Monday, February 17, 2020

Essay Winner: Maggie Kennon

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

  • Kealan Vasquez
  • Niklas Jenkins
  • Max Bodach
  • Maggie Kennon
As winners of the essay contest, the students attended the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Ms. Maggie Kennon: Innovation as the Final Frontier Ideology


One of the most intriguing topics covered in macroeconomics is growth. Long run economic growth, an increase in productivity, is practically synonymous to an increase in technological innovation. In both the endogenous, 𝑌=𝐴𝐾, and exogenous, Δ𝑌/𝑌=Δ𝐴/𝐴+𝛼𝐾(Δ𝐾/𝐾)+𝛼𝑁(Δ𝑁/𝑁), production functions, technology, or A, directly affects output. That is, a percentage increase in technology will lead to the same percentage increase in output. It seems simple to say increasing A will increase productivity, but since there are so many factors that affect technology, the study of economic growth is complex. One such factor that has particularly shaped the American economy is culture.
American culture is defined by a sort of frontier ideology. When Alexis de Tocqueville visited early America, he wrote about a society unlike any he had encountered. He explained this difference as a difference in mores, translated as manners, which is the culture of a country defined by its habits and beliefs. The American mores was encompassed by a spirit of adventure, initiated by the pilgrims that is continued even today. This spirit of adventure could be called a frontier ideology; it is the idea that new possibilities and great rewards are available to those who take risks. The pioneers were those who sought a physical frontier, which continued until America was settled from coast to coast, but the absence of a physical frontier did not signify an end to this frontier ideology. It became manifested in free enterprise and equal opportunity.
This ideology was re-imagined as the American Dream, or the idea that everyone has an equal opportunity to earn reward when risk is taken. America is the frontier of possibility and opportunity, and entrepreneurs became the new pioneers. The frontier was no longer about the quest for land, but about the quest for ideas and innovation.
To appreciate just how much America’s culture has impacted its economic growth, consider other ways in which productivity increases. Increasing capital and labor should increase productivity, but they do not have the long-term effect of technological innovation. By the law of diminishing marginal returns, increasing capital or labor will at some point have very little marginal effect on productivity.
Furthermore, the economy tends to remain at an equilibrium, or steady-state level of capital, where saving per capita is equal to investment, or when enough capital is being invested to replace that which is depreciating and to compensate for the growth in population. Adding capital beyond the steady-state level will not have a long-term effect on productivity because the level of capital will converge to the equilibrium level. Without technological innovation, there would be no real growth in the economy.