One of the things that many economists
believe is that there is a catch-up effect.
It's believed that you just can't maintain 
these kinds of growth rates forever,
and that eventually your economic growth 
is going to slow down.
As it does, that the countries behind you, 
who are developing countries,
that they're going to be developing and
catching up at a faster rate,
so even though you might always stay ahead of them, 
they're going to draw near to you.
This is referred to as convergence.
Convergence. They will eventually converge, 
and then everybody will sort of be like it is now,
with the US and Western Europe and Japan and South Korea, you know, we're all pretty wealthy,
reasonably close in wealth, compared to other nations.
What are the factors that impact economic growth?
One factor, of course, is the level of investment. 
If you can get foreign investment,
on top of the investment from within your own country, that's going to expand your growth even more.
If you have closed borders to investment and to trade,
you're going to have very significant problems 
trying to have economic growth.
Another is the education of your populace.
If you can increase the level of education and skills of your workers and of the people living in your nation,
then you're going to have higher levels of productivity.
A third factor is the levels of 
health and nutrition in the country.
What we've seen, for example, is that life expectancy 
is driven by a number of different factors.
It turns out that the single biggest factor that drives 
life expectancy is clean water, simple as that.
All the other things combined are just a fraction 
in their effect on life expectancy,
but clean water, that makes a huge difference. 
It basically doubles your life expectancy.
It took us forty years to figure that out,
as we tried to help other countries develop 
their health and nutritional life expectancy.
It took us a while to actually figure that out.
 It was right in front of us all the time,
because people were suffering from diarrhea and so forth. They couldn't get the nutrition and things
we were trying to give them, 
because they couldn't get it into their system.
Property rights is an essential piece of this.
If people don't believe 
they're going to be able to retain their property,
they're not going to make the personal investment in development and help to develop the economy.
Along with that, of course, is political stability.
A nation that's not politically stable 
is going to cause capital to flee,
and the entrepreneurs and other people 
are going to flee,
because you don't want to be working 
in a politically unstable country.
Free trade, we've already learned, 
makes a big difference in terms of economic growth,
and of course, research and development, developing 
new technologies, new inventions, and so forth.
We've talked a little bit about the Malthusian trap and 
population growth, but let's take a look at that again.
Because what Thomas Malthus saw was that 
as the Industrial Revolution kicked in,
the initial thing that happened was 
the number of children being born did not go  down,
not initially, because social norms 
and other expectations were such
that people continued to have big families.
As the wealth increased, and particularly as the education level of women increased,
the number of children started to go down.
Thomas Malthus saw, as shown on the graph, 
that the population was growing exponentially,
but that food was not exponential. 
If you wanted more food, you have more land.
He had a linear perspective on food. 
So he foresaw, in the very near term, in his day,
that they were very close to a crisis. And that the number of children was going to continue to grow,
food sources were not going to be able to grow that fast, and they would run out of food.
When they did,  there was going to be mass starvation. 
There was going to be rioting in the streets
and fighting and so forth. It was going to be 
a really bad situation. Why did that not happen?
The answer is that, for the first time, it didn't happen
--it had always happened in the past--
for the first time, it didn't happen, 
because of the market-based economy.
In the market-based economy, if something becomes 
more scarce, we know that will cause the price to go up,
particularly if it's an inelastic good like food. 
As food becomes more and more in demand,
with the population growing, 
the price of food will start to rise.
The entrepreneurs are then incentivized to enter the
 market of agriculture, and start growing food.
Not only will they start opening up new land for the 
growth of food, because the profits are higher,
but they will start to innovate.
They'll come up with fertilizers and insecticides and 
other things to be able to get more food per acre.
This is what happened, and Malthus never foresaw it.
He never saw that unleashing the power of innovation, that you get in a market, would solve this problem.
People would not starve, 
and people would not have the riots.
The thing is, because of the market, we actually have so much food, so much food,
that we're actually paying farmers to not grow food. 
There's too much. And we feed the whole world.
 
