Can economic growth continue indefinitely? Are there limitations to growth? How do we create a healthy balance between growth and quality of life? These are some of the questions we will be considering in this two part blog. Many of the concepts discussed are covered in greater detail and context in Waves of Global Change: Connecting the Roots of a Holistic System, and Financial Literacy: Wall Street and How it works, both by Dr. Denise Ames.
Part I: Let’s begin by establishing what economic growth is: the process by which wealth increases over time as the economy adds new market value to goods and services. Growth is inherent in capitalism–the two are inseparable. Environmental economist James Speth notes growth is an essential component of capitalism, which must expand constantly to generate new wealth. Its drive to accumulate and its built-in tendency to expand distinguishes capitalism from other economic systems. Innovative activity – which in other types of economies is optional – becomes mandatory under capitalism, a life-and-death matter for businesses. Through history, the creation of new technology proceeded at an even-handed pace, often requiring decades or even centuries to develop.
Under capitalism production time speeds up because, quite simply, time is money. The capitalist economy is a machine whose primary output is economic growth.[i]
Economists constantly watch economic growth’s movements, measure it to the decimal place, praise or criticize it, and judge it as weak or healthy. The Western economy faithfully follows economic growth. Watch any newscast or read any news report about the economy, and I wager that they will mention the word growth. At all levels – global, national, corporate, local, and academic –economic growth is examined and followed. In our lives daily lives we assume that economic growth is one of those good things. Promoting growth – achieving ever-greater economic wealth and prosperity – may be the most widely shared and forceful cause in the world today. Advanced industrial societies regard economic growth as their “secular religion.”
Throughout much of human history having more comforts and surplus food has given humans easier lives. We all like easier, more secure lives. As populations have grown, so have the economies that housed, fed, clothed and kept them. Yet, the specific policy of economic growth has a rather short history. The reasons are partly to do with policy habits, partly political posturing, and partly because we have set up our economic system in such a way that it has become addicted to growth. In fact, noted economist Paul Samuelson wrote in 1967 that “A growing nation is the greatest Ponzi game ever contrived.”[ii] Although I think a bit overstated, his point is well taken that this economic growth model depends on escalating investments or consumption of goods produced.
The pursuit of economic growth has been part of capitalism since its beginnings over 500 years ago, but it has especially come to be a central feature of U.S. economic policy since the end of World War II. The Council of Economic Advisers, established in 1946, advises the president on economic policy. It recommended in a 1949 report that growth should be elevated from an economic goal to a new central organizing principle for the economy. The report distinguished “the new primary principle of growth …from the decidedly secondary aim of economic stability.”[iii] Not all signed on to the new policy; for example, some agrarian interests, especially in the South, wished to maintain economic stability and preserve their way of life. Republican President Eisenhower questioned the wisdom of promoting economic growth over economic stability, but Democratic candidate John Kennedy, who championed the cause of economic growth in his campaign, severely chastised him and his administration for these views in the 1960 election. On the economic growth band-wagon were big business and organized labor, which both saw in growth policy an opportunity to further their own interests. Growth policies won the day and continue to be a central principle in economic policy for both parties.
Economic growth meant that Americans would consume and produce more consumer goods and services, and that workers would earn better wages in the factories and businesses that produced the goods and services, resulting in a population that would spend this surplus on more consumer goods and services. Americans were eager to shed the austerity and hardship of the depression years and embark upon a new way of life based on plenitude and a seemingly endless supply of comforts. Economic growth and consumer spending went hand and hand. Also, the Gross Domestic Product (GDP) could scientifically measure growth. The GDP is an official measure of a country’s overall economic output. It is the market value of all final goods and services made within the borders of a country in a year. Since Americans have an abiding faith in numbers, they widely considered the GDP to be an accurate measurement of a country’s living standards. A high GDP is often considered an accurate indicator of the standard of living. This measurement assumes that when the GDP is up the country’s living standard also improves. Conversely, a recession negatively describes the absence of growth. Prolonged recessions are called depressions. The joining of a consistent scientifically determined number measuring growth with rising living standards became entrenched first in American thinking and then spread throughout much of the globe.
In our next blog we will examine the social and environmental impacts of unchecked economic growth.
Critical Thinking Questions for Educators:
1. What are two characteristics of capitalism that distinguish it from other economic systems, and what is the primary objective of capitalism?
2. Who would be most likely to benefit from an economic growth strategy, and who would be most likely to benefit from a strategy of economic stability?
[i] James Gustave Speth, The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability, (New Haven: Yale University Press, 2008) 121 and 59-60.
[ii] Paul Samuelson as cited in Robert M. Collins. More: The Politics of Economic Growth in Postwar America, (Oxford: University Press, 2000) 229.
[iii] Collins, More, 21.