Sunday, July 17, 2016

How Can We Explain China's Rapid Growth?

Paul Romer raises some interesting ideas about economic growth.  For example, China's growth rate accelerated simultaneously with urbanization.  Romer then speculates about a possible relationship between urbanization and economic growth.  He suggests that new ideas lead to economic growth, and that the production of new ideas accelerated with urbanization.  The interactions between idea generating people compound when they live in large cities.  Economic growth is a function of idea generation within a system that enables the best ideas to blossom and bear fruit.  Some ideas are small but they lead to important changes that promote growth.  Meta ideas are ideas about ideas.  They foster the compounding of ideas.  For example, growth in the US was facilitated by a meta idea which created public universities that attracted large numbers of students to study science and engineering.  He suggested that a new meta idea might also promote sustainable growth.  Instead of awarding grants to universities, we might award grants to promising graduate students.  That would encourage competition between universities for the best students.  Under our current system, in which the top universities receive the most funding, we have not produced a promising new university since Stanford and the University of Chicago were created.

(Paul Romer just accepted the Chief Economist position at the World Bank}

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