Increasing the rates of economic growth has long been the holy grail of conventional economics and
politics. To a large extent, most developed economies have been highly successful in increasing
economic output. But, has such an impressive increase in national output actually improved peoples
standard of living?
To decide whether economic growth has increased happiness is highly subjective, and it is difficult
for economists to make concrete arguments. However, it is worth noting the various side effects of
growth and consider there impact on general living standards.
is a basic economic concept, which suggests the tenth unit of a good will give much less satisfaction
than the first. If we already have 2 cars, does our living standards really improve if we now have the
capacity to own 3 cars? Often as economic growth increases incomes, people increasingly save their
money (higher marginal propensity to save) this is basically because they struggle to find anything
meaningful to spend their money on.
2. Externalities of growth.
Economic Growth with involves increased output causes external side effects, such, as increased
pollution. Global warming from pollution is becoming a real problem for society. The economic and
social costs could potentially be greater than all the perceived benefits of recent economic growth.
However, it is worth noting that economic growth doesnt necessarily have to cause pollution. The
benefits of growth could be used to develop better technologies that create less pollution. It is just at
the moment this has been a low priority.
6. Diseases of affluence
Economic Growth has enabled improved health care treatments, but at the same time there has
been an unexpected rise in the number of diseases and illnesses related to increased prosperity.(4)
One example is obesity. Modern lifestyles and modern diets have created an epidemic of obesity,
with significant proportions of the population expressing a desire to lose weight. It could be argued
that problems such as obesity and stress related illnesses are not a direct consequence of growth.
This is true, but, it is symbolic of the fact increased prosperity has created as many new problems as
it has solved
References
1.
Gary Burtless, Senior Fellow, Economic Studies Program Has Income inequality
really increased in US? The Brookings Institution, January 11, 2007
2.
The United States Crime Index Rates Per 100,000 Inhabitants went from 1,887.2 in
1960 to 5,897.8 in 1991. By 1991 the crime rate was 313% the 1960 crime rate.
3.
4.
Conclusion
There are clearly some benefits of economic growth. These benefits are most visible when for low
income countries. Economic growth enables the possibility to deal with many serious problems of
poverty, homelessness and lack of basic amenities. However this paper is more interested in
whether economic growth in developed economies is actually increasing living standards. Does
rising incomes equal rising satisfaction? The answer is not clear-cut. However there are clearly
several issues, which suggest that economic growth, has contributed to serious social,
environmental and economic problems, which have reduced living standards. This is not to say
economic growth is doomed to bring unhappiness. In fact the challenge is to harness the potential of
economic growth to make sure it really does increase sustainable living standards.
Higher real incomes per capita and living standards can be realised due to
increases in productivity and resource use. Higher real incomes raise purchasing
power and thus living standards through improvements in material welfare.
Higher levels of economic growth encourage higher levels of savings.
Higher levels of economic growth tend to lead to increased levels of
productivity and technological progress since resources are used more efficiently
as producers cut costs and innovate to keep pace with rising demand for goods
and services.
Higher rates of economic growth that results in employment creation and
falling unemployment levels also leads to higher incomes for those previously
unemployed. Growth may create more opportunities for underemployed workers.
Economic growth, which generates higher GDP also, leads to increasing
taxation revenue for the government. Governments can use this taxation revenue
to provide social and economic infrastructure and to fund the social security
system for the provision of welfare payments.
Higher levels of economic growth can contribute to new business investment.
New investment opportunities in resource projects and capital equipment may
result from higher sustained eco. growth.
Economic growth involves increases in real output, some which may be
exported. Export income can then be used to finance imports of capital and
consumer items. The gains from trade include higher living standards.
A nation which high rates of economic growth is more likely to be able to
reduce the extent of absolute poverty.
Economic growth permits improvements in social welfare including:
Benefits to personal lifestyles from greater real income.
A reduction in class hostility.
Additional leisure time that workers may trade off for extra work as
incomes rise. This enables Australians to use leisure time, and thus develop
new industries.