The Nobel Prize-winning economist Robert E. Lucas, Jr., wrote that once one starts thinking about long-run growth and economic development, “it is hard to think about anything else.”1 Although I don’t think I would go quite that far, it is certainly true that relatively small differences in rates of economic growth, maintained over a sustained period, can have enormous implications for material living standards.
A growth rate of output per person of 2–1/2 percent per year doubles average living standards in 28 years – about one generation – whereas output per person growing at what seems a modestly slower rate of 1–1/2 percent a year leads to a doubling in average living standards in about 47 years – roughly two generations. Compound interest is powerful!