Economist's Notebook: Economic Growth - Explained

Sometimes deep economic insight pops up in unexpected places. Over the weekend my oven decided to put on a spectacular show as the main heating element fried, sparked and smoked (and in so doing, spooked the wife). So, with a batch of clay ornaments waiting to be baked, I high-tailed it over to Ankeny Hardware. A great place I had never noticed before (it is between 11th and 12th on SE Stark), Mosee had the parts and the advice I needed and in no time we were baking away again.

But before that happened I had a good time chatting with the owner of the part store/hardware store. He told me about the history of the place and his business model ('It works, I try not to think about it too much'). But then he began to tell me about his philanthropic activities and said this (and I am paraphrasing from memory): "We give 10% of our profits to charity, mostly kids charities because they are going to be paying into Social Security, and I am going to need Social Security, so we better get 'em educated."

I was startled for two reasons: one, this is essentially the topic of my most recent research project; and two, this is a pretty keen insight. Educated people are more productive people and more productive people earn more and thus contribute more into Social Security, so if we fail to invest at the front end, we are going to suffer later. Maybe I should add him as a co-author.

This is, of course, a pretty good example of economic growth in general: it takes abstinence from consumption in order to invest, and it takes investment in order to increase productivity and to grow.