To what extent is economic growth desirable

Another way in which growth is desirable is the happiness from higher living standards it brings to people of healthy economies. During a boom, people are generally more tolerant of immigration, politics and democracy, whereas when negative growth leads to a prolonged recession like Greece, the population becomes more intolerant of politics leading to surges in violence and mass protests. So when GDP is rising, confidence amongst the population increases, and the tendency for strikes and industrial action to occur becomes less likely. This is important because strikes causes by unhappiness amongst workers is extremely damaging to economic growth. If the market can forecast satisfaction amongst the working population, then businesses are more inclined to invest in economies with a reliable working population as opposed to an unstable one. Investment is a very component of AD because it ensures sustainable economic growth for the future rather than short periods of positive then negative growth.

Economic Growth is also desirable because governments and business can invest more in efficient and green technology with higher revenue from taxes and profits gained from growth. This is especially important in today’s world and almost all governments have budgets devoted to environmental protection. The EU, whose member’s economic growth is collectively very high, has set a target of achieving 20% of energy needs from renewable sources by 2020. Investment in technology and science has meant that energy intensity (energy consumption per unit of GDP) has decreased dramatically over the last 30 years, even in developing countries.

On the other hand, economic growth puts strains on the environment and the negative externalities accrued such as pollution can damage the world’s health and economy. Pollution emitted from factories and energy plants in developing countries often drifts causing air pollution and global warming. These two incidents are very important for the future generations as many coastal regions and islands will be underwater if the ice caps melt due to global warming. This will cause a strain on the world’s land and scarce resources which is bad for the economy. Also air pollution contributes to asthma and respiratory problems which will lead to governments needing to spend more on health services. So the many environmental externalities of economic growth will accumulate more problems in the future which the world cannot cope or deal with.

Another reason why economic growth is not desirable is the potential for inflation to spur out of control. Keynesians argue that it could lead to demand-pull inflation pushing the price level up due to higher aggregate demand which outpaces an economy’s potential output. This is undesirable as the price of goods and services may become so high that householders cannot afford to purchase goods and services. This raises pressure on monetary policy and interest rates to rise in order to counter-act inflation, the risk and severity of inflation greatly depends on central banks and governments, if they do not act then cost-push inflation may occur hitting those on fixed and low incomes the hardest and increasing income disparity

Finally, growth furthers social injustice within an economy. Firms and bankers (who were originally wealthy to begin with) stand to gain the most from economic growth as their profits and bonuses increase. Down the other end of the social ladder, workers only stand to gain employment and maybe a higher standard of living, but this does not apply to the whole population. In an age of technological advancement and increased productivity, fewer workers are needed so that even in times of economic growth, unemployment is still relatively high. It is inevitable therefore that only a certain group of people benefit from growth, unless governments intervene with strong regulation and taxes to re-distribute wealth. In Singapore, an almost pure free market model, GDP grew 14.6% in 2010 yet the GINI co-efficient has risen from 0.425 in 1998 to 0.48 in 2008. In the UK, income inequality can be seen in the North South divide whereby most of the nation’s wealth is concentrated in London and the South, everyone in our economy does not directly benefit from growth, especially in rural areas and ubiquitous sectors like health and education.

Economic growth therefore, is always desirable provided it is sustainable in the long term and of a high enough percentage in GDP. In the long term, economic growth seems to provide solutions to many economic and social problems which would otherwise not be solved by the government. Economic growth also provides developing countries with the opportunity to improve the lives of their people and compete with developed nations, there are predictions that China will surpass America in terms of economic power over the next 30 years. The consequences of economic growth whilst important can be lightened through regulation and control so it may seem a small price to pay in the long run. So overall, growth is beneficial to all economies but measures need to be in place to prevent economies from ‘overheating’ and slumping due to un-sustainable growth.