Why growth may stay slow

Robin Hanson (hanson@econ.Berkeley.EDU)
Wed, 18 Mar 1998 12:46:50 -0800

If better technology caused faster economic growth, optimism about new
technologies suggests accelerating economic growth rates, perhaps even
becoming so fast as to constitute a "singularity."

The following analysis suggests, however, that if growth rates are limited
by the average return on investment (ROI), growth rates may be relatively
insensitive to technology, and hence long remain near historical levels.

The basic argument is this: Interest rates are determined by the supply
and demand for investment resources. The supply curve seems to be
basically flat at historical rates of 1-3%, and for good evolutionary
reasons. The demand curve rises with technology, but since there are
effectively no property rights in investment projects, all the demand
curve above the level where supply and demand meet is burned up in a race
to be first. So ROI should remain near historical rates until some new
technology is so good that, even with most world income being saved
and invested in related projects, the expected ROI for even the least
attractive projects becomes much higher than historical interest rates.

A more detailed argument is at: http://hanson.berkeley.edu/slowgrow.html

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614