THE E-DIMENSION
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beings do when they produce things is rearrange some of that matter.
The better we get at finding ``recipes'' for rearranging matter, the more
productive we are for example, by making previously worthless
silicon into silicon chips for computers.
Romer is optimistic about the potential for new discoveries to sustain
or increase growth rates in the future. He points to the recent discovery
of superconductive materials that may ultimately have economically
dramatic applications, and argues that just to evaluate all possible
unknown combinations of the known elements in the periodic table in
search of new ``recipes'' would take an unimaginably long time with
existing techniques. The scope for future discovery, therefore, is vast,
says Romer.
Paul Romer is a respected economist who is one of the authors of
``New Growth Theory'' which emphasizes the importance of knowl-
edge and discovery in the economy (see Chapter 8). Romer believes
that the per capita GDP is highest in the US now because the US
invested more than other countries in knowledge and discovery during
the twentieth century. In other words, the US is reaping the rewards
in growth terms for its investment in innovation.
So far, so good. The idea that technological innovation is economi-
cally very important is not new. In 1957, for instance, the economist
Robert Solow calculated that about 90% of the increase in per capita
GDP in the US in the first half of the twentieth century was due to
technological advances.
In the 1990s, however, enthusiasts began to claim that the extraor-
dinary success in the US of the knowledge industries (including
information technology, the Internet, biotechnology, and telecom-
munications) combined with international financial liberalization and
trade growth, were creating a ``New Economic Paradigm.'' In the
``New Economy,'' they said, US workers have become much more
productive, doubling the country's potential growth rate and lowering
unemployment without a corresponding increase in inflation. Produc-
tivity growth has accelerated and the official statistics that do not
support this are failing to measure the New Economy accurately. Most
traditional economists think that measures of productivity have in any
case understated the improvement in living standards for more than a
century.
