“Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. History teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.
Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. Possibilities do not add up. They multiply.”
Our prosperity is a function, in part, of both the natural resources available to us and the ingenuity we apply to these resources. Similarly, the quantities and characteristics of the natural resources available to us determines how much and what types of social ingenuity we need to be prosperous.
I think there is something to be said for this concept in the face of declining natural resources (as our economy attempts to climb out of its current hole).
My concern is that every economic push upward - every 'efficiency' as Romer would have it - is itself subject to diminishing returns. So how many pushes upward can our economy continue to make? How resilient is the concept of 'growth'?
