Myopic Optimizing, Economic Growth and the Golden Rule

Descriptive theories of economic growth involve the analysis of the time path of a model economy for various initial conditions and growth parameters. Normative theories study the existence and properties of intertemporally optimal growth trajectories using some kind of social objective function. Few examples of either class allow for the adjustment of preference, knowledge, technology and behaviour to new experience and changing environment. Most theories in the literature assume either that all generations within the time horizon never respond to changes by revising their behaviour or that the decision-makers of the present generation have perfect foresight and all uncertainties are absent. However, the growth path of art economy can be perceived better as a locus of consumption-investment choices of successive generations. Each generation solves its own problems of allocating income to consumption and to additions to capital stock which will be handed on to the next generation. Based on each generation's own preference, knowledge, taste and technology, the choice is myopic, but flexible. Each generation neither pretends that it has perfect foresight in making decisions for the unborn generations, nor restricts its descendants to a predetermined consumption pattern; yet it endows its heirs with the wherewithal to make decisions in its own right.’ In reality knowledge and preference evolve, foresight is limited, decisions are fraught with uncertainty, the environment is ever-changing, and each generation weighs its own consumption against greater wealth for its immediate descendants, based only on the information available at the time.*