What’s the outlook?
As an economist, it’s the question I get asked most often. But as New Yankee catcher Yogi Berra once said, “It’s tough to make predictions, especially about the future.”
The best way I know to answer the question is what economics teaches: The future is shaped by entrepreneurs. Economic theory and empirical research have long identified the important role that entrepreneurial activity plays in the economy.
Writing in the early part of the 20th century, economist Joseph Schumpeter argued that the ideas of entrepreneurs provide opportunities to better use our resources and thus to live better. The creativity that entrepreneurs bring to economic activity gives rise to higher productivity and higher incomes.
In the middle of last century, Nobel Prize-winning economist Robert Solow developed what is now a widely used model of economic growth, which shows that growth in per-capita income depends on the accumulation of capital. However, Solow found that just giving workers more and more physical capital may not make a difference. What the economy really needs is innovation.
Workers need new ideas and new ways to use capital equipment. Solow and later economic researchers have shown that two countries with the same level of capital per worker can have widely different standards of living or wealth because one country knows how to use capital better.
This is where the entrepreneur comes in. In the first part of this century, economist George Gilder has drawn on the mathematical models known as information theory to explain how the entrepreneur solves problems that lead to better use of our resources.
In his 2013 book “Knowledge and Power,” Gilder explains how, in a continuous effort to gain new information or knowledge by testing new products and services, the entrepreneur brings about economic growth. Gilder argues that anything we do to stifle the entrepreneur will slow economic growth.
Fortunately, we have a good environment here for entrepreneurs. According to the Boise Valley Economic Partnership, “the Boise Valley is home to some of the most innovative companies and entrepreneurial minds in the country.”
While it’s tough for me to predict what the economy is going to do over the next few quarters, I am optimistic. Entrepreneurs both here in Idaho and across the country are still hard at work – work that will bring about a prosperous future.
Peter Crabb is professor of finance and economics at Northwest Nazarene University in Nampa. email@example.com.