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Growth Domestic Prosperity

June 23, 2011 5 comments

I’m always happy to gain new readers, even the ones that challenge me. In a way, the dissenters are the most useful; recently, Lauren Sheil questioned one of my premises.

“Why does everyone assume the perpetual economic growth is not only possible but even a good thing?”

I tried to answer that under the original post, but our short back-and-forth in the comments got me thinking further about what economic growth means and how that applies to today’s policy disputes. Many of my posts focus on the problems our world faces, but our discussion reminded me of the importance of stepping back and noticing just how good we actually have it. Let’s take a look at some graphs that provide some perspective on our current situation.

(source)

Even if you conclude that most of this growth went to the richest Americans that doesn’t mean everyone wasn’t gaining from this remarkable increase in wealth. For example, as Matt Ridley explains in The Rational Optimist, even today’s poor are substantially better off from even a short time ago.

Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these. Even in 1970 only 36 per cent of all Americans had air conditioning: in 2005 79 per cent of poor households did.

Someone might counter that this all well and good for fat-cat Americans, but what about the rest of the world: how has economic growth benefited them? Let’s take a look at another graph.

Today, more than half the world is middle class. Economic growth made this possible. With economic growth comes better health, longer lives, more choices, more happiness, and much more. Expressing cheerfulness at our relative prosperity to ages past doesn’t mean we can ignore the pernicious effects of inequality, contemporary poverty, or any other problems still with us. It should remind us exactly why economic policy should focus on growth. People are suffering economically now precisely because growth is weak. Here’s the GDP data I grabbed from the St. Louis Fed.

FRED Graph

Growth has mostly been trending below 2.5%. In other words, all those unemployed people aren’t making new things like air conditioners or better homes and aren’t providing services that make our lives more comfortable. As policymakers lose focus on getting the unemployed back to work they aren’t just failing those individuals, they’re depriving everyone of more wealth and better lives. A stagnant economy that doesn’t produce more things means less for everyone – today’s growth is hardly enough to keep up with the population increase. If we hope to look back with memories of how only 65% of Americans had broadband access or any other good someone enjoys today remember that we need to grow to prosperity.

Categories: Economy Tags: , ,
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