Stop Being Stupid and Make Your Economy Grow

I had class with William Easterly today and we were talking about what makes economies grow. He said people often look to countries like China and India and see high growth rates over a period of time and proclaim them to be "growth miracles" or destined to be the next "super-powers". Instead, Easterly pointed out that these countries have been doing very stupid things economically for so long that by just stopping some of their stupid behavior, they can't help but grow.

Easterly used the example of a person who drinks too much alcohol and stops going to work. If you look at his income when he's not going to work and compare it to when he stops drinking and gets a job again you will conclude his income is growing at an exponential rate. In reality, he still has a long way to go to get on a good track and will still have lasting ramifications for his bad behavior. The same is true for countries.

China and India are not acting as stupidly as they have in the past and may experience some high levels of growth for a time, but that's because they are coming from so far behind. Neither country seems posed for being a super-power anytime soon without significant and earth-shattering reform.

Easterly also used the example of Uganda and Idi Amin. Uganda temporarily experienced high levels of growth soon after removing the murderous dictator from power. That was because Amin had driven Uganda's economy so far below its potential and suppressed normal economic activity. Removing him gave Uganda a temporary boost of high levels of economic growth as the effects of oppression were removed. This wasn't because Uganda was suddenly an economic miracle doing everything right. It just meant they were not doing as many things wrong. That type of growth rate does not last indefinitely.