In the latest podcast at MacroMusings, Alex Tabarrok, co-author of a couple of excellent textbooks on the principles of economics with Tyler Cowen, discusses what they mean by “cutting edge” growth and “catching up” growth.
The reason for this distinction arises because of the claim that particular institutions promote economic growth. However, we see countries like Libya, Cambodia, and China, with very high economic growth with institutions that are very different from the United States. Libya and Cambodia both are one of the most corrupt countries in the world. China is ranked 87 out of 180 in the Corruptions Perceptions Index. Though they claim to be “democracies,” there is not much political stability. China is not a democracy at all, yet boasts one of the highest growth rates in the world.
Tabarrok attributes this phenomenon to the two distinctions of economic growth. The United States has strong institutions such as political stability, relatively free markets, private property rights, little (blatant) corruption, the rule of law, and so forth. These institutions supposedly foster economic growth. But the growth rates are slower in the US because economic growth has to come from innovations.
I’ve caught a few episodes of the latest Master Chef, and it got me thinking about growth in the kitchen. Imagine you are 20 years old and you have no idea how even to boil water let alone cook a simple scrambled eggs breakfast. How long do you think it would take to learn how to cook the staples like chicken, rice, beans, pasta, eggs, even steak? A week? Maybe two?
Not too long.
This short time is “catching up” growth. You don’t need to experiment with foods and figure out how to cook them for the first time. The recipes have been time-tested and established. If you imitate how somebody cooks any of those staples, you’ll learn how to do it very quickly. You can pick up different techniques pretty quickly. Like, if you heat a pan and put raw food on it, they magically turn into cooked food.
But what happens when you are a solid cook? That is, your family won’t kick you out of the kitchen when you decide to cook–even friends might come over when they hear you are making a meal! Your abilities to improve start to slow down. You start to experiment with different flavors, cuisines, food items, and “elevating” your dishes becomes hard to tell.
The finalists on the last few shows of Master Chef, all of the cooks can make a delicious meal. That said, they are pretty much at the top of their cooking game. The improvements at the point are minimal. Gordon Ramsay is all about the “finesse.” It’s not merely about getting something tasty on a plate. It’s about the presentation, combination of flavors, and creativity that goes into the culinary experience. Ramsay and the other judges pick these dishes apart for things most of us wouldn’t care in the slightest.
Pushing the envelope in the kitchen is very slow—notably, because of all the trial and error necessary to come up with something good and new to the world. That said, master chefs grow at a slower rate than new cooks.
This is what Tabarrok would call “cutting edge” growth. The United States, analogous to a Master Chef, has relatively slow economic growth, around 2 percent. But, it’s attributed to the fact that its growth can only be attributed to innovations, not merely imitating others.
Coming up with new dishes is a much slower process than learning how to make granny’s home-cooked meals. That said, China, the new cook, is quickly learning all of Uncle Sam’s dishes. At some point, their growth will slow down, and both countries will have to come up with new recipes. And, that’s easier said than done.