Question

According to Robert Gordon, the last two centuries of economic growth might actually amount to just "one big wave" of dramatic change rather than a new era of interrupted progress, and that the world is returning to extensive growth, which is a matter of adding more and/or better labor, capital, and resources. Which of the growth theories that you studied in this chapter best corresponds to the argument advanced by Mr. Gordon?

Short answer

Robert Gordon's argument aligns best with the Classical growth theory.

Step-by-step solution

- Understand Robert Gordon's Argument

Robert Gordon suggests that the last two centuries of economic growth are a significant period of change, characterized by what might be termed 'one big wave.' He argues that the world is transitioning back to extensive growth, meaning progress is now dependent on the increased quantity and quality of labor, capital, and resources.

- Identify Key Points

The key points in Gordon's argument are: 1) a period of dramatic change (one big wave), and 2) a return to extensive growth reliant on labor, capital, and resources rather than continuous innovation.

- Review Growth Theories

Refer to common growth theories. Extensive growth involves increasing inputs such as labor, capital, and resources, in contrast to intensive growth, which focuses on improvements in efficiency and technology. Some relevant growth theories include the Classical growth theory, which emphasizes the role of capital accumulation, and the Malthusian theory, which discusses the limits of growth based on resource constraints.

- Match Gordon's Argument to Growth Theory

Compare Gordon's argument to the different growth theories. The Classical growth theory is consistent with Gordon’s view of returning to extensive growth, as it highlights the importance of capital, labor, and resources in driving economic growth.

- Conclusion

Determine that the Classical growth theory best corresponds to Gordon’s argument because it emphasizes extensive growth through the addition of labor, capital, and resources.

Key concepts

Extensive Growth

Extensive growth refers to economic growth achieved by increasing the amount of inputs used in production, such as labor, capital, and natural resources. Unlike intensive growth, which results from improvements in efficiency and technology, extensive growth focuses on scaling up production by adding more resources. This approach has limitations since it relies heavily on the availability and quality of additional inputs. Over time, the benefits of simply adding more resources can diminish, leading to slower economic growth rates. For example, employing more workers or purchasing additional machinery can boost production initially, but without corresponding advancements in technology or processes, the productivity gains may eventually plateau. To summarize, while extensive growth can drive short-term economic improvements, it is not a sustainable long-term growth strategy without complementary innovations or efficiency improvements.

Classical Growth Theory

Classical growth theory is an economic concept that emphasizes the importance of capital accumulation, labor, and resources in driving economic growth. This theory, initially developed by economists like Adam Smith, David Ricardo, and Thomas Malthus, posits that economic growth is closely tied to increases in these key inputs. According to classical growth theory, an economy grows through the investment of capital (such as machinery and infrastructure), expansion of the labor force, and effective use of natural resources. However, classical growth theorists also recognize limitations, particularly the concept of diminishing returns. As more capital and labor are added, the incremental gains in productivity tend to decrease. Moreover, Malthusian aspects highlight that without technological advancements, population growth could outpace resource availability, leading to stagnation or even decline. This aligns with Robert Gordon's argument that recent economic growth might be a unique period (a 'big wave'), and we are now moving back to an era where growth depends primarily on accumulating resources rather than innovation.

Robert Gordon's Argument

Robert Gordon, an economist known for his work on productivity and economic growth, presents a compelling argument that reframes how we view the past two centuries of economic development. He suggests that what many consider an era of continuous progress may be better understood as 'one big wave' of dramatic change. According to Gordon, this wave was marked by significant technological and industrial advancements that propelled economic growth at an unprecedented rate. However, he argues that this wave has crested, and we are now returning to a period of extensive growth. In this new phase, future economic growth will rely more on increasing the quantity and quality of labor, capital, and resources rather than on groundbreaking innovations. Gordon's perspective challenges the notion of perpetual rapid progress and highlights the importance of sustainable input growth in maintaining economic development. This view is consistent with classical growth theory, which also emphasizes the critical roles of labor, capital, and resources in driving economic expansion.