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GDP real growth rates, 1990–1998 and 1990–2006, in selected countries.

Rate of change of Gross domestic product, world and OECD, since 1961

Economic growth caused the production-possibility frontier to shift outward.

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.

As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries.

As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.

Definitions and history[link]

Economic growth versus the business cycle[link]

Economists distinguish between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the business cycle. Briefly, the business cycle is made up of booms and busts in production that occur over a period of months or years. The most recent example of a business cycle was the global boom starting in approximately 2002 that ended with the bust of 2008–9. As discussed in the article on the business cycle, economists attribute the ups and downs in the business cycle to a number of causes including: overproduction of goods followed by large inventories that can't be readily sold, overexpansion of credit resulting in piling up of debt that inhibits purchasing; speculative bubbles, and shocks—like wars, political upheavals, and so on.

In contrast, the topic of economic growth is concerned with the long-run trend in production due to basic causes such as industrialization. The business cycle moves up and down, creating fluctuations in the long-run trend in economic growth.

Historical sources of economic growth[link]

Increases in productivity are the main factor responsible for economic growth, especially since the mid 19th century. Most of the economic growth since that time been due to reduced inputs of labor, materials, energy, capital and land per unit of economic output (less input per widget). The balance of growth has come from using more inputs overall because of the growth in output (more widgets), including new kinds of goods and services (innovations).^[1]

Opening up new territories was considered a growth factor in the past, being important since the late 19th century and in limited cases in the 20th century, such as the Amazon.

During colonial times, what ultimately mattered for economic growth were the institutions and systems of government imported through colonization. There is a clear reversal of fortune between the poor and wealthy countries, which is evident when comparing the method of colonialism in a region. Geography and endowments of natural resources are not the sole determinants of GDP. In fact, those that were blessed with good factor endowments experienced colonial extraction which only provided limited rapid growth; whereas, countries that were less fortunate in their original endowments experienced European settlement, relative equality, and demand for rule of law. These initially poor colonies end up developing an open franchise, equality, and broad public education, which helps them experience greater economic growth than the colonies that had exploited their economies of scale.

During the Industrial Revolution, mechanization began to replace hand methods in manufacturing and new processes were developed to make chemicals, iron, steel and other products.

Since the Industrial Revolution, a major factor of productivity was the substitution of energy from, human and animal labor, water and wind power to electric power and internal combustion. Since that replacement, the great expansion of total power was driven by continuous improvements in energy conversion efficiency.^[2] Other major historical sources of productivity were automation, transportation infrastructures (canals, railroads, and highways),^[3] new materials (steel) and power, which includes steam and internal combustion engines and electricity. Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, and the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, which is universally used today.

Productivity lowered the cost of most items in terms of work time required to purchase. Real food prices fell due to improvements in transportation and trade, mechanized agriculture, fertilizers, scientific farming and the Green Revolution.

Great sources of productivity improvement in the late 19th century were the railroads, steam ships, horse-pulled reapers and combine harvesters, and steam-powered factories. The invention of processes for making cheap steel were important for many forms of mechanization and transportation. By the late 19th century, power and machinery were creating overproduction, which eventually caused a reduction of the hourly work week. Prices fell because less labor, materials, and energy were required to produce and transport goods; however, workers real pay rose, allowing workers to improve their diet and buy consumer goods and better housing.^[4]

Mass production of the 1920s created overproduction, which was arguably one of several causes of the Great Depression of the 1930s.^[5] Following the Great Depression, economic growth resumed, aided in part by demand for entirely new goods and services, such as household electricity, telephones, radio, television, automobiles, and household appliances, air conditioning, and commercial aviation (after 1950), creating enough new demand to stabilize the work week.^[6] Building of highway infrastructures also contributed to post World War II growth, as did capital investments in manufacturing and chemical industries. The post World War II economy also benefited from the discovery of vast amounts of oil around the world, particularly in the Middle East.

Economic growth in Western nations slowed after 1973, but growth in Asia has been strong since then, starting with Japan and spreading to Korea, China, the Indian subcontinent and other parts of Asia. In 1957 South Korea had a lower per capita GDP than Ghana,^[7] and by 2008 it was 17 times as high as Ghana's.^[8] The Japanese economic growth has slowed down considerably since late 1980s.

Economic growth per capita[link]

Often, the concern about economic growth focuses on the desire to improve a country's standard of living—the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if population has grown along with economic production, increases in GDP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis.

Economic growth per capita is primarily driven by improvements in productivity, also called economic efficiency. Increased productivity means producing more goods and services with the same inputs of labour, capital, energy, and/or materials. For example, labour and land productivity in agriculture were increased during the Green Revolution. The Green Revolution of the 1940s to 1970s introduced new grain hybrids, which increased yields around the world.

However, there is not necessarily a long term one-to-one relationship between improvements in productivity and improvements in average standard of living.^[9] Among other factors that might prevent a long-term improvement in standard of living despite economic growth is the potential for population growth matching or outstripping productivity improvements. When increased food supplies spur population growth rather than an improvement in the standard of living, people are said to be caught in the "Malthusian trap," named for Thomas Robert Malthus, the first observer to detail out this dilemma. There is considerable controversy, for example, as to whether the Green Revolution resulted in long-term improvements in the standard of living as it was accompanied by rapid population growth creating population sizes that may be unsustainable.^[10]

Economic growth can also be of interest without reference to per capita changes in standard of living. An example of this is the economic growth in England during the Industrial Revolution. Certainly, per capita increases in productivity occurred due to the replacement of hand labour by machines. However, economic growth during this period was in large part so dramatic because England's population simultaneously increased very rapidly (1700 A.D. – 1860 A.D.). The two factors together, more production per worker combined with many more workers, resulted in a sixfold increase in production between 1700 and 1860. Population growth alone accounted for most of this increase.^[11]

Measuring economic growth[link]

Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a country which creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011, has a nominal economic growth rate of 1% for 2011.

In order to compare per capita economic growth among countries, the total sales of the countries to be compared may be quoted in a single currency. This requires converting the value of currencies of various countries into a selected currency, for example U.S. dollars. One way to do this conversion is to rely on exchange rates among the currencies, for example how many Mexican pesos buy a single U.S. dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same "basket of goods" in each country.

Inflation or deflation can make it difficult to measure economic growth. If GDP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation) or because more goods and services were produced and saved? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation.

For example, a table may show changes in GDP in the period 1990 to 2000, as expressed in 1990 U.S. dollars. This means that the single currency being used is the U.S. dollar with the purchasing power it had in the U.S. in 1990. The table might mention that the figures are "inflation-adjusted" or real. If no adjustment were made for inflation, the table might make no mention of inflation-adjustment or might mention that the prices are nominal.

The power of annual growth[link]

Over long periods of time, even small rates of growth, like a 2% annual increase, will have large effects. For example, the United Kingdom experienced a 1.97% average annual increase in inflation-adjusted GDP between 1830 and 2008.^[12] In 1830, the GDP was 41,373 million pounds. It grew to 1,330,088 million pounds by 2008. (Figures are adjusted for inflation and stated in 2005 values for the pound.) A growth rate which averaged 1.97% over 178 years resulted in a 32-fold increase in GDP by 2008.

The large impact of a relatively small growth rate over a long period of time is due to the power of compounding (also see exponential growth). A growth rate of 2.5% per annum leads to a doubling of GDP within 29 years, whilst a growth rate of 8% per annum (an average exceeded by China between 2000 and 2010) leads to a doubling of GDP within 10 years. Thus, a small difference in economic growth rates between countries can result in very different standards of living for their populations if this small difference continues for many years.

[edit] Theories of economic growth

Classical growth theory[link]

Adam Smith wrote The Wealth of Nations

The modern conception of economic growth began with the critique of Mercantilism, especially by the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and the foundation of the discipline of modern political economy. The theory of the physiocrats was that productive capacity, itself, allowed for growth, and the improving and increasing capital to allow that capacity was "the wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the notion that manufacturing was central to the entire economy.^[13]

David Ricardo argued that trade was a benefit to a country, because if one could buy a good more cheaply from abroad, it meant that there was more profitable work to be done here. This theory of "comparative advantage" would be the central basis for arguments in favor of free trade as an essential component of growth.^[14]

The neoclassical growth model[link]

The notion of growth as increased stocks of capital goods (means of production) was codified as the Solow-Swan Growth Model, which involved a series of equations which showed the relationship between labor-time, capital goods, output, and investment. According to this view, the role of technological change became crucial, even more important than the accumulation of capital. This model, developed by Robert Solow^[15] and Trevor Swan^[16] in the 1950s, was the first attempt to model long-run growth analytically. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person will grow faster because each investment in capital will produce a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies will eventually reach a point at which any increase in capital will no longer create economic growth. This point is called a "steady state".

