Remember this posting on the Cost of Stupidity? My conclusions:

Small sustained differences in performance mean big differences in absolute outcomes.  

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•The steady and quite rich get steadily quite a lot richer.

The poor have to be more than steady to start to close the gap.

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The stupid get enormously worse off.

Gaps can be closed by sustained good performance (see China, India, Estonia, Poland).

But once you’ve fallen far behind you are severely weakened; the effort needed to sustain such performance over decades is usually undeliverable…

Here is an interesting echo of the same argument by Tyler Cowen (written before our current financial woes, but not obviously any less relevant). It looks at whether Europe’s ‘social democracy model’ is sustainable, taking a Long View (emphasis added):

If a country grows at two percent per annum, rather than one percent, the difference in wealth or welfare in a single year is relatively small. Over time the difference becomes very large.

For instance, had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990.

Growth laggards fall behind. If we compare a one percentage point differential in the growth rate, and start at real income parity, we need a time horizon of 110.4 years to establish a 3:1 ratio of superiority of per capita income.

If we are comparing a two percentage point boost in the growth rate we need a time horizon of only 55.5 years to establish a 3:1 superiority in per capita national income.

Nobel Laureate economist Robert E. Lucas put it succinctly: “…the consequences for human welfare involved in questions like these are staggering: once one starts to think about [exponential growth], it is hard to think about anything else.”

A striking observation, as we sit here wondering who is to pay for unfundable European pension schemes as our growth rates and demographic prospects alike trend downwards?