Growth economics has emerged because of the growing recognition that the economic models created in the Industrial Age dominated by commodity goods production no longer adequately explain growth in an economy powered by knowledge and innovation.
While Keynesian and supply-side economics focused in an almost Newtonian way on adjusting the demand or supply of capital and labor to keep the economy in equilibrium, growth economics is focused on a different set of questions related to how the New Economy creates wealth: are entrepreneurs taking risks to start new ventures; are workers getting skilled and are companies organizing production in ways that use those skills; are companies investing in technological breakthroughs and is government supporting the technology base (e.g., funding research, training scientists and engineers); are regional clusters of firms and other institutions fostering innovation; are we avoiding protecting companies against more innovative competitors; are research institutions transferring knowledge to companies; and are policies supporting the ubiquitous widespread adoption of the Internet and other advanced information technologies?
Under the old economic policy model, it was not clear that there was a role for government in economic policy beyond managing the business cycle and protecting intellectual property rights. Growth economics makes it clear that government policies can boost long-term income growth. It recognizes the conservative insight that free markets, competition, and innovation boost growth. But it also recognizes the liberal insight that government investments, particularly in science, technology, education, and skills, can provide a foundation upon which productivity growth depends. And finally, growth economics recognizes that fiscal discipline underlies all of this.
Author: Robert D. Atkinson