True Economic Growth vs. a Pyramid Scheme

Once you start thinking about economic growth, it’s hard to think about anything else.

– Robert E. Lucas

Q: What is the difference between maintaining sound fiscal policy and running a pyramid scheme with respect to government debt?

A: It all depends on the economy’s predicted growth rate.

What is economic growth, where does it come from, and how do we measure it? These are simple questions, but it is fundamentally important to get them right in order to understand what is ahead for the U.S. economy, and how its growth relates to government fiscal policy. Here I would like to take a look at how we measure economic growth, and argue that sometimes true economic growth may not be what it seems, at least in the short term.

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An Economic Expansion That Wasn’t

In recent days my friends have been asking me the same questions that we hear on TV many times a day… What is happening to the financial markets, and is it the beginning of the end for America? Below is just my personal view on the situation.

America as a nation has enjoyed vigorous economic growth for a very long period of time, going back to the 18th century. As the economy grew, Americans got wealthier, and now we enjoy one of the highest standards of living, as compared to the rest of the world. But what drives the underlying economic growth that makes us all richer in the end? It is the process of innovation and progress that drives economic growth. It is people coming up with new discoveries and technologies that provide more “bang for the buck”, and ultimately make our lives easier and more productive. America historically has been an innovator, with inventors like Edison, Westinghouse, and Ford revolutionizing technologies that made our lives better. It is the process of innovation that lies at the core of any economic expansion. That was then…

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