Even Pro-Capitalism People Don't Understand Economics

Daniel Henninger writes at the end of an article about Michael Moore's movie:

The important difference between the "socialist" Barack Obama and the Republicans is he'd settle for 2% annual growth (gotta pay for the green dreams) and they might get 3%. In a world of China, India and Brazil, growing at rates between 5% and 9%, we need more. A future president who puts the U.S. back in the race with these fast runners could call himself a communist for all I care.

Well, this is just bullshit. First, economics is not zero sum. If China or Brazil grows fast it's still good for us economically because they can buy more stuff from us. Second, that China, India, and Brazil would be growing faster than the United States only makes sense.

Here's a graph of the Solow Growth Model:

The basic gist is that the horizontal axis is the ratio of capital to labor or, more simply, the level of industrialization. So, the United States and Western Europe would be at the far right. Sub-Saharan countries would be to the far left. The vertical axis, for our purposes, can be considered the size of the economy. The purplish-pink line is the level of economic output. So, the United States is at the top right corner on that purplish line. A newly developing country would be at the bottom left. China, India, and Brazil are somewhere in between.

Great, FLG. What is your point? If you look at the path of growth as a country industrializes, it starts off really fast and then begins to flatten out. This makes sense. If your country makes everything by hand, then you can buy old, used machines and have a huge growth in output. Eventually, you can re-equip with more modern machines for a bit more growth. Eventually, your fully industrialized and you are waiting for new technology to be invented to increase your productivity. So, growth slows. Or, more technically, the law of diminishing marginal applies. Either way, early industrialization goes really fast, but growth flattens out.

For those of you who remember anything from calculus, you'll probably remember that first derivative is the rate of change, which is the slope of a tangent line at that point. Same applies here. At point A, you can see a blue tangent line. Let's say that's roughly where China and India are. If you drew a tangent line at the top right corner, where the United States is, then it would be flatter. Alternatively, if you drew one at the bottom left, where newly developing countries would be, it is steeper. So, it's entirely natural that the United States would have a natural growth rate of 3%, and China has one of 8%. The two economies are on two different points on that purplish-pink line.