AP_Krugman_Textbook

their economic growth suffers due to corruption among the government officials who
should be enforcing the law. For example, until 1991 the Indian government imposed
many bureaucratic restrictions on businesses, which often had to bribe government of-
ficials to get approval for even routine activities—a tax on business, in effect. Econo-
mists have argued that a reduction in this burden of corruption is one reason Indian
growth has been much faster in recent years than it was in the first 40 years after India
gained independence in 1947.
Even when governments aren’t corrupt, excessive government intervention can be a
brake on economic growth. If large parts of the economy are supported by government
subsidies, protected from imports, or otherwise insulated from competition, productiv-
ity tends to suffer because of a lack of incentives. As we saw in Module 38, excessive gov-
ernment intervention is one often -cited explanation for slow growth in Latin America.

Is World Growth Sustainable?

Earlier we described the views of Thomas Malthus, the nineteenth-century economist
who warned that the pressure of population growth would tend to limit the standard of
living. Malthus was right—about the past: for around 58 centuries, from the origins of civ-
ilization until his own time, limited land supplies effectively prevented any large rise in
real incomes per capita. Since then, however, technological progress and rapid accumula-
tion of physical and human capital have allowed the world to defy Malthusian pessimism.
But will this always be the case? Some skeptics have expressed doubt about whether
long -run economic growth is sustainable—whether it can continue in the face of the
limited supply of natural resources and the impact of growth on the environment.

Natural Resources and Growth, Revisited

In 1972, a group of scientists called the Club of Rome made a big splash with a book ti-
tledThe Limits to Growth,which argued that long -run economic growth wasn’t sustain-
able due to limited supplies of nonrenewable resources such as oil and natural gas.
These “neo - Malthusian” concerns at first seemed to be validated by a sharp rise in re-
source prices in the 1970s, then came to seem foolish when resource prices fell sharply
in the 1980s. After 2005, however, resource prices rose sharply again, leading to re-
newed concern about resource limitations to growth. Figure 39.1 shows the real price

module 39 Growth Policy: Why Economic Growth Rates Differ 391

Section 7 Economic Growth and Productivity

figure 39.1

The Real Price of Oil,

1949–2008

The real price of natural resources, like

oil, rose dramatically in the 1970s and

then fell just as dramatically in the

1980s. Since 2005, however, the real

prices of natural resources have soared.

Source:Energy Information Administration.

Real domestic

U.S. oil price

(2000 dollars,

per barrel)

Year

$80

70

60

50

40

30

20

10

(^1949196019701980199020002008)
Long - run economic growth is
sustainableif it can continue in the
face of the limited supply of natural
resources and the impact of growth
on the environment.