I.      The Importance of Economic Growth

                A.        Economic growth expands the productive capacity of an economy.

                B.          Differences in sustained growth rates over two or three decades will substantially alter the relative incomes of countries.

                C.    The rule of 70: dividing 70 by a country's average growth rate gives about the number of years required for an income level to double

        II.        Differences in Growth Rates Among Nations

                A.    The fastest growing countries in the world are LDCs although other LDCs are doing very poorly.

                B.    The growth picture of LDCs is clearly one of diversity.

        III. Sources of Economic Growth

                A.         Investment in physical and human capital

                B.         Technological advances

                C.         Institutions and policies consistent with efficient economic organization.

                        1.        Secure property rights and political stability

                        2.        Competitive markets

                        3.        Stable money and prices

                        4.        Free trade

                        5.        Open capital markets

                        6.        Avoidance of high marginal tax rates

        IV.   The Size of Government and Economic Growth

                A.        Government activities that focus on protective and productive activities in which it has a comparative advantage, can enhance growth.

                B.         Continued growth of government will eventually exert a negative impact on the economy, for four major reasons.

                        1.                Higher taxes and/or additional borrowing will impose increasing deadweight losses on the economy as government expands.

                        2.                Diminishing returns will cause the rate of return derived from government activities to fall.

                        3.         The political process is much less dynamic than the market process. 

                        4.                A larger government becomes more heavily involved in the redistribution of income and regulatory activism.               

        V.         Economic Freedom and Growth

                A.        Economists since the time of Adam Smith have generally argued that freer economies are likely to be more productive.

                B.         Economic freedom is complex and very difficult to measure.

                C.         Measure of economic freedom developed by Fraser Institute indicates consistency of the legal structure and policies with secure property, monetary stability, free trade, and reliance on markets.

                        1.        Rating developed by more than 100 countries.

                        2.        Country ratings vary substantially.

                D.        Countries with more economic freedom, as measured by the Freedom Index in 1995 also had both a higher average per capita GDP and more rapid average growth rates during 1985-1995.

        VI.   Is the Growth Trend of the U.S. Changing?

                A.        Despite the unprecedented stability of the U.S. economy during the last 15 years, the growth rate of real GDP has fallen each decade since the 1960s.

                B.    The growth of output per hour worked during the last two decades—1.2 percent in the 1980s and 1.5 percent during the 1990s—is less than half the comparable figure for the 1960s.

                C.    The factors favorable to economic growth in the U.S. include the persistent low rate of inflation, freer international trade, a smaller share of output going to government, and the fact that a large part of the work force is just moving into their most productive years.