Limits to Growth

Some believe that economic growth is severely constrained by finite natural resources. This view traces its roots at least as far back as Thomas Malthus, who wrote in the eighteenth century that the population has a natural tendency to grow faster than food production and hence is constrained by starvation, pestilence, and war. The "limits-to-growth" view, however, neglects the fact that competitive markets adjust to scarcity. When goods, services, or raw materials become scarce, prices rise, and both consumers and producers are motivated to find more efficient ways of obtaining and using them. Rising energy prices encourage conservation; rising land prices encourage improvements in agricultural techniques that increase food output. Contrary to the Malthusian view, world cereal production has actually grown faster than global population for nearly 200 years.

Nevertheless, when markets do not operate well, valuable resources can be consumed too rapidly or be exhausted. Inadequate property rights in water or forest resources, for example, can result in their future value being neglected. In such cases, establishing reliable property rights or, where markets are seriously deficient, establishing appropriate fees or regulations constitute the economically sensible approach.

Public policies designed to enhance the skills and productivity of the labor force are critical to ensuring that the rising living standards made possible by economic growth are spread through international trade

Voluntary exchange of goods and services across national bound-

out the economy. Increased funding for Head Start, a program aimed at developing learning skills at an early age; promoting school choice for elementary and secondary education; better access to higher education; and improved job training all have the potential to spur economic growth. Sound policies to protect the environment and manage natural resources can also strengthen the framework for growth. The current income tax system can also be reformed to eliminate aspects that inhibit growth. Among these modifications are cutting the tax rate on savings and entrepreneurship, depreciation reform, and eliminating the double taxation of corporate dividends.

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