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Benefits of economic growth

Faye Fisher

Simon Schocken

Economics 201

4/3/19

Benefits of Economic Growth

“The Long View.” The Economist, The Economist Newspaper, 13 Sept. 2013, .www.economist.com/

special-report/2013/09/13/the-long-view

This editorial from The Economist refutes the claim that economic growth is bad for biodiversity and the environment. The author argues that economic growth is not only harmless, but that after it passes its early stages where biodiversity for a short time tends to suffer, it is actually beneficial for environmental health. This argument seems to have some merit. The article cites a study that looked at biodiversity between 1970-2008 in tropical areas, which are usually poorer, and temperate areas, which are usually richer. The study found that the tropical areas experienced a 61% decrease in biodiversity, while the temperate areas experienced an increase of 31%. This is relevant because it goes against the notion that rich countries with growing economies are inherently bad for environmental health. The article observes that it is not until a certain degree of economic prosperity is achieved that countries begin to take interest in preserving natural resources. As economies expand and require more and more resources, taking steps to protect these resources becomes in their best interest. China is used as an example, who, after having destroyed much of it’s natural forest, is now paying its farmers to replant them. The author writes that high intensity farming in a small area, or “sparing”,” could be another possible explanation for improved environmental conditions in richer economies. While some may argue that this method is harmful to the environment, the author points to multiple studies that have put it above the alternative, which is less intensive farming over a larger area of land, and is the method more commonly used in poorer countries. Furthermore, rich countries are generally more educated on the issue of environmental health and so more pressure is applied on their governments to take care of it. Governments from richer countries also tend to have more technology at their disposal that can that be used to combat ecological threats. Overall, the article makes a good point, the evidence seems to show clearly that economic growth does not inherently indicate environmental destruction, and in many cases can actually result in improved ecological conditions. Granted, those with anti-growth views may still point to the increased waste associated with economic growth, but after reading this article, it could be argued that more waste with better management, is superior to less waste with poorer management.

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“Why the Rich Must Get Richer.” The Economist, The Economist Newspaper, 10 Nov. 2005″,

www.economist.com/books-and-arts/2005/11/10/why-the-rich-must-get-richer.

This article from The Economist makes an interesting case for economic growth. After briefly discussing the obvious benefits, such as the relieving of poverty, it takes a different approach. The author presents the idea, supported by Harvard economist Benjamin Friedman, that the benefits of economic growth are not strictly material, but also social and political. The argument goes that society as a whole is happiest not when having achieved economic prosperity, but during actual the process of achieving it, and that it is not whether a person is rich or poor that is most important, but whether or not their economic status is improving. The author notes that this theory is nothing new, and dates back to Adam Smith in the 1700s. Looking at this critically, the author does not cite any studies claiming to have proved this phenomenon. But they do look to history as evidence by noting that the citizens of a country experiencing economic growth have been more tolerant, peaceful, and even more inclined to prefer democracy. Here the author makes an interesting case, if it is true that economic growth is morally beneficial to society, then is this not an example of a positive externality? While the material benefits to society are represented in the prices of goods and services, the moral and political benefits are not, and so in theory will lead to a smaller rate of growth than is beneficial to society. If this is true, then this would seemingly warrant a variety of pro-growth interventions. This, however, is certainly not a standard example of a positive externality. It seems debatable whether or not it would even qualify. But regardless, the argument does bring attention to another element of economic growth that is perhaps underrepresented in the discussion, and should be taken into account.

“Growth Is Good.” The Economist, The Economist Newspaper, 25 May 2000, www.economist.com/

finance-and-economics/2000/05/25/growth-is-good.

An argument commonly vocalized by those with anti-growth views, that is, that growth serves only the rich, leaves the poor behind, and increases economic inequality, is refuted in this article from The Economist. The author argues fairly convincingly that growth is in fact equally beneficial to the rich and the poor. The article sites a study that was conducted by looking at the data from 80 countries and spanned 40 years, and found that, on average, the incomes of the poor rose “one for one” with the rest of the population. It is noted that this phenomenon should not be confused with “trickle-down”,” the study found that as the economies grew, the rich, the poor, and the population as a whole saw their incomes rise simultaneously. On a similar note, the article also refutes the argument that the poor see their incomes decrease more