The model also notes that countries can overcome this steady state and continue growing by inventing new technology. In the long run, output per capital depends on the rate of saving, but the rate of output growth should be equal for any saving rate. In this model, the process by which countries continue growing despite the diminishing returns is "exogenous" and represents the creation of new technology that allows production with fewer resources. Technology improves, the steady state level of capital increases, and the country invests and grows. The data does not support some of this model's predictions, in particular, that all countries grow at the same rate in the long run, or that poorer countries should grow faster until they reach their steady state. Also, the data suggests the world has slowly increased its rate of growth.

However, modern economic research shows that the baseline version of the neoclassical model of economic growth is not supported by the evidence.^{[citation needed]}

Salter cycle[link]

According to the Salter cycle, economic growth is enabled by increases in productivity, which lowers the inputs (labour, capital, material, energy, etc.) for a given amount of product (output).^[17] Lowered cost increases demand for goods and services, which also results in capital investment to increase capacity. New capacity is more efficient because of new technology, improved methods and economies of scale. This leads to further price reductions, which further increases demand, until markets become saturated due to diminishing marginal utility.^[18][19]

Endogenous growth theory[link]

World map of the 2008–2009 Global Competitiveness Index.

Growth theory advanced again with theories of economist Paul Romer and Robert Lucas, Jr. in the late 1980s and early 1990s.

Unsatisfied with Solow's explanation, economists worked to "endogenize" technology in the 1980s. They developed the endogenous growth theory that includes a mathematical explanation of technological advancement.^[20][21] This model also incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation).^[22]

John Joseph Puthenkalam's research aims at the process of economic growth theories that lead to economic development. After analyzing the existing capitalistic growth-development theoretical apparatus, he introduces the new model which integrates the variables of freedom, democracy and human rights into the existing models and argue that any future economic growth-development of any nation depends on this emerging model as we witness the third wave of unfolding demand for democracy in the Middle East. He develops the knowledge sector in growth theories with two new concepts of 'micro knowledge' and 'macro knowledge'. Micro knowledge is what an individual learns from school or from various existing knowledge and macro knowledge is the core philosophical thinking of a nation that all individuals inherently receive. How to combine both these knowledge would determine further growth that leads to economic development of developing nations. For further reading, please refer to "Integrating Freedom, Democracy and Human Rights into Theories of Economic Growth" (1998,2000&2009).

Ayres-Warr model[link]

The useful work growth theory, also called the Ayres-Warr model, addresses deficiencies in the neo-classical and endogenous growth models. It claims that physical and chemical work performed by energy, or more correctly exergy, has historically been a very important driver of economic growth.^{[2] [23]} Key support for this theory is a mathematical model showing that the efficiency of electrical generation is a good proxy for the Solow residual, or technological progress, that is, the portion of economic growth that is not attributable to capital or labor.^[24][25]

The useful work theory relates the slowing of economic growth to energy conversion efficiencies approaching thermodynamic limits, and cautions that declining resource quality could bring an end to economic growth in a few decades.

The useful work theory is part of a body of economic research and analysis sponsored by the International Institute for Applied Systems Analysis (IIASA) and INSEAD and is cited by the International Energy Agency.^[26]

Theory of cognitive wealth (cognitive capitalism)[link]

The theory of "Cognitive capitalism" asserts that cognitive ability is the crucial factor which creates wealth in modern economies, and that the geographical factors which have been necessary in ancient societies are no longer so important. The average cognitive ability of a nation determines its wealth, each IQ point increase boosting a country's average GDP by $229. Of even more significance, the IQ of the brightest 5% of people in the nation (the cognitive elite) boosts GDP by $468 per IQ point. The cognitive elite support general efficiency, technological innovation, efficient administration, independent institutions, and economic freedom. Via these factors intelligence and knowledge stimulate growth leading to national wealth, which in turn may boost cognitive ability in a virtuous circle. The theory was developed by the two psychologists Heiner Rindermann and James Thompson.^[27] The theory is related to human capital theory.

Unified growth theory[link]

Unified growth theory was developed by Oded Galor and his co-authors to address the inability of endogenous growth theory to explain key empirical regularities in the growth processes of individual economies and the world economy as a whole. Endogenous growth theory was satisfied with accounting for empirical regularities in the growth process of developed economies over the last hundred years. As a consequence, it was not able to explain the qualitatively different empirical regularities that characterized the growth process over longer time horizons in both developed and less developed economies. Unified growth theories are endogenous growth theories that are consistent with the entire process of development, and in particular the transition from the epoch of Malthusian stagnation that had characterized most of the process of development to the contemporary era of sustained economic growth.^[28]

The big push[link]

Theories of economic growth, the mechanisms that let it take place and its main determinants are abound. One popular theory in the 1940s, for example, was that of the "Big Push" which suggested that countries needed to jump from one stage of development to another through a virtuous cycle, in which large investments in infrastructure and education coupled with private investments would move the economy to a more productive stage, breaking free from economic paradigms appropriate to a lower productivity stage.^[29]

Institutions and growth[link]

According to Acemoğlu, Simon Johnson and James Robinson, the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e.g. those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and geo-political boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts which in turn hinder development. In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large.^[30]

Human capital and growth[link]

One ubiquitous element of both theoretical and empirical analyses of economic growth is the role of human capital. The skills of the population enter into both neoclassical and endogenous growth models.^[31] The most commonly used measure of human capital is the level of school attainment in a country, building upon the data development of Robert Barro and Jong-Wha Lee.^[32] This measure of human capital, however, requires the strong assumption that what is learned in a year of schooling is the same across all countries. It also presumes that human capital is only developed in formal schooling, contrary to the extensive evidence that families, neighborhoods, peers, and health also contribute to the development of human capital. In order to measure human capital more accurately, Eric Hanushek and Dennis Kimko introduced measures of mathematics and science skills from international assessments into growth analysis.^[33] They found that quality of human capital was very significantly related to economic growth. This approach has been extended by a variety of authors, and the evidence indicates that economic growth is very closely related to the cognitive skills of the population.^[34]

Inequality and economic growth[link]

The effect of inequality on economic growth[link]

The classical theory[link]

Inequality has a positive effect on economic development. The marginal propensity to save increases with wealth and inequality increases savings, capital accumulation, and economic growth.^[35]

The neoclassical theory[link]

The neoclassical theory ignores the relevance of income distribution for macroeconomic analysis. It interprets the observed relationship between inequality and economic growth as a reflection of the growth process on the distribution of income.333

The modern theory[link]

The modern theory suggests that income distribution, plays an important role in the determination of aggregate economic activity and economic growth.

The credit market imperfection approach, developed by Galor and Zeira (1993), demonstrates that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development.^[36]

The political economy approach, developed by Alesina and Rodrik (1994) and Persson and Tabellini (1994), suggests that inequality is harmful for economic development because inequality generates a pressure to adopt redistributive policies that have an adverse effect on investment and economic growth.^[37]

Evidence[link]

Perotti (1996) examines of the channels through which inequality may affect economic growth. He shows that in accordance with the credit market imperfection approach, inequality is associated with lower level of human capital formation and higher level of fertility, while lower level of human capital is associated with lower growth and lower levels of economic growth. In contrast, his examination of the political economy channel refutes the political economy mechanism. He demonstrates that inequality is associated with lower levels of taxation, while lower levels of taxation, contrary to the theories, are associated with lower level of economic growth.^[38]

The effect of growth on inequality[link]

Economist Xavier Sala-i-Martin argues that global income inequality is diminishing,^[39] and the World Bank argues that the rapid reduction in global poverty is in large part due to economic growth.^[40] The decline in poverty has been the slowest where growth performance has been the worst (i.e. in Africa).^[41]

Quality of life[link]

Happiness has been shown to increase with a higher GDP per capita, at least up to a level of $15,000 per person.^[42]

Economic growth has the indirect potential to alleviate poverty, as a result of a simultaneous increase in employment opportunities and increase labour productivity.^[43] A study by researchers at the Overseas Development Institute (ODI) of 24 countries that experienced growth found that in 18 cases, poverty was alleviated.^[43] However, employment is no guarantee of escaping poverty, the International Labour Organisation (ILO) estimates that as many as 40% of workers as poor, not earning enough to keep their families above the $2 a day poverty line.^[43] For instance, in India most of the chronically poor are wage earners in formal employment, because their jobs are insecure and low paid and offer no chance to accumulate wealth to avoid risks.^[43] This appears to be the result of a negative relationship between employment creation and increased productivity, when a simultaneous positive increase is required to reduced poverty. According to the UNRISD, increasing labour productivity appears to have a negative impact on job creation: in the 1960s, a 1% increase in output per worker was associated with a reduction in employment growth of 0.07%, by the first decade of this century the same productivity increase implies reduced employment growth by 0.54%.^[43]

Increases in employment without increases in productivity leads to a rise in the number of "working poor", which is why some experts are now promoting the creation of "quality" and not "quantity" in labour market policies.^[43] This approach does highlight how higher productivity has helped reduce poverty in East Asia, but the negative impact is beginning to show.^[43] In Viet Nam, for example, employment growth has slowed while productivity growth has continued.^[43] Furthermore, productivity increases do not always lead to increased wages, as can be seen in the United States, where the gap between productivity and wages has been rising since the 1980s.^[43] The ODI study showed that other sectors were just as important in reducing unemployment, as manufacturing.^[43] The services sector is most effective at translating productivity growth into employment growth. Agriculture provides a safety net for jobs and economic buffer when other sectors are struggling.^[43] This study suggests a more nuanced understanding of economic growth and quality of life and poverty alleviation.

