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Physical Capital, Human Capital, Technology and America’s Future

Reyte On Publishing

http://WritersBlock-Aid.com
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What roles do physical capital, human capital, technology, and natural resources play in

influencing long run-economic growth of aggregate output per capita?

Physical capital

Defined as assets that are generated or built by human effort in the production of goods. These

man made assets include plants, real estate, equipment, and its role as factors of production is to

be transformed into tangible products for consumers to buy. Physical capital is a secondary

resource which can lose its value over time. As physical capital depreciates it has to be either

repaired or replaced (Gale Encyclopedia, 2000). The greater the amount of physical capital that

is available to produce products and the better the economy as long as there is a market for the

goods being produced. This in turn fills the role of building the economy by creating more jobs

to build product from capital goods increasing total income per capita. This in turn increased the

GDP for the country.

Human capital

Refers to human capability and skillset, it includes the education, experience, talents, and

knowledge possessed by an individual. The sum total of a persons ability to produce or perform a

task that results in a measure of labor that has a economic value. The role that human capital has

is to use the inherent skillset to produce goods or services that are of value to a consumer (Abler,

1997). The consumer, business, or other purchaser is willing to pay for the output of human

capital. The role of human capital is to continue producing goods and services of economic

value. When there is a market for the output of human capital, then the economy is willing to

purchase services resulting in more growth and development of service industry.

Technology
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Advances in technology allow new products and services to be produced. When these new

products or services are in demand, they have a value. When there is a market for the products

and services, then there is production and the economy can grow and develop (Abler, 1997).

Examples would be the Internet, Cell Phones, Smart Phones, and PDAs. The role of technology

is that through the sale of technological products in demand can lead to a growing economy. The

demand for more products require more production which creates jobs. This also creates

competition to build comparable products. For example once the iPhone was introduced, the

Blackberry upgraded its product. Other companies also came out with similar models to meet the

consumer demand.

Natural resources

Natural resources come from nature and the environment and were preexisting without the

intervention of man. Examples include natural gas, land, oil, minerals such as coal, and water.

Biotic natural resources would be fish, and trees if replanted. Natural capital can renew itself and

provide a valuable good or service for the present and indefinitely into the future (Abler, 1997).

These resources are in demand and can be a source for producing economic development.

Through its policies and institutions, how has the United States influenced U.S. long-run

economic growth?

During the industrial revolution America became a transportation, textile, agricultural,

manufacturing giant and was able to sell steel, produce, manufactured products including

automobiles, to foreign countries worldwide which greatly increased its GDP (Montagna, 2006).

Many workers were needed to work in the plants providing the human capital to produce more

products for consumption by market demand. This caused a boon in the U.S. economy for many

years which allowed the government to tax corporations and businesses to provide income for
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building the countries infrastructure, transportation industries(ie. railroad, shipping, freight),

military, department of Defense, Space programs, and government services such as Social

Security. It also put in place regulatory policy for businesses and corporations for providing

benefits to workers such as Pension Funds, medical benefits, and Workmen’s Compensation

(Montagna, 2006).

The economy and GDP continued to grow through the 90s due to new technological advances in

computers and the advent of the Internet. With Microsoft, Apple, and Dell at the forefront. Now

however due to manufacturing being outsourced to other countries with less expensive labor,

America has shut down most of her plants and become a service oriented economy.

The U.S. has experienced growth by allowing trade with other countries in exchange for foreign

products. For example NAFTA in 1994 removed all tariffs between the U.S. and Mexico to open

up trade between the two countries. This allowed the U.S. to purchase agricultural goods from

Mexico at much lower prices. Also nearly all barriers to trade between the U.S. and Canada were

eliminated in 1998. This allowed U.S. businesses to buy more foreign products to sell within the

country to American consumers. Thereby increasing the amount of GDP within the country

(FAS, 2009). OPEC was a international coalition between member countries to standardize oil

trade policies and manage pricing of oil between trading countries (OPEC.org, 2009). America

has become very dependent on foreign oil and now foreign countries have some control over the

economy related to gas consumption. The result in 2008 when oil prices rose in the Middle East

due to the war and other Eastern domestic issues caused gas prices to rise to nearly $5.00 a

gallon in the U.S.

Long term growth has been somewhat stagnant in recent years.

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America now faces a trade deficit as we have overextended the amount of imports into America

while several countries continue to limit the amount of U.S. exports allowed into their country

through tariffs or other barriers.

By being involved in trade for natural capital in the form of oil and gas products with the middle

east, the U.S. has brought a huge dependence on oil into the economy of the country.

Why might persistently large borrowing by the U.S. government ultimately limit long-run

economic growth in the future?

The borrowing of the U.S. from China, Japan, and other countries has caused the U.S. to be

indebted and dependent on these countries for economic stability. Many of these countries own

major business and corporate properties in the U.S. Since 2004 the deficit has been rising from

$5.1 trillion dollars since 2005. Foreign countries are now less interested in the U.S. dollar as its

value had declined below European currency. The long term growth of the economy has been

affected. If this continues the only way to attract foreign investment in U.S. companies and

holdings will be to raise the interest rate. With a higher interest rate a recession is inevitable.

Since it appears this has already happened to the U.S. since 2007, the time of adjusting has been

painful to say the least. With the economy being stagnant for the last several years and still no

major sign of recovery on the horizon (Shostak, 2006).

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References

Abler, D. (1997). Human Capital as an Engine of Growth. Retrieved September 29, 2009 from

http://450.aers.psu.edu/human_capital_engine.cfm

Foreign Agricultural Service. (2009). North American Free Trade Agreement. Retrieved

September 29, 2009 from

http://www.fas.usda.gov/itp/Policy/NAFTA/nafta.asp

Gale Encyclopedia of Economics. (2000). Physical Capital. Retrieved September 29, 2009 from

http://www.encyclopedia.com/doc/1G2-3406400717.html

Montagna, J.A. (2006). The Industrial Revolution. Retrieved September 29, 2009 from

http://www.yale.edu/ynhti/curriculum/units/1981/2/81.02.06.x.html

Opec.org. (2009). A Brief History of OPEC. Retrieved September 29, 2009 from

http://www.opec.org/aboutus/history/history.htm

Shostak, F. (2006). Does the Widening Trade Deficit Pose a Threat to the U.S. Economy.

Retrieved September 29, 2009 from http://mises.org/story/2029