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The costs and benefits of economic growth.

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Introduction

The Costs and Benefits of Economic Growth Consider the following quotes: Bradford de Long on the Importance of Economic Growth "Ultimately long-run growth is the most important aspect of how the economy performs. Material standards of living and levels of economic productivity in the United States today are about four times what they are today in, say, Mexico-and five or so times what they were at the end of the nineteenth century-because of rapid, sustained long-run economic growth. Good and bad policies can accelerate or cripple this growth. Argentines were richer than Swedes before World War I, but Swedes today have four times the standard of living and the productivity level of Argentines. Almost all of this difference is due to differences in growth policies working through two channels. The first is the impact of policies on the economy's technology that multiplies the efficiency of labour. The second is their impact on the economy's capital intensity-the stock of machines, equipment, and buildings." The Economist (July 2002) "Flying Blind - Growth and the Environment" "WHAT is the true state of the planet? It depends from which side you are peering at it. "Things are really looking up," comes the cry from one corner (usually overflowing with economists and technologists), pointing to a set of rosy statistics. ...read more.

Middle

Oil is a finite resource that is being used up at a rapid rate. Is it realistic to believe that if the world economy continues to grow and the dependency on oil increases that there will be any oil in a hundred years? If this is true are we therefore reducing future generation's standards of living by consuming an unfair share of finite resources today. If we undervalue the environment and in particular the finite resources at our disposable we risk causing permanent damage to our natural resource base which will place a severe constraint on growth in the future. This includes the destruction of the rainforests for raw materials and the increased burning of fossil fuels in order to generate further output The Mother of Invention An opposite view is that 'necessity is the mother of invention'. For example when crude oil becomes scarce market forces will lead to an increase in the price and that other fuels, which are at present not economical, will become viable and hence will be developed to become efficient. Brazil tried to introduce cars that were run on ethanol in the eighties as a response to high oil prices. ...read more.

Conclusion

A key problem is that it remains extremely hard to quantify in monetary terms the damage that is done to the environment - there are missing markets for many of our most cherished environmental resources. A new approach to pollution measurement and control now being introduced in the UK to many industries is the selling of licences to pollute from the government; through an auction or similar method, companies purchase licences which give them the right to pollute. This not only makes firms more aware of their pollution and forces them to become more environmentally efficient, but also forces inefficient firms out of the market because their costs will be high due to the pollution. Another benefit in this method of controlling pollution goes to the efficient companies who can sell the pollution permits to the inefficient companies, possibly for prices even more than what they purchased them for. The debate over the costs and benefits of economic growth can never be settled conclusively, in part because we simply do not have enough information on both the quantity and quality of our environmental resources - are the environmental pessimists over-stating the damage that growth is doing to our planet? Are economists who are much more sanguine about the impact of growth undervaluing the importance of leaving a sustainable environment to future generations? ...read more.

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