Opportunities, education, health, security and a healthy environment contribute to the quality of life. Public policy plays a great role happiness, as Petra Pinzler points out in D+C Development and Cooperation.

Negative effects of economic growth[link]

A number of critical arguments have been raised against economic growth.^[44]

It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living.^[45] Historically, sustained growth has reached its limits (and turned to catastrophic decline) when perturbations to the environmental system last long enough to destabilise the bases of a culture.^[45]

Resource depletion[link]

Many earlier predictions of resource depletion, such as Thomas Malthus' 1798 predictions about approaching famines in Europe, The Population Bomb (1968),^[46][47][48] Limits to Growth (1972),^[46][47][48] and the Simon–Ehrlich wager (1980) ^[49] did not materialize, nor has diminished production of most resources occurred so far, one reason being that advancements in technology and science have allowed some previously unavailable resources to be produced.^[49] In some cases, substitution of more abundant materials, such as plastics for cast metals, lowered growth of usage for some metals. In the case of the limited resource of land, famine was relieved firstly by the revolution in transportation caused by railroads and steam ships, and later by the Green Revolution and chemical fertilizers, especially the Haber process for ammonia synthesis.^[50][51]

M. King Hubbert's prediction of world petroleum production rates. Virtually all economic sectors rely heavily on petroleum.

In the case of minerals, lower grades of mineral resources are being extracted, requiring higher inputs of capital and energy for both extraction and processing.^[52] An example is natural gas from shale and other low permeability rock, which can be developed with much higher inputs of energy, capital, and materials than conventional gas in previous decades. Another example is offshore oil and gas, which has exponentially increasing cost as water depth increases.

Some "Malthusians", such as William R. Catton, Jr., author of the 1980 book "Overshoot," are skeptical of these various advancements in technology which make available previously inaccessible or lower grade resources. The counter-argument is that such advances as well as increases in efficiency merely accelerate the drawing down of finite resources. Catton has referred to the contemporary increases in rates of resource extraction as "stealing ravenously from the future."^[53] The apparent and temporary "increase" of resource extraction with the use of new technology leads to the popular perception that resources are infinite or can be substituted without limit, but this perception fails to consider that ultimately, even lower quality resources are finite and become uneconomic to extract when the ore quality is too low. Because of cultural lag, the perception of infinite resources and substitutes may linger on for generations, and may not change, since the inevitable resource bankruptcy is passed on to posterity. Catton has called the faith in technology a form of "cargoism," which takes its meaning from various "Cargo Cults" in Melanesia and Micronesia. Furthermore, Joseph Tainter, anthropologist, historian and author of the book "The Collapse of Complex Societies," has pointed out that each new addition of complexity to technology can only be sustained if there is a good enough return to justify the technology, and that over time, increases in complexity have improved productivity at an ever decreasing rate. As an example, in the early 1900s when much of the world's oil was untapped, it was sufficient to drill a few metres into the ground and install inexpensive rigs to extract oil at rapid rates. At the beginning of the 21st century, in order to achieve the same flowrates or less, oilfields must be drilled much deeper and managed with sophisticated techniques and equipment costing many hundreds of millions of dollars. If such trends continue, there may arrive a time when it becomes uneconomic to increase complexity in order to access lower grade resources with no net improvement in productivity.

Environmental impact[link]

Forest in Indonesia being cut for palm oil plantation.

Some critics^[who?] argue that a narrow view of economic growth, combined with globalization, is creating a scenario where we could see a systemic collapse of our planet's natural resources.^[54] Other critics draw on archaeology to cite examples of cultures they claim have disappeared because they grew beyond the ability of their ecosystems to support them.^[55] Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the ideas of uneconomic growth and de-growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them.

Those more optimistic about the environmental impacts of growth believe that, although localized environmental effects may occur, large scale ecological effects are minor. The argument as stated by commentators Julian Lincoln Simon states that if these global-scale ecological effects exist, human ingenuity will find ways of adapting to them.^[56]

Equitable growth[link]

While acknowledging the central role economic growth can potentially play in human development, poverty reduction and the achievement of the Millennium Development Goals, it is becoming widely understood amongst the development community that special efforts must be made to ensure poorer sections of society are able to participate in economic growth.^[57] For instance, with low inequality a country with a growth rate of 2% per head and 40% of its population living in poverty, can halve poverty in ten years, but a country with high inequality would take nearly 60 years to achieve the same reduction.^[58] In the words of the Secretary General of the United Nations Ban Ki-Moon:

"While economic growth is necessary, it is not sufficient for progress on reducing poverty."^[57]

Researchers at the Overseas Development Institute compares situations such as in Uganda, where during a period of annual growth of 2.5% between 2000 and 2003, the percentage of people living in poverty actually increased by 3.8%.^[57] The ODI thus emphasises the need to ensure social protection is extended to allow universal access and that policies are introduced to encourage the private sector to create new jobs as the economy grows (as opposed to jobless growth) and seek to employ people from disadvantaged groups.^[57]

Implications of global warming[link]

see Economics of global warming

Up to the present there are close correlations of economic growth with carbon dioxide emissions across nations, although there is also a considerable divergence in carbon intensity (carbon emissions per GDP).^[59] The Stern Review notes that the prediction that "under business as usual, global emissions will be sufficient to propel greenhouse gas concentrations to over 550ppm CO₂e by 2050 and over 650–700ppm by the end of this century is robust to a wide range of changes in model assumptions". The scientific consensus is that planetary ecosystem functioning without incurring dangerous risks requires stabilization at 450–550 ppm.^[60]

As a consequence, growth-oriented environmental economists propose massive government intervention into switching sources of energy production, favouring wind, solar, hydroelectric, and nuclear. This would largely confine use of fossil fuels to either domestic cooking needs (such as for kerosene burners) or where carbon capture and storage technology can be cost-effective and reliable.^[61] The Stern Review, published by the United Kingdom Government in 2006, concluded that an investment of 1% of GDP would be sufficient to avoid the worst effects of climate change, and that failure to do so could risk climate-related costs equal to 20% of GDP. Because carbon capture and storage is as yet widely unproven, and its long term effectiveness (such as in containing carbon dioxide 'leaks') unknown, and because of current costs of alternative fuels, these policy responses largely rest on faith of technological change.

On the other hand, Nigel Lawson claimed that people in a hundred years' time would be "seven times as well off as we are today", therefore it is not reasonable to impose sacrifices on the "much poorer present generation".^[62]

Prominent growth economists[link]

See also[link]

References[link]

Further reading[link]

• Joseph Halevi, David Laibman and Edward J. Nell (eds.) (1992) Beyond the Steady State: Essays in the Revival of Growth Theory, edited with , London, UK:
• Barro, Robert J. (1997) Determinants of Economic Growth: A Cross-Country Empirical Study. MIT Press: Cambridge, MA.
• Argyrous, G., Forstater, M and Mongiovi, G. (eds.) (2004) Growth, Distribution, And Effective Demand: Essays in Honor of Edward J. Nell. New York: M.E. Sharpe.
• Galor, O. (2005) From Stagnation to Growth: Unified Growth Theory. Handbook of Economic Growth, Elsevier.
• Jones, Charles I. (2002) Introduction to Economic Growth 2nd ed. W. W. Norton & Company: New York, N.Y.
• Kirzner, Israel. (1973) Competition and Entrepreneurship
• Puthenkalam, John Joseph, "Integrating Freedom, Democracy and Human Rights into Theories of Economic Growth", Manila, 1998.
• Lucas, Robert E., Jr. (2003) The Industrial Revolution: Past and Future, Federal Reserve Bank of Minneapolis, Annual Report online edition
• Mises, Ludwig E. (1949) Human Action 1998 reprint by the Mises Institute
• Schumpeter, Jospeph A. (1912) The Theory of Economic Development 1982 reprint, Transaction Publishers
• Weil, David N. (2008) Economic Growth 2nd ed. Addison Wesley.
• Vladimir N. Pokrovskii (2011) Econodynamics. The Theory of Social Production, Springer, Berlin.

