This interesting article in Washington Post entitled “We’re facing the ‘Great American Slowdown.’ Should we celebrate?” has cited the new book written by an economist at the University of Houston, who argues that in the long run a lower growth rate for US is a stylized fact that is to be accepted and celebrated. But while slowdown growth has been a fact in the US, it does not mean growth in general must slow down everywhere.
From an economic perspective, slower growth simply means the old engines of growth have had a diminishing marginal returns, plus dealing with an exponential growth function in the form of $latex f(x)=a(1+r)^t$. Nothing more, nothing less. We normally would not celebrate water falling off cliffs (except a group of first time tourists amazed by the natural beauty of say the Niagara Fall), so we normally do not celebrate slower growth per se. Far more important is to constantly find new growth engines that promise increasing marginal returns. In a sense, we are taking diminishing marginal returns as given but leveraging that by moving forward to new growth drivers, with the understanding that a larger economic base makes it harder to maintain a constant growth rate — if we stick to the old engines.
It is in this sense that China becomes important: Will a country with a single strong preference for materialistic gains succeed in achieving higher growth rate? The answer is “Yes” or “No,” depending on whether the country can gather all the resources and forces to pull it off. The party and the people are currently determined to show the world that they can get it down. This would make the most fascinating real life story of the world in the 21st century.
Getting New Growth Engine Through Cooperation and Trial-and-Errors
Can the US make it through efforts of its own? Looking at Silicon Valley it certainly can. The key for countries with high productivity is to lower switching cost as the new means of achieving comparative advantage. To achieve low switching cost is to make options similar to each other so it is easy to change from one to another without suffering big loss during the transition. It becomes feasible because similar numerators and denominators form a ratio that is close to 1.0, thus switching from the numerator option to the denominator option leads to no substantial loss of returns. In fact, the closer the numerator and denominator, the better or less loss from switching. To the extent that easy switching makes entities better adaptive to changes, this maintains dynamic efficiency in the long run.
But why higher productivity can do better than lower one? There are several reasons. First of all, higher productivity means more and better cooperation. In Python programming, one programmer can open her- or himself up to all the methods and functions written by different programmers to solve specific problems. These codes are one word away by “from somewhere import something” Secondly, spreading out productivity in one project to others has a diminishing marginal cost due to leveraging the existing inputs to something similar, no extra cost is needed. Thirdly,