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.
Here's what a teacher thought of this essay
This is a well planned and structured piece that makes many good points. It would benefit from the classic AD/AS diagram to show economic growth and its effect on inflation. My main criticism is the disregard for the role of aggregate supply as this is the driver of economic growth
Here's what a star student thought of this essay
Quality of writing
The structure is good, however I have a problem with the introduction. It's good to have a clear argument, but saying "so economic growth is desirable" in the introduction is a bit presumptuous. I would be setting up the argument in the introduction by defining the key terms and outlining that it's not clear cut. Then, in the conclusion, you can draw upon analysis and evaluative comments to make a justified judgement. This doesn't hinder this essay, but in some cases coming to a conclusion so early may make for a one-sided argument. The style is strong, making this argument very convincing. Spelling, punctuation and grammar are superb and technical terms are used well.
Level of analysis
The analysis in this essay is strong. What I particularly like is the flow each paragraph. Every point flows from the next, making for a strong display of understanding. The examiners will appreciate such style, even if you think you are pointing out the obvious! It was great to see some exploration of economic school of thought in "Keynesians argue that it could lead to demand-pull" yet it was such a shame not to see a diagram! This essay distinctly lacks an aggregate demand and supply diagram. Such a diagram could show a shift in aggregate demand, causing an increase in real GDP and thus an increase in employment. I would note that this essay should discuss the cause of economic growth. In my experience, without discussing the cause, you will not get the top marks for evaluation. You should be saying that growth caused by increases in aggregate supply is more beneficial, etc. If this essay wanted to explore the task further, it would be good to discuss from what viewpoint is it desirable. Is economic growth desirable for the government, the poor, the free market economists, the Keynesian economists, the rich? Those are the sort of points which will set an economics essay apart from the rest.
Response to question
This essay engages superbly with the question, exploring whether economic growth is desirable by looking at benefits and disadvantages. If I was answering this question, I would be asking myself "is it always desirable?" as that leads you to look for situations where it's not. I liked how there was a strong exploration of why it isn't desirable, as this is sometimes a problem with this question. Some people think economic growth cannot have any negative effects, so it has a one-sided argument and doesn't appreciate the disadvantages. This essay does this well!