The costs and benefits of economic growth.

Authors Avatar

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. “Disaster is nigh,” shouts the other corner

(usually full of ecologists and environmental lobbyists), holding up arrival set of troubling indicators"

What are the main benefits of economic growth?


Economic growth is a key factor in increasing employment levels.  The result of this is likely to be a rise in disposable income and hence an increase in the real purchasing power of consumers.  With a rise in real national output comes a rise in living standards and the opportunity to reduce absolute poverty.  Although relative poverty can increase in a period of economic growth it is likely that absolute poverty will fall and a progressive tax system could be developed to narrow the divide between rich and poor. In this sense economic growth is essential for low-income countries where a substantial proportion of the population is blighted by absolute poverty. The key is whether the gains from a growing economy filter through to a sufficiently large percentage of the population

Join now!

The fiscal dividend from economic growth

With economic growth comes a fiscal dividend.  Unemployment is likely to decline, although as Okun’s law says only if productivity is growing at a slower rate than the economy, and hence unemployment benefit  and other welfare state payments linked to household income will fall.  At the same time if people are earning more and businesses are enjoying higher profits then they are going to pay more in direct tax such as income tax and corporation tax.  This effect is greater than might be imagined as in a period of rapid growth the number ...

This is a preview of the whole essay