only about innovation. Demand-side factors like the availability of credit and supply-side factors like regulation can speed things up or slow them down. But in the long-term, no innovation means no growth:
The rapid growth seen in countries like China is basically down to the fact they’re still in the process of exploiting innovations whose potential has long been exhausted in the west.
In the conflict between left and right over economic policy, which broadly corresponds to the debate between Keynesians and ‘Austrians’ over economic theory, the potential for growth is rather taken for granted on both sides.
It’s a bit like two people arguing over a car that’s come to halt. One person says there’s no fuel in the tank, the other one that the brakes are on – but what they’ve both failed to notice is that the engine’s packed-up.