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In the 1980s, this focus on potential output was popularized under the rubric of “supply-side” economics and addressed the role that tax cuts play—or were alleged to play—in stimulating growth in economic capacity by encouraging individuals to work harder and to save more. We will not wade into the controversy that continues to this day about how important taxes are in this process. The important point for our purposes is that supply-side economics was not new. A number of economists had theorized in previous decades about what determines growth of potential output.

Moreover, of particular relevance to the debate about globalization, both India and China have achieved rapid growth while opening themselves up to the rest of the world: trading more extensively and accepting more investment from rich countries. Openness to trade and investment, as we will discuss in later chapters, can be critical to facilitating entrepreneurship and, hence, growth. For now, it is essential to note only that growth and poverty reduction go hand in hand (Dollar and Kraay, 2002).

In more recent times—for example, in the last decades of slow growth and high unemployment— Continental Europe has again flirted with anti-Semitism, while hosting a strong strain of anti-immigrant sentiment. The reverse is much more likely to be true for economies that are growing. These have the good fortune to take advantage of a virtuous cycle, since the young can count on a better life, assuming they work hard to achieve it. Visitors to India or China or Ireland or Israel, for example, report a vibrancy and sense of excitement that one doesn’t hear about in Western Europe, at the rich end, or much of Latin America or Africa, at the lower end of the world income distribution.

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