External links[link]

Articles and lectures[link]

• Economic Growth by Paul Romer, The Concise Encyclopedia of Economics.
• "Economic growth." Encyclopædia Britannica. 2007. Encyclopædia Britannica Online. 17 November 2007.
• Beyond Classical and Keynesian Macroeconomic Policy. Paul Romer's plain-English explanation of endogenous growth theory.
• Does Economic Growth increase Living Standards?
• Who's afraid of economic growth? Essay by Daniel Ben-Ami on the contemporary anxiety about economic growth.
• CEPR Economics Seminar Series Two seminars on the importance of growth with economists Dean Baker and Mark Weisbrot
• On global economic history by Jan Luiten van Zanden. Explores the idea of the inevitability of the Industrial Revolution.
• The Economist Has No Clothes – essay by Robert Nadeau in Scientific American on the basic assumptions behind current economic theory
• World Growth Institute. An organization dedicated to helping the developing world realize its full potential via economic growth.
• Economics for Everyone- Evaluating Economic Growth
• Understanding the world today Multiple reports on economic growth

Data[link]

• Historical data - since 1954 - comparing the US GDP growth rate versus the US Fed Funds Rate
• Angus Maddison's Historical Dataseries -Series for almost all countries on GDP, Population and GDP per capita from the year 0 up to 2003
• OECD Economic growth statistics
• multinational data sets easy to use data set showing gdp, per capita and population, by country and region, 1970 to 2008. Updated regularly.

Ray Dalio (born in 1949 in Jackson Heights, Queens, New York, United States^[1]) is an American businessman and founder of Bridgewater Associates.

Early Life and Education[link]

The son of a jazz musician, Dalio began investing at age 12 when he bought shares of Northeast Airlines for $300 and tripled his investment after the airline merged with another company.^[2]

Dalio received a BA from Long Island University and an MBA from Harvard Business School.^[2]

Career[link]

After completing his education, Dalio worked on the floor of the New York Stock Exchange and invested in commodity futures.^[2] He later worked as the Director of Commodities at Dominick & Dominick LLC.^[3] In 1974, he became a futures trader and broker at Shearson Hayden Stone.^[2] In 1975, he founded the investment management firm, Bridgewater Associates. As of January 2012, the company is the largest hedge fund in the world with nearly $120 billion under management.^[2]

Ray Dalio has written a pdf called "Principles" to share his life and business management principles with his employees.^[4]

Personal[link]

Dalio is a practitioner of the Transcendental Meditation technique and resides with his wife in Greenwich, CT.^[5][6][2] According to Forbes he is the 44th richest person in America and the 88th richest person in the world with a net worth of $10 billion as of March 2012.^[7] Dalio has been labeled as the Steve Jobs of investing.^[8]

Notes[link]

1. ^ Cassidy, John (25 July 2011). "Mastering the Machine". The New Yorker. http://www.newyorker.com/reporting/2011/07/25/110725fa_fact_cassidy?printable=true&currentPage=all#ixzz1ShhRHYRm. 
2. ^ ^{a b c d e f} "Pursuing Self-Interest in Harmony With the Laws of the Universe and Contributing to Evolution is Universally Rewarded" Kevin Roose, April 10, 2011, New York Magazine
3. ^ "Radical Transparency" 2010, Leaders Magazine. Volume 33, Number 3
4. ^ Dalio, Ray (2011). "Ray Dalio’s Principles". http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf. 
5. ^ Opalesque (8 January 2008). "Ray Dalio’s winning strategy". http://www.opalesque.com/fullarticle/41340/ray%20dalio/main_reason_reason470.html. 
6. ^ Comstock, Courtney (October 25, 2010). "Ray Dalio Is Too Modest To Admit He Returned 38% YTD Using Transcendental Meditation". Business Insider. http://www.businessinsider.com/ray-dalio-transcendental-meditation-david-lynch-2010-10. 
7. ^ Ray Dalio Forbes profile page Forbes.com. Retrieved January 2012.
8. ^ aiCIO. "Is Ray Dalio the Steve Jobs of Investing?". Retrieved 13 December 2011.

External links[link]

• Profile at Forbes
• Ray Dalio on Charlie Rose
• "Most Influential 50 People in Global Finance" Bloomberg Markets Magazine, September 7, 2011
• "Mastering the Machine" New Yorker, July 25, 2011
• "In Punishing Year for Hedge Funds, Biggest One Thrived" New York Times, Dealbook, January 26, 2012
• "Ray-man running hedge fund in his own image" Financial Times, March 2, 2012

Paul Krugman

New Keynesian economics
Krugman at a press conference at the Swedish Academy of Sciences in Stockholm, 2008
Born	(1953-02-28) February 28, 1953 (age 59) Albany, New York
Nationality	United States
Institution	Princeton University, London School of Economics
Field	International economics, Macroeconomics
Alma mater	MIT (PhD) Yale University (BA)
Opposed	Freshwater economics[1][2]
Influences	John Maynard Keynes[3] John Hicks[3][4][5] Paul Samuelson
Contributions	International Trade Theory New Trade Theory New Economic Geography
Awards	John Bates Clark Medal (1991) Príncipe de Asturias Prize (2004) Nobel Memorial Prize in Economics (2008)
Information at IDEAS/RePEc

Paul Robin Krugman ( /ˈkruːɡmən/;^[6] born February 28, 1953) is an American economist, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times.^[7][8] In 2008, Krugman won the Sveriges Riksbank Prize in Economic Sciences (informally the Nobel Prize in Economics) for his contributions to New Trade Theory and New Economic Geography. According to the Nobel Prize Committee, the prize was given for Krugman's work explaining the patterns of international trade and the geographic concentration of wealth, by examining the impact of economies of scale and of consumer preferences for diverse goods and services.^[9]

Krugman is known in academia for his work on international economics (including trade theory, economic geography, and international finance),^[10][11] liquidity traps and currency crises. He is the 17th most widely cited economist in the world today^[12] and is ranked among the most influential academic thinkers in the US.^[13]

As of 2008^[update], Krugman has written 20 books and has published over 200 scholarly articles in professional journals and edited volumes.^[14] He has also written more than 750 columns on economic and political issues for The New York Times.

He also writes on topics ranging from income distribution to international economics. Krugman considers himself a liberal, calling one of his books and his New York Times blog "The Conscience of a Liberal".^[15] His commentary has attracted considerable comment and criticism.^{[16][17][18][19][20]}

Personal life[link]

Krugman is the son of David and Anita Krugman and the grandson of Jewish immigrants from Brest-Litovsk.^[21] He was born in Albany, NY, and grew up in Nassau County, New York.^[22] He graduated from John F. Kennedy High School in Bellmore.^[23]

According to Krugman, his interest in economics began with Isaac Asimov's Foundation novels, in which the social scientists of the future use "psychohistory" to attempt to save civilization. Since "psychohistory" in Asimov's sense of the word does not exist, Krugman turned to economics, which he considered the next best thing.^[24][25]

Krugman's first wife was award-winning designer/artist Robin L. Bergman. He is currently married to Robin Wells, his second wife, an academic economist who has collaborated on textbooks with Krugman.^[26][27][28] Krugman reports that he is a distant relative of conservative journalist David Frum.^[29] He has described himself as a "Loner. Ordinarily shy. Shy with individuals."^[30] He lives with his wife in Princeton, New Jersey.

Academic career[link]

Krugman giving a lecture at the German National Library in Frankfurt in 2008.

Krugman earned his B.A. in economics from Yale University summa cum laude in 1974 and his PhD from the Massachusetts Institute of Technology (MIT) in 1977. While at MIT he was part of a small group of MIT students sent to work for the Central Bank of Portugal for three months in summer 1976, in the chaotic aftermath of the Carnation Revolution.^[31] From 1982 to 1983, he spent a year working at the Reagan White House as a staff member of the Council of Economic Advisers. He taught at Yale University, MIT, UC Berkeley, the London School of Economics, and Stanford University before joining Princeton University in 2000 as professor of economics and international affairs. He is also currently a centenary professor at the London School of Economics, and a member of the Group of Thirty international economic body. He has been a research associate at the National Bureau of Economic Research since 1979.^[32] Most recently, Krugman was President of the Eastern Economic Association.

Paul Krugman has written extensively on international economics, including international trade, economic geography, and international finance. The Research Papers in Economics project ranked him as the 14th most influential economist in the world as of March 2011 based on his academic contributions.^[12] Krugman's International Economics: Theory and Policy, co-authored with Maurice Obstfeld, is a standard undergraduate textbook on international economics.^[33] He is also co-author, with Robin Wells, of an undergraduate economics text which he says was strongly inspired by the first edition of Paul Samuelson's classic textbook.^[34] Krugman also writes on economic topics for the general public, sometimes on international economic topics but also on income distribution and public policy.

