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Why Is Economic Growth Good?


July 25, 2023

As the saying goes, there are no stupid questions. In that generous spirit, it’s certainly legitimate to ask why a continually growing economy is a good thing. Why does GDP have to keep going up? Isn’t life good enough?

Economic growth isn’t an economic statistic. That’s just what measures economic growth. A good definition from Our World in Data: “Economic growth is an increase in the quantity and quality of the economic goods and services that a society produces.”

Economic growth means more of and better access to what we need and want, even if we don’t yet know what we need and want. Clean water and Diet Coke. Ibuprofen and mRNA vaccines. Solar panels and electrical grids. Pencils and smartphones. Subways and 757s. Quarterbacks and physical therapists. Software developers and YouTube influencers. Paperbacks and IMAX. Longer life expectancy and higher literacy. Less poverty and pain. Water desalination plants and asteroid deflection rockets. Greater opportunity to be who we want to be and to do what we want to do.

In the 2022 analysis “Hooray for GDP! GDP as a measure of wellbeing,” economist Nicholas Oulton writes:

GDP has always been a measure of output, not of welfare. But although GDP is not a measure of human welfare, it can be considered a component of welfare. The volume of goods and services available to the average person clearly contributes to welfare in the wider sense, though of course it is far from being the only component. . . . GDP is also an indicator of human welfare. In cross-country data, GDP per capita is highly correlated with other factors that are important for welfare. In particular, it is positively correlated with life expectancy and negatively correlated with infant mortality and inequality. Since parents naturally feel grief for children they have lost, infant mortality might be thought of as an indicator of happiness.

And we’ve been talking just today’s economic output. Who knows what tomorrow will bring as more growth generates more needs and wants? As the New York Times once wrote about Apple co-founder Steve Jobs: “Mr. Jobs’s own research and intuition, not focus groups, were his guide. When asked what market research went into the iPad, Mr. Jobs replied: ‘None. It’s not the consumers’ job to know what they want.’”

We didn’t know we wanted/needed the iPad and maybe it will be the same for air taxis, lunar vacations, universal vaccines, and the return of the woolly mammoth.