Economic Growth Relies on a Fragile Loop of Knowledge – and on Not Blocking New Information

According to research, economic growth is not humanity's 'normal state' but an exception: only the last couple of centuries have brought long-term prosperity compared to a long period of stagnation. In an article published in AI & SOCIETY, Johnny Chan returns to the current economic debate and emphasizes how growth arises from surprisingly mundane yet crucial institutional work.

Chan particularly leans on economic historian Joel Mokyr's idea of the interaction between two types of knowledge. 'Propositional knowledge' refers to the understanding of why a phenomenon works (explanations, principles, and theory). 'Prescriptive knowledge,' on the other hand, means practical instructions on how something is done (methods, tools, and skills). Modern growth began when these started to feed each other in societies where new information could be presented and tested without offended egos or interest groups halting development.

According to Chan, a key turning point was when experimentation and measurement combined philosophical thinking with craftsmanship: 'useful knowledge' began to grow like capital, and living standards followed suit. The idea is simple but uncomfortable, Chan writes: growth rests on a fragile loop that can also be broken.

The article also refers to the fact that the other half of the Nobel Prize in Economics was awarded to Philippe Aghion and Peter Howitt, who formulated a model of continuous renewal – a phenomenon that ordinary people experience as the upheaval of industries.

Source: AI and the boring institutional work that makes growth real, AI & SOCIETY.