1. Afternoon Discussion Topics – Lecture #1
The Importance of Productivity and National Saving
How Can We Encourage Capital Formation and Capital Usage?
Why Does the US Save Very Little?
What Factors Determine Successful Growth of an Economy?
Why is Productivity Growth So Difficult to Understand?
How Can We Encourage an Increase in National Saving?
Does Sustained Growth in Productivity Need Freedom and Democracy?

2. How Can We Encourage Capital Formation and Capital Usage?
Promote low taxes on income, wealth, profits, and bequests
Create low risk environment and stable policies
Borrow domestically unless for projects that earn forex
Reduce regulations that inhibit investment
Promote low interest rates and higher saving
Promote public funding for basic research, private funding for applied research
Seek out public projects that have high social rates of return
Encourage long run pro-business environment

3. 2. Why Does the US Save Very Little?
US consumer is sought out by producers around the world
Credit cards easy to acquire and use in the US
US consumers live in a highly disposable world
Entertainment and leisure industries well developed in US
American have large houses, many rooms, expansive land
US stores well stocked with many choices
American families live apart and households lack economies of scale
US has social security which is pay-as you-go
Tax system encourages borrowing and discourages lending
US governments spend too much without sufficient revenues

4. 3. What Factors Determine Successful Growth of an Economy?
1.. Steady and dependable increase in size of the market – free trade.
Low taxes and regulation
Public funding of basic research, private funding of applied research
High saving rates and rational long term investment
Development and promotion of human capital
Access of abundant natural resources with clear property rights
Well educated and growing workforce
Stable and predictable political environment

5. 4. Why is Productivity Growth So Difficult to Understand?
Productivity cannot be directly measured for all industries.
Productivity growth depends on very intangible items such as human capital, technological progress, regulatory environment, work attitudes, culture, etc.
Service sector is 60% of the economy for most countries, but productivity of this sector is very hard to measure.
Productivity depends on capital, but machines and tools are constantly changing in their quality. Capital is also hard to measure.
Productivity growth depends on market size which is hard to increase except by pioneering new markets and opening up to balanced free trade.
Productivity growth probably depends on “learning by doing” and experience, which is difficult to assess.

6. 5. How Can We Encourage an Increase in National Saving?
Encouragements for Private Saving
low tax private retirement accounts
stronger regulations governing borrowing
low inflationary environment
higher consumption taxes
less paternalistic involvement of the government in people’s lives
lower corporate profit tax
changes in depreciation schedules and charges
Encouragements for Public Saving
fiscal soundness, lower government spending
lower debt limits – making it hard to change
better fiscal planning and generational accounting

7. 6. Does Sustained Growth in Productivity Need Freedom and Democracy?
Capitalism is founded on free rational individualistic choice – incompatible with strict, top-down control by an oppressive government
Many countries have rejected socialism and communism in favor of greater market oriented systems. Political freedoms are appearing as well.
Taiwan had a strong central government and martial law, but it gradually opened up without external pressure.
Capitalism requires innovation and reward without the threat of expropriation. This is not possible in a non-democratic country.
Capitalism requires property rights and the rule of law. Not possible in countries having judicial systems that are non-transparent and arbitrary.
Capitalism will have a shift of power from government to consumers and to the wealthy and this cannot be avoided.