Tuesday, September 1, 2009

Models of Growth

Articles about how economic growth will consume all the earth's resources have been written for a few hundred year. This one by David Barash in the Chronicle of Higher Education links current economic models to a Madoff schemes, because they don't account for the finite resources of the earth

Economic models do take finite resources into account. In the Solow Growth Model, perhaps the most common model taught in economic growth, economic growth measured by GDP per capita (ie income per person) will go toward zero. One common interpretation is because of finite resources. The model also factors in that the earth's resources depreciate unless investment and savings are made. If we don't save enough the economy contracts.

Basic economic models do not rely on increased consumer spending, but on increased production through technology growth.

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