Sunday 30 April 2017

Demography, debt and inequality will decide our future

Further rises in Ireland's productivity have to come from increases in funding to early childhood education and third-level research
Further rises in Ireland's productivity have to come from increases in funding to early childhood education and third-level research

Fads drive our culture more than we would like to admit. Economics is no different. Once a big idea gets established, it is hard to shift the majority of the profession from focusing on it.

The fad du jour is "secular stagnation". Standard economics tells us that long-term growth comes from increases in productivity, meaning people take the resources they have and rearrange them in more valuable ways.

Imagine trying to dig a hole in a road. You can use 20 guys with shovels and hammers, or three guys with one JCB. Both arrangements of resources get the hole dug, but the second team uses more capital (the JCB) and less labour, and gets the hole dug in a tenth of the time. There is less employment in construction, but also less shovel breastfeeding. The road gets dug faster and the economy grows.

Please sign in or register with Independent.ie for free access to Opinions.

Sign In

Don't Miss