The
concept of the Cobb-Douglas production function was first proposed by Knut Wicksell in the late 1800’s (Bao). Following Wicksell’s
death, Charles Cobb and Paul Douglas finalized the concept by testing it
against statistical evidence in 1928. They published their findings in a study that
same year. The study successfully modeled the growth of the American economy
from 1899 to 1922 (Bao). For the study, the two economists considered a
relatively simple view of the American economy in which output is only
determined by two factors, the amount of labor involved and the amount of
capital invested (Bao).

Ultimately, the Cobb-Douglas
production function represents the relationship between inputs (almost always capital
and labor) and the amount of output produced. Today the function is widely used
as a means to measure the impact of the changes in inputs, yields of a
production activity and relevant efficiencies. The function can be defined as P(L,
K) = bL?K?. With this function it is evident that total production outputs become
a function of labor inputs (L) and capital inputs (K) (Bao).

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The
Solow Growth Model was developed in 1956 by economists Robert Solow and Trevor
Swan. Overall, the Solow Growth Model is a model of capital accumulation within
a pure production economy (Mgahagan) . It is a standard neo-classical
model which helps predict the rate of economic growth within various countries
and individual economies. The basis of the Solow Growth Model is simply a more
complex version of the Cobb-Douglas production function discussed earlier. In simples
forms the model can be represented by: Y= A Ka L b .

In this model GDP or output as represented as Y is based on the variables A, K
and L. Similar to the Cobb-Douglas production function, the model heavily
weights physical capital (as represented by K) and the labor force (as
represented by L) as the main determinants for an economy’s outputs. However,
the Solow Growth Model factors in the education of the labor force, with a more
educated labor force essentially being more productive (Mgahagan).

Additionally, in contrast to the Cobb-Douglas production function, the Solow
Growth Model factors in “ideas” or knowledge into the growth model through the
variable A (Mgahagan).

There are various
assumptions for the Solow Growth Model which shape the models structure. Some
of the assumptions of this model include continuous time, single good produced
with a constant technology and no government or international trade. Other
assumptions include that all factors of production are fully employed, the
labor force grows at a constant rate and the initial values of capital and
knowledge are given (The Solow Growth Model).

According to Gordon’s
most recent work, “Is U.S. Economic Growth Over?  Faltering Innovation
Confronts the Six Headwinds”, he argues his belief that U.S growth is over
based on six major facts. His first argument focuses the decline of the “geographic
dividend” in which is causing hours per capita to decline and thus output per
capita must be growing more slowly than productivity (Gordon). Another argument
Gordon makes in support of his belief is “the plateau of educational attainment”
which is making our labor force overall become less educated and effective and thus
less productive. Gordon also argues that the rising income inequality within
the United States is further inhibiting the nation’s future growth. His fourth
argument supporting his belief that economic growth in the United States is
over is based on the interaction between globalization and the ICT. The details
of this headwind focus on how significantly cheaper foreign labor and
outsourcing opportunities for U.S companies is damaging the nation’s economy. Energy
and the environment are the focus of Gordon’s firth headwind (Gordon). In this
headwind Gordon details the damaging economic effects global warming and the
overuse of nonrenewable energy sources are likely to have on the nation’s
future economic growth. Gordon’s sixth and final headwind focuses on the
government deficit. Gordon argues that the enormous size of the U.S deficit
will prohibit economic growth in the future mainly through higher taxes, lower
consumer spending and higher interest rates (Gordon).

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