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Economic Growth Isn’t Everything … But It’s Tremendously Important
Economic growth is necessary but not sufficient for a flourishing society. An obvious, non-controversial statement, I would think.
The recent Democratic presidential debate, however, suggests some policymakers have forgotten the “necessary” part as they debate the merits of “democratic socialism” and a more redistributive state. Now more than ever America needs a dynamic, competitive capitalism to drive the US economic engine.
In his latest Washington Post column, AEI’s Michael Strain make fleshes out the above formula. First, growth is necessary:
But why is growth important? (Put another way, why is it good to have “a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers?”) Imagine the world in the year 1900 — a world without: air travel. Skype. Wikipedia. Google. Smartphones. High school. “Star Wars.” Amazon Prime. Modern air conditioning. Antibiotics. “The Big Bang Theory.” Springsteen concerts. None of these existed then. What in the world of tomorrow does not exist today? We need growth to find out.
Over the past two centuries, growth has increased living standards in the West unimaginably quickly. Many more babies survive to adulthood. Many more adults survive to old age. Many more people can be fed, clothed and housed. Much of the world enjoys significant quantities of leisure time. Much of the world can carve out decades of their lives for education, skill development and the moral formation and enlightenment that come with it. Growth has enabled this. Let’s keep growing. … Growth facilitates the flourishing life. By creating a dynamic environment characterized by increasing opportunity, growth gives the young the opportunity to dream and to strive. And it gives the rest of us the ability to apply our skills and talents as we see fit, to contribute to society, to provide for our families. A growing economy allows individuals to increase their living standards, facilitating economic and social mobility.
But growth isn’t sufficient:
Published in EconomicsOf course, growth isn’t everything. Conservatives especially must be on guard not to genuflect with too much reverence before the altar of national income statistics. We have learned that for too many a growing economy is not enough — a rising tide does not lift all boats with sufficient speed. So it is important to focus on another of the many fruits of economic growth: It provides the money to make targeted spending programs possible. In a nation as rich as ours, no one should fall too far — no one should go hungry, everyone should have a baseline level of education, no one should be bankrupted by a catastrophic medical event. Slow growth impedes progress toward social goals that require targeted spending, both because of the political climate it fosters and because those goals, even only those that are advisable, are expensive.
Of course, but growth is what happens in living systems. It takes a special effort to keep it from happening. On the other hand the best kind of economic growth is derivative of the kinds of policies that give rise to human flourishing. If we get it backwards, growth as the priority rather than a by-product, we can cause as many problems as we solve. Secure property rights, low taxes, the rule of law in general, and limited government are positive goods in their own right from which economic growth results and always in surprising positive ways.
John, I think that’s a great insight: growth as a goal rather than as a by-product of pursuing our goal can be damaging. We see it in other facets of life too. Take just about any youth organization or any fraternal organization as examples. They all fret over membership more-so than fretting over delivering a good program or good reasons for people to participate; the result is membership drives and gimmicks that don’t work, or fundamental organizational change away from founding principles in favor of attracting members.
But too much social spending becomes counter-productive over the long run when the welfare state crowds out the family and lowers the birth rate. See Europe, North America…
Sorry. I am normally a big JP and Strain fan.
But growth that favors one segment over the others is not sustainable unless you buy into redistribution programs. Redistribution by the state allows economies to grow in a way that favors some over others. If you minimize that, growth is choked off. The market system must adjust to start growing again.
After all, the left all got behind the Pikkety argument that economic growth cannot sustain itself if incomes are not more evenly distributed.
And the lesson of most of history was when there was an aristocracy who controlled almost all of the capital, the economic growth was stagnate and limited to extremely slow population growth. Once classes emerged with a bourgeoisie, farmers, traders and artisans, better income distribution started to occur and economic growth emerged. Then stock companies, legally protected ownership, and the industrial revolution redistributed more capital and income and we were off to the races.
Finally, where do you see the slowest growth for longest duration? Where the state is involved income distribution the most?
Balanced growth is 98% of the problem in the long run and redistribution just makes it easier to prolong unbalanced growth. Redistribution is a patch. Better to allow unbalanced growth to slow down and lead to a market adjustment that will better balance income distribution. Government redistribution patches become their own drag on more even economic growth and sustain inequality.
We also need to address, IMHO, the biggest drag on growth in the modern era: the promise that failure is not an option. It’s more than just TBTF: it’s that no one’s allowed to fail. It’s extending unemployment benefits for years, instead of taking on the structural economic ossification that’s resulting in too many people with too few skills for the current market, or subsidizing dying industries rather than retraining their employees to do more valuable work, or subsidizing college education (hello, Bernie Sanders) and thereby devaluing it rather than channeling people into the skilled trades (hello, Mike Rowe) where there are burning needs and good livings to be made.
I don’t know what to do about this, but I’m increasingly frustrated by what I see as a nation run by vacuous wordsmiths insisting that what we need are more vacuous wordsmiths—and people buying it, because they can see who runs the show. It’s a self-fulfilling prophecy from hell.
Now please excuse me while I go take the fifth (to a park, in a brown bag).
Does economic growth have to outpace population growth for a healthy economy?
Here, Here! Gentlemen.
Not so Severely Ltd.: You have 100 people and 100 things. Assume everyone has one thing. People work harder and learn how to be better. They produce 100 more things. 100 people with 200 things, 2 per person. This equal wealth accumulation, provided people do not consume any of their 200 things (assume they make what they consume in addition without consuming their “things.”)
You have 100 people and 100 things and you add 2 people and 2 things. Economic growth is 2% but people growth is 2%. Society is richer, but people have no wealth accumulation, assuming everyone has 1 thing.
You want grow things faster than people. Those things represent wealth or capital and can be saved and invested in making people smarter (technology), tools (plant and equipment), and developing land or resources. They can also be consumed which meets the needs of today, but may make people less well off. Producing more than you consume and more than the population grows generates capital accumulation
All the discussion over conservative, libertarian, liberals, etc. is about how collective action can help make people better off – in things, quality of life, or karma. JP was quoting Strain’s appeal for collective action (the state) to redistribute things so there are no people who possess no things.
Is it growth or increased productivity that is important?
Productivity simply put is making more with the same or less When you increase productivity, holding workers and all other things equal, you get growth. Again, productivity is more for the same inputs (or less inputs). Productivity is critical to growth. Without productivity, your production is limited to the amount of inputs and you never find ways to have more to spend on improving knowledge, tools, or resources …labor, capital, land. It is harder to get ahead if you can’t work smarter or more efficiently.
Thank you James. So productivity is what we need more of not growth. Many laymen confuse the two and misunderstand the word growth.
So if the population were stable and you were producing 2 things for every person per month, we wouldn’t need any growth, any increase in production. We could continue along at 2 things per person per month and material goods would continue accumulating at that rate and the economy would be healthy.
Is this right?
Let’s keep clear that this isn’t physics, it’s biology, so that many of the most important effects of sound or unsound policy aren’t known and aren’t measured. We don’t want to risk falling toward some 1960’s growth model.
Ltd, this is were productivity comes in two people that build two things now build three and sell the extra one to China or–.Now there is more for everyone.
I’m not being clear. I’m wondering if an ever increasing rate of production is necessary if the population isn’t increasing. I don’t see why growth is necessary if production is already providing well above the sustenance level. Is there a simple explanation why this isn’t so?
It isn’t necessary, but if it doesn’t happen something more important is wrong.