The Nobel Prize Committee stated that Krugman's main contribution is his analysis of the impact of economies of scale, combined with the assumption that consumers appreciate diversity, on international trade and on the location of economic activity.^[9] The importance of spatial issues in economics has been enhanced by Krugman's ability to popularize this complicated theory with the help of easy-to-read books and state-of-the-art syntheses. "Krugman was beyond doubt the key player in 'placing geographical analysis squarely in the economic mainstream' ... and in conferring it the central role it now assumes."^[35]

In 1978, Krugman wrote The Theory of Interstellar Trade, a tongue-in-cheek essay on computing interest rates on goods in transit near the speed of light. He says he wrote it to cheer himself up when he was "an oppressed assistant professor".^[36]

New trade theory[link]

Prior to Krugman's work, trade theory (see David Ricardo and Hecksher-Ohlin model) emphasized trade based on the comparative advantage of countries with very different characteristics, such as a country with a high agricultural productivity trading agricultural products for industrial products from a country with a high industrial productivity. However, in the 20th century, an ever larger share of trade occurred between countries with very similar characteristics, which is difficult to explain by comparative advantage. Krugman's explanation of trade between similar countries was proposed in a 1979 paper in the Journal of International Economics, and involves two key assumptions: that consumers prefer a diverse choice of brands, and that production favors economies of scale.^[37] Consumers' preference for diversity explains the survival of different versions of cars like Volvo and BMW.^[38] But because of economies of scale, it is not profitable to spread the production of Volvos all over the world; instead, it is concentrated in a few factories and therefore in a few countries (or maybe just one). This logic explains how each country may specialize in producing a few brands of any given type of product, instead of specializing in different types of products.

Many models of international trade now follow Krugman's lead, incorporating economies of scale in production and a preference for diversity in consumption.^[9] This way of modeling trade has come to be called New Trade Theory.^[35]

Krugman's theory also took into account transportation costs, a key feature in producing the "home market effect", which would later feature in his work on the new economic geography. The home market effect "states that, ceteris paribus, the country with the larger demand for a good shall, at equilibrium, produce a more than proportionate share of that good and be a net exporter of it."^[35] The home market effect was an unexpected result, and Krugman initially questioned it, but ultimately concluded that the mathematics of the model were correct.^[35]

When there are economies of scale in production, it is possible that countries may become 'locked in' to disadvantageous patterns of trade.^[39] Nonetheless, trade remains beneficial in general, even between similar countries, because it permits firms to save on costs by producing at a larger, more efficient scale, and because it increases the range of brands available and sharpens the competition between firms.^[40] Krugman has usually been supportive of free trade and globalization.^[41][42] He has also been critical of industrial policy, which New Trade Theory suggests might offer nations rent-seeking advantages if "strategic industries" can be identified, saying it's not clear that such identification can be done accurately enough to matter.^[43]

New economic geography[link]

It took an interval of eleven years, but ultimately Krugman's work on New Trade Theory (NTT) converged to what is usually called the "new economic geography" (NEG), which Krugman began to develop in a seminal 1991 paper in the Journal of Political Economy.^[44] In Krugman's own words, the passage from NTT to NEG was "obvious in retrospect; but it certainly took me a while to see it. ... The only good news was that nobody else picked up that $100 bill lying on the sidewalk in the interim."^[45] This would become Krugman's most-cited academic paper: by early 2009, it had 857 citations, more than double his second-ranked paper.^[35] Krugman called the paper "the love of my life in academic work."^[46]

The "home market effect" that Krugman discovered in NTT also features in NEG, which interprets agglomeration "as the outcome of the interaction of increasing returns, trade costs and factor price differences."^[35] If trade is largely shaped by economies of scale, as Krugman's trade theory argues, then those economic regions with most production will be more profitable and will therefore attract even more production. That is, NTT implies that instead of spreading out evenly around the world, production will tend to concentrate in a few countries, regions, or cities, which will become densely populated but will also have higher levels of income.^[9][11]

International finance[link]

Krugman has also been influential in the field of international finance. As a graduate student, Krugman visited the Federal Reserve Board, where Stephen Salant and Dale Henderson were completing their discussion paper on speculative attacks in the gold market. Krugman adapted their model for the foreign exchange market, resulting in a 1979 paper on currency crises in the Journal of Money, Credit, and Banking, which showed that fixed exchange rate regimes are unlikely to end smoothly: instead, they end in a sudden speculative attack.^[47] Krugman's paper is considered one of the main contributions to the 'first generation' of currency crisis models,^[48][49] and it is his second-most-cited paper (457 citations as of early 2009).^[35]

In response to the global financial crisis of 2008, Krugman proposed, in an informal "mimeo" style of publication,^[50] an "international finance multiplier", to help explain the unexpected speed with which the global crisis had occurred. He argued that when, "highly leveraged financial institutions [HLIs], which do a lot of cross-border investment [....] lose heavily in one market [...] they find themselves undercapitalized, and have to sell off assets across the board. This drives down prices, putting pressure on the balance sheets of other HLIs, and so on." Such a rapid contagion had hitherto been considered unlikely because of "decoupling" in a globalized economy.^[51][52][53] He first announced that he was working on such a model on his blog, on October 5, 2008.^[54] Within days of its appearance, it was being discussed on some popular economics-oriented blogs.^[55][56] The note was soon being cited in papers (draft and published) by other economists,^{[57][58][59][60][61][62][63][64]} even though it had not itself been through ordinary peer review processes.

Macroeconomics and fiscal policy[link]

Krugman has done much to revive discussion of the liquidity trap as a topic in economics.^{[65][66][67][68]} He recommended aggressive fiscal policy to counter Japan's lost decade in the 1990s, arguing that the country was mired in a Keynesian liquidity trap.^[69][70][71] The debate he started at that time over liquidity traps and what policies best address them continues in the economics literature.^[72]

Krugman had argued in The Return of Depression Economics that Japan was in a liquidity trap in the late 1990s, since the central bank could not drop interest rates any lower to escape economic stagnation.^[73] The core of Krugman's policy proposal for addressing Japan's liquidity trap was inflation targeting, which, he argued "most nearly approaches the usual goal of modern stabilization policy, which is to provide adequate demand in a clean, unobtrusive way that does not distort the allocation of resources."^[71] The proposal appeared first in a web posting on his academic site.^[74] This mimeo-draft was soon cited, but was also misread by some as repeating his earlier advice that Japan's best hope was in "turning on the printing presses", as recommended by Milton Friedman, John Makin, and others.^[75][76][77]

Krugman has since drawn parallels between Japan's 'lost decade' and the late 2000s recession, arguing that expansionary fiscal policy is necessary as the major industrialized economies are mired in a liquidity trap.^[78] In response to economists who point out that the Japanese economy recovered despite not pursuing his policy prescriptions, Krugman maintains that it was an export-led boom that pulled Japan out of its economic slump in the late-90s, rather than reforms of the financial system.^[79]

Krugman was one of the most prominent advocates of the 2008–2009 Keynesian resurgence , so much so that economics commentator Noah Smith referred to it as the "Krugman insurgency." ^{[80] [81] [82]}

Sveriges Riksbank Prize in Economic Sciences[link]

Wikinews has related news: American Paul Krugman wins Nobel prize for economics

Krugman was awarded the Sveriges Riksbank Prize in Economic Sciences (informally the Nobel Prize in Economics), the sole recipient for 2008. This prize includes an award of about $1.4 million and was given to Krugman for his work associated with New Trade Theory and the New Economic Geography.^[83] In the words of the prize committee, "By having integrated economies of scale into explicit general equilibrium models, Paul Krugman has deepened our understanding of the determinants of trade and the location of economic activity."^[84]

Awards[link]

• 1991, American Economic Association, John Bates Clark Medal.^[85] Since it was awarded to only one person, once every two years (prior to 2009), The Economist has described the Clark Medal as 'slightly harder to get than a Nobel prize'.^[86]
• 1992, Fellow of the American Academy of Arts and Sciences (AAAS).^[32]
• 1995, Adam Smith Award of the National Association for Business Economics^[87]
• 1998, Doctor honoris causa in Economics awarded by Free University of Berlin Freie Universität Berlin in Germany
• 2000, H.C. Recktenwald Prize in Economics, awarded by University of Erlangen-Nuremberg in Germany.
• 2002, Editor and Publisher, Columnist of the Year.^[88]
• 2004, Fundación Príncipe de Asturias (Spain), Prince of Asturias Awards in Social Sciences.^[89]
• 2004, Doctor of Humane Letters honoris causa, Haverford College^[90]
• 2008, Sveriges Riksbank Prize in Economic Sciences (informally the Nobel Prize in Economics) for Krugman's contributions to New Trade Theory.^[91] He became the twelfth John Bates Clark Medal winner to be awarded the Nobel Memorial Prize.
• 2012, Doctor honoris causa from the Universidade de Lisboa, Universidade Técnica de Lisboa and Universidade Nova de Lisboa^[92][93]

Author[link]

Krugman at the 2010 Brooklyn Book Festival.

In the 1990s, besides academic books and textbooks, Krugman increasingly began writing books for a general audience on issues he considered important for public policy. In The Age of Diminished Expectations (1990), he wrote in particular about the increasing US income inequality in the "New Economy" of the 1990s. He attributes the rise in income inequality in part to changes in technology, but principally to a change in political atmosphere which he attributes to Movement Conservatives.

In September 2003, Krugman published a collection of his columns under the title, The Great Unraveling, about the Bush administration's economic and foreign policies and the US economy in the early 2000s. His columns argued that the large deficits during that time were generated by the Bush administration as a result of decreasing taxes on the rich, increasing public spending, and fighting the Iraq war. Krugman wrote that these policies were unsustainable in the long run and would eventually generate a major economic crisis. The book was a best-seller.^[86][94][95]

In 2007, Krugman published The Conscience of a Liberal, whose title refers to Barry Goldwater's Conscience of a Conservative.^[96] It details the history of wealth and income gaps in the United States in the 20th century. The book describes how the gap between rich and poor declined greatly in middle of the century, and then widened in the last two decades to levels higher even than in the 1920s. In Conscience, Krugman argues that government policies played a much greater role than commonly thought both in reducing inequality in the 1930s through 1970s and in increasing it in the 1980s through the present, and criticizes the Bush administration for implementing policies that Krugman believes widened the gap between the rich and poor.

Krugman also argued that Republicans owed their electoral successes to their ability to exploit the race issue to win political dominance of the South.^[97][98] Krugman argues that Ronald Reagan had used the "Southern Strategy" to signal sympathy for racism without saying anything overtly racist,^[99] citing as an example Reagan's coining of the term "welfare queen".^[100]

In his book, Krugman proposed a "new New Deal", which included placing more emphasis on social and medical programs and less on national defense.^[101] Liberal journalist and author Michael Tomasky argued that in The Conscience of a Liberal Krugman is committed "to accurate history even when some fudging might be in order for the sake of political expediency."^[97] In a review for The New York Times, Pulitzer prize-winning historian David M. Kennedy stated, "Like the rants of Rush Limbaugh or the films of Michael Moore, Krugman's shrill polemic may hearten the faithful, but it will do little to persuade the unconvinced".^[102]

In late 2008, Krugman published a substantial updating of an earlier work, entitled "The Return of Depression Economics and the Crisis of 2008". In the book, he discusses the failure of the United States regulatory system to keep pace with a financial system increasingly out-of-control, and the causes of and possible ways to contain the greatest financial crisis since the 1930s.

In 2012, Krugman published, End This Depression Now!, a book which argues that looking at the available historical economic data, fiscal cuts and austerity measures only deprive the economy of valuable funds that can circulate and further add to a poor economy - people cannot spend, and markets cannot thrive if there is not enough consumption and there can not be sufficient consumption if there is large unemployment. He argues that while it is necessary to cut debt, it is the worst time to do so in an economy that has just suffered the most severe of financial shocks, and must be done instead when an economy is near full-employment when the private sector can withstand the burden of decreased government spending and austerity. Failure to stimulate the economy either by public or private sectors will only unnecessarily lengthen the current economic depression and make it worse.^[103]

Commentator[link]

Martin Wolf has written that Krugman is both the "most hated and most admired columnist in the US". ^[104] Economist J. Peter Neary has noted that Krugman "has written on a wide range of topics, always combining one of the best prose styles in the profession with an ability to construct elegant, insightful and useful models."^[105] Neary added that "no discussion of his work could fail to mention his transition from Academic Superstar to Public Intellectual. Through his extensive writings, including a regular column for The New York Times, monographs and textbooks at every level, and books on economics and current affairs for the general public ... he has probably done more than any other writer to explain economic principles to a wide audience."^[105] Krugman has been described as the most controversial economist in his generation^[106][107] and according to Michael Tomasky since 1992 he has moved "from being a center-left scholar to being a liberal polemicist."^[97]

From the mid-1990s onwards, Krugman wrote for Fortune (1997–99)^[32] and Slate (1996–99),^[32] and then for The Harvard Business Review, Foreign Policy, The Economist, Harper's, and Washington Monthly. In this period Krugman critiqued various positions commonly taken on economic issues from across the political spectrum, from protectionism and opposition to the World Trade Organization on the left to supply side economics on the right.^[108]

During the 1992 presidential campaign Krugman praised Bill Clinton's economic plan in The New York Times, and Clinton's campaign used some of Krugman's work on income inequality. At the time, it was considered likely that Clinton would offer him a position in the new administration, but allegedly Krugman's volatility and outspokenness caused Clinton to look elsewhere.^[106] Krugman later said that he was "temperamentally unsuited for that kind of role. You have to be very good at people skills, biting your tongue when people say silly things."^[108][109] In a Fresh Dialogues interview, Krugman added, "you have to be reasonably organized...I can move into a pristine office and within three days it will look like a grenade went off."^[110]

In 1999, near the height of the dot com boom, The New York Times approached Krugman to write a bi-weekly column on "the vagaries of business and economics in an age of prosperity."^[108] His first columns in 2000 addressed business and economic issues, but as the 2000 US presidential campaign progressed, Krugman increasingly focused on George W. Bush's policy proposals. According to Krugman, this was partly due to "the silence of the media - those 'liberal media' conservatives complain about...."^[108] Krugman accused Bush of repeatedly misrepresenting his proposals, and criticized the proposals themselves.^[108] After Bush's election, and his perseverance with his proposed tax cut in the midst of the slump (which Krugman argued would do little to help the economy but substantially raise the fiscal deficit), Krugman's columns grew angrier and more focused on the administration. As Alan Blinder put it in 2002, "There's been a kind of missionary quality to his writing since then ... He's trying to stop something now, using the power of the pen."^[108] Partly as a result, Krugman's twice-weekly column on the Op-Ed page of The New York Times has made him, according to Nicholas Confessore, "the most important political columnist in America... he is almost alone in analyzing the most important story in politics in recent years – the seamless melding of corporate, class, and political party interests at which the Bush administration excels."^[108] In an interview in late 2009, Krugman said his missionary zeal had changed in the post-Bush era and he described the Obama administration as "good guys but not as forceful as I'd like...When I argue with them in my column this is a serious discussion. We really are in effect speaking across the transom here."^[111] Krugman says he's more effective at driving change outside the administration than inside it, "now, I'm trying to make this progressive moment in American history a success. So that's where I'm pushing."^[111]

Krugman's columns have drawn criticism as well as praise. A 2003 article in The Economist^[112] questioned Krugman's "growing tendency to attribute all the world's ills to George Bush," citing critics who felt that "his relentless partisanship is getting in the way of his argument" and claiming errors of economic and political reasoning in his columns.^[86] Daniel Okrent, a former The New York Times ombudsman, in his farewell column, criticized Krugman for what he said was "the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults."^[113][114]

Krugman's New York Times blog is "The Conscience of a Liberal," devoted largely to economics and politics.

Five days after 9/11 terrorist attacks Krugman argued in his column that calamity was "partly self-inflicted" due to transfer of responsibility for airport security from government to airlines. His column provoked an angry response and The New York Times was flooded with complaints. According to Larissa MacFarquhar of The New Yorker, while some people^[who?] thought that he was too partisan to be a columnist for The New York Times, he was revered on the left.^[115][116] Similarly, on the 10th anniversary of the 9/11 on the United States Krugman again provoked a controversy by accusing on his New York Times blog former U.S. President George W. Bush and former New York City mayor Rudy Giuliani of rushing "to cash in on the horror" after the attacks and describing the anniversary as "an occasion for shame".^[117][118]

East Asian growth[link]

In a 1994 Foreign Affairs article, Paul Krugman argued that it was a myth that the economic successes of the East Asian 'tigers' constituted an economic miracle. He argued that their rise was fueled by mobilizing resources and that their growth rates would inevitably slow.^[119] His article helped popularize the argument made by Lawrence Lau and Alwyn Young, among others, that the growth of economies in East Asia was not the result of new and original economic models, but rather from high capital investment and increasing labor force participation, and that total factor productivity had not increased. Krugman argued that in the long term, only increasing total factor productivity can lead to sustained economic growth. Krugman's article was highly criticized in many Asian countries when it first appeared, and subsequent studies disputed some of Krugman's conclusions. However, it also stimulated a great deal of research, and may have caused the Singapore government to provide incentives for technological progress.^[120]

During the 1997 Asian financial crisis, Krugman advocated currency controls as a way to mitigate the crisis. Writing in a Fortune magazine article, he suggested exchange controls as "a solution so unfashionable, so stigmatized, that hardly anyone has dared suggest it."^[121] Malaysia was the only country that adopted such controls, and although the Malaysian government credited its rapid economic recovery on currency controls, the relationship is disputed.^[122] An empirical study found that the Malaysian policies produced faster economic recovery and smaller declines in employment and real wages.^[123] Krugman later stated that the controls might not have been necessary at the time they were applied, but that nevertheless "Malaysia has proved a point—namely, that controlling capital in a crisis is at least feasible."^[124] Krugman more recently pointed out that emergency capital controls have even been endorsed by the IMF, and are no longer considered radical policy.^[125]

U.S. economic policies[link]

In the early 2000s, Krugman repeatedly criticized the Bush tax cuts, both before and after they were enacted. Krugman argued that the tax cuts enlarged the budget deficit without improving the economy, and that they enriched the wealthy – worsening income distribution in the US.^{[95][126][127][128][129]} Krugman advocated lower interest rates (to promote spending on housing and other durable goods), and increased government spending on infrastructure, military, and unemployment benefits, arguing that these policies would have a larger stimulus effect, and unlike permanent tax cuts, would only temporarily increase the budget deficit.^[129]

In August 2005, after Alan Greenspan expressed concern over housing markets, Krugman criticized Greenspan's earlier reluctance to regulate the mortgage and related financial markets, arguing that "[he's] like a man who suggests leaving the barn door ajar, and then – after the horse is gone – delivers a lecture on the importance of keeping your animals properly locked up."^[130]

Krugman has repeatedly expressed his view that Greenspan and Phil Gramm are the two individuals most responsible for causing the subprime crisis. Krugman points to Greenspan and Gramm for the key roles they played in keeping derivatives, financial markets, and investment banks unregulated, and to the Gramm-Leach-Bliley Act, which repealed Great Depression era safeguards that prevented commercial banks, investment banks and insurance companies from merging.^{[131][132][133][134]}

Krugman has also been critical of some of the Obama administration's economic policies. He has criticized the Obama stimulus plan as being too small and inadequate given the size of the economy and the banking rescue plan as misdirected; Krugman wrote in The New York Times: "an overwhelming majority [of the American public] believes that the government is spending too much to help large financial institutions. This suggests that the administration's money-for-nothing financial policy will eventually deplete its political capital."^[135] In particular, he considered the Obama administration's actions to prop up the US financial system in 2009 to be impractical and unduly favorable to Wall Street bankers.^[114] In anticipation of President Obama's Job Summit in December 2009, Krugman said in a Fresh Dialogues interview, "This jobs summit can't be an empty exercise…he can't come out with a proposal for $10 or $20 Billion of stuff because people will view that as a joke. There has to be a significant job proposal…I have in mind something like $300 Billion."^[136]

Krugman has recently criticized China's exchange rate policy, which he believes to be a significant drag on global economic recovery from the Late-2000s recession, and he has advocated a "surcharge" on Chinese imports to the US in response.^[137] Jeremy Warner of The Daily Telegraph accused Krugman of advocating a return to self-destructive protectionism.^[138]

In April 2010, as the Senate began considering new financial regulations, Krugman argued that the regulations should not only regulate financial innovation, but also tax financial-industry profits and remuneration. He cited a paper by Andrei Shleifer and Robert Vishny released the previous week, which concludes that most innovation was in fact about "providing investors with false substitutes for [traditional] assets like bank deposits," and once investors realize the sheer number of securities that are unsafe a "flight to safety" occurs which necessarily leads to "financial fragility."^[139][140]

In his June 28, 2010 column in The New York Times, in light of the recent G-20 Toronto Summit, Krugman criticized world leaders for agreeing to halve deficits by 2013. Krugman claimed that these efforts could lead the global economy into the early stages of a "third depression" and leave "millions of lives blighted by the absence of jobs." He advocated instead the continued stimulus of economies to foster greater growth.^[141]

Economic views[link]

This section requires expansion.

Krugman identifies as a Keynesian^[142] and a saltwater economist,^[1] and he has criticized the freshwater school on macroeconomics.^[2][143] Though he applies New Keynesian theory in some of his work, he has also criticized it for lacking predictive power and for hewing to ideas like the efficient markets hypothesis and rational expectations.^[143] Since the 1990s, he has promoted the IS-LM model as invented by John Hicks, pointing out its relative simplicity compared to New Keynesianism and continued currency in practical economic policy.^[5][4][144]

In the wake of the 2007-2009 financial crisis he has remarked that he is "gravitating towards a Keynes-Fisher-Minsky view of macroeconomics."^[145] Post-Keynesian observers cite commonalities between Krugman's views and those of the Post-Keynesian school.^{[146][147] [148]} In recent academic work, he has collaborated with Gauti Eggertsson on a New Keynesian model of debt-overhang and debt-driven slumps, inspired by the writings of Irving Fisher, Hyman Minsky, and Richard Koo. Their work argues that during a debt-driven slump, the "paradox of toil", together with the paradox of flexibility, can exacerbate a liquidity trap, reducing demand and employment.^[149]

Free trade[link]

Krugman's views on free trade have provoked considerable ire from the anti-globalism movement.^{[150][151][20]} He once famously quipped that, "If there were an Economist's Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade'."^[152][153] However, in the same article, Krugman argues^[153] that, given the findings of New Trade Theory,

... free trade is not passé, but ... has irretrievably lost its innocence. Its status has shifted from optimum to reasonable rule of thumb...it can never again be asserted as the policy that economic theory tells us is always right.

Nevertheless, Krugman declares in favor of free trade given the enormous political costs of actively engaging in strategic trade policy (i.e. rent-seeking) and because there is no clear method for a government to discover which industries will ultimately yield positive returns. In the same article, Krugman expressed that the phenomena of increasing returns (of which strategic trade policy depends) does not disprove the underlying truth behind comparative advantage.

Political views[link]

Krugman describes himself as liberal, and has explained that he views the term "liberal" in the American context to mean "more or less what social democratic means in Europe."^[96] In a 2009 Newsweek article, Evan Thomas described Krugman as having "all the credentials of a ranking member of the East coast liberal establishment" but also as someone who is anti-establishment, a "scourge of the Bush administration," and a critic of the Obama administration.^[114] In 1996, Newsweek's Michael Hirsh remarked "Say this for Krugman: though an unabashed liberal ... he's ideologically colorblind. He savages the supply-siders of the Reagan-Bush era with the same glee as he does the 'strategic traders' of the Clinton administration."^[106]

Krugman has advocated free markets in contexts where they are often viewed as controversial. He has written against rent control in favor of supply and demand,^[154] likened the opposition against free trade and globalization to the opposition against evolution via natural selection,^[150] opposed farm subsidies,^[155] argued that sweatshops are preferable to unemployment,^[41] dismissed the case for living wages,^[156] argued against mandates, subsidies, and tax breaks for ethanol,^[157] and questioned NASA's manned space flights.^[158] Krugman has also criticized U.S. zoning laws^[159] and European labor market regulation.^[160][161] He calls current Israeli policy "narrow-minded" and "basically a gradual, long-run form of national suicide", saying that it's "bad for Jews everywhere, not to mention the world".^[162]

U.S. race relations[link]

Krugman has repeatedly criticized the Republican Party leadership for what he sees as a strategic (but largely tacit) reliance on racial divisions.^{[163][164][165]} In his Conscience of a Liberal, he wrote

The changing politics of race made it possible for a revived conservative movement, whose ultimate goal was to reverse the achievements of the New Deal, to win national elections – even though it supported policies that favored the interests of a narrow elite over those of middle- and lower-income Americans.^[166]

Krugman also defended Glenn Loury, a conservative black economist at Brown University, from the criticism of many African-American political leaders.^[167] According to Krugman, Loury saw clearly that "The problems facing African-Americans had changed. The biggest barrier to progress was no longer active racism of whites but internal social problems of the black community."^{[168][169][170]}

On working in the Reagan administration[link]

Krugman worked for Martin Feldstein when the latter was appointed chairman of the Council of Economic Advisers and chief economic advisor to President Ronald Reagan. He later wrote in an autobiographical essay, "It was, in a way, strange for me to be part of the Reagan Administration. I was then and still am an unabashed defender of the welfare state, which I regard as the most decent social arrangement yet devised."^[31] Krugman found the time "thrilling, then disillusioning". He did not fit into the Washington political environment, and was not tempted to stay on.^[31]

On Gordon Brown vs David Cameron[link]

Although Krugman includes Gordon Brown among those he considers at fault for the Late-2000s financial crisis,^[171] he has also praised the former British Prime Minister, whom he described as "more impressive than any US politician" after a three-hour conversation with him.^[172] Krugman asserted that Brown "defined the character of the worldwide financial rescue effort" and urged British voters not to support the opposition Conservative Party in the 2010 General Election, arguing their Party Leader David Cameron "has had little to offer other than to raise the red flag of fiscal panic."^[173][174]

Controversies[link]

Partisanship[link]

In a 2003 article, The Economist noted that Krugman's critics argue that "his relentless partisanship is getting in the way of his argument". The Economist also wrote that the vast majority of Krugman's columns feature attacks on Republicans and almost none criticize Democrats, making him "a sort of ivory-tower folk-hero of the American left—a thinking person's Michael Moore".^[17]

Libertarian conservative federal appeals court judge Richard Posner called Krugman "an unabashed Democratic partisan who often goes overboard in his hatred of the Republicans."^[175]

Liberal journalist and author Michael Tomasky in The New York Review of Books stated "Many liberals would name Paul Krugman of The New York Times as perhaps the most consistent and courageous—and unapologetic—liberal partisan in American journalism."^[176] New York Magazine called Krugman "the leading exponent of a kind of liberal purism", while liberal historian Michael Kazin has opined that Krugman’s account of the right succumbed to the Marxist flaw of false consciousness.^[177]

Economics and policy recommendations[link]

Economist and former United States Secretary of the Treasury Larry Summers has stated Krugman has a tendency to favor more extreme policy recommendations because "it’s much more interesting than agreement when you’re involved in commenting on rather than making policy."^[177]

According to Harvard professor of economics Robert Barro, Krugman "has never done any work in Keynesian macroeconomics" and makes arguments that are politically convenient for him.^[178] Nobel laureate Edward Prescott charged that Krugman "doesn't command respect in the profession", as "no respectable macroeconomist" believes that economic stimulus works.^[179]

Enron[link]

In early 1999, Krugman served on an advisory panel (including Larry Lindsey and Robert Zoellick) that offered Enron executives briefings on economic and political issues. He resigned from the panel in the fall of 1999 to comply with The New York Times rules regarding conflicts of interest, when he accepted the Times's offer to become an op-ed columnist.^[180] Krugman later stated that he was paid $37,500 (not $50,000 as often reported - his early resignation cost him part of his fee), and that, for consulting that required him to spend four days in Houston, the fee was "rather low compared with my usual rates", which were around $20,000 for a one-hour speech.^[180] He also stated that the advisory panel "had no function that I was aware of", and that he later interpreted his role as being "just another brick in the wall" Enron used to build an image.^[181]

When the story of Enron's corporate scandals broke two years later, Krugman was accused of unethical journalism, specifically of having a conflict of interest.^{[182][183][184]} Some of his critics claimed that "The Ascent of E-man," an article Krugman wrote for Fortune magazine^[185] about the rise of the market as illustrated by Enron's energy trading, was biased by Krugman's earlier consulting work for them.^[180] Krugman later argued that "The Ascent of E-Man" was in character, writing "I have always been a free-market Keynesian: I like free markets, but I want some government supervision to correct market failures and ensure stability."^[180] Krugman noted his previous relationship with Enron in that article and in other articles he wrote on the company.^[180][186] Krugman was one of the first to argue that deregulation of the California energy market had led to market manipulation by energy companies.^[187]

In popular culture[link]

Krugman appears as himself in a cameo in the 2010 comedy film Get Him to the Greek.^[188] In the Loudon Wainwright III song "The Krugman Blues"^[189] on the 2010 album 10 Songs for the New Depression, Wainwright describes reading Krugman's articles in The New York Times.

Published works[link]

Academic books (authored or coauthored)[link]

• The Spatial Economy – Cities, Regions and International Trade (July 1999), with Masahisa Fujita and Anthony Venables. MIT Press, ISBN 0-262-06204-6
• The Self Organizing Economy (February 1996), ISBN 1-55786-698-8
• EMU and the Regions (December 1995), with Guillermo de la Dehesa. ISBN 1-56708-038-3
• Development, Geography, and Economic Theory (Ohlin Lectures) (September 1995), ISBN 0-262-11203-5
• Foreign Direct Investment in the United States (3rd Edition) (February 1995), with Edward M. Graham. ISBN 0-88132-204-0
• World Savings Shortage (September 1994), ISBN 0-88132-161-3
• What Do We Need to Know About the International Monetary System? (Essays in International Finance, No 190 July 1993) ISBN 0-88165-097-8
• Currencies and Crises (June 1992), ISBN 0-262-11165-9
• Geography and Trade (Gaston Eyskens Lecture Series) (August 1991), ISBN 0-262-11159-4
• The Risks Facing the World Economy (July 1991), with Guillermo de la Dehesa and Charles Taylor. ISBN 1-56708-073-1
• Has the Adjustment Process Worked? (Policy Analyses in International Economics, 34) (June 1991), ISBN 0-88132-116-8
• Rethinking International Trade (April 1990), ISBN 0-262-11148-9
• Trade Policy and Market Structure (March 1989), with Elhanan Helpman. ISBN 0-262-08182-2
• Exchange-Rate Instability (Lionel Robbins Lectures) (November 1988), ISBN 0-262-11140-3
• Adjustment in the World Economy (August 1987) ISBN 1-56708-023-5
• Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy (May 1985), with Elhanan Helpman. ISBN 0-262-08150-4

Academic books (edited or coedited)[link]

• Currency Crises (National Bureau of Economic Research Conference Report) (September 2000), ISBN 0-226-45462-2
• Trade with Japan : Has the Door Opened Wider? (National Bureau of Economic Research Project Report) (March 1995), ISBN 0-226-45459-2
• Empirical Studies of Strategic Trade Policy (National Bureau of Economic Research Project Report) (April 1994), co-edited with Alasdair Smith. ISBN 0-226-45460-6
• Exchange Rate Targets and Currency Bands (October 1991), co-edited with Marcus Miller. ISBN 0-521-41533-0
• Strategic Trade Policy and the New International Economics (January 1986), ISBN 0-262-11112-8

Economics textbooks[link]

• Economics: European Edition (Spring 2007), with Robin Wells and Kathryn Graddy. ISBN 0-7167-9956-1
• Macroeconomics (February 2006), with Robin Wells. ISBN 0-7167-6763-5
• Economics, first edition (December 2005), with Robin Wells. ISBN 1-57259-150-1
• Economics, second edition (2009), with Robin Wells. ISBN 0-7167-7158-6
• Microeconomics (March 2004), with Robin Wells. ISBN 0-7167-5997-7
• International Economics: Theory and Policy, with Maurice Obstfeld. 7th Edition (2006), ISBN 0-321-29383-5; 1st Edition (1998), ISBN 0-673-52186-9

Books for a general audience[link]

• End This Depression Now! (April 2012) ISBN 0-393-08877-4
  • A call for stimulative expansionary policy and an end to austerity
• The Return of Depression Economics and the Crisis of 2008 (December 2008) ISBN 0-393-07101-4
  • An updated version of his previous work.
• The Conscience of a Liberal (October 2007) ISBN 0-393-06069-1
• The Great Unraveling: Losing Our Way in the New Century (September 2003) ISBN 0-393-05850-6
  • A book of his The New York Times columns, many deal with the economic policies of the Bush administration or the economy in general.
• Fuzzy Math: The Essential Guide to the Bush Tax Plan (May 4, 2001) ISBN 0-393-05062-9
• The Return of Depression Economics (May 1999) ISBN 0-393-04839-X
  • Considers the long economic stagnation of Japan through the 1990s, the Asian financial crisis, and problems in Latin America.
  • The Return of Depression Economics and the Crisis of 2008 (December 2008) ISBN 0-393-07101-4
• The Accidental Theorist and Other Dispatches from the Dismal Science (May 1998) ISBN 0-393-04638-9
  • Essay collection, primarily from Krugman's writing for Slate.
• Pop Internationalism (March 1996) ISBN 0-262-11210-8
  • Essay collection, covering largely the same ground as Peddling Prosperity.
• Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations (April 1995) ISBN 0-393-31292-5
  • History of economic thought from the first rumblings of revolt against Keynesian economics to the present, for the layman.
• The Age of Diminished Expectations: U.S. Economic Policy in the 1990s (1990) ISBN 0-262-11156-X
  • A "briefing book" on the major policy issues around the economy.
  • Revised and Updated, January 1994, ISBN 0-262-61092-2
  • Third Edition, August 1997, ISBN 0-262-11224-8

Selected academic articles[link]

• (1998) 'It's Baaack: Japan's Slump and the Return of the Liquidity Trap' Brookings Papers on Economic Activity 1998, pp. 137–205.
• (1996) 'Are currency crises self-fulfilling?' NBER Macroeconomics Annual 11, pp. 345–78.
• (1995) (with AJ Venables). "Globalization and the inequality of nations". Quarterly Journal of Economics 110 (4): 857–880. DOI:10.2307/2946642. 
• (1991) 'Increasing returns and economic geography'. Journal of Political Economy 99, pp. 483–99.
• (1991) "Target zones and exchange rate dynamics". Quarterly Journal of Economics 106 (3): 669–82. DOI:10.2307/2937922. 
• (1991) 'History versus expectations'. Quarterly Journal of Economics 106 (2), pp. 651–67.
• (1981) 'Intra-industry specialization and the gains from trade'. Journal of Political Economy 89, pp. 959–73.
• (1980) 'Scale economies, product differentiation, and the pattern of trade'. American Economic Review 70, pp. 950–59.
• (1979) 'A model of balance-of-payments crises'. Journal of Money, Credit, and Banking 11, pp. 311–25.
• (1979) 'Increasing returns, monopolistic competition, and international trade'. Journal of International Economics 9, pp. 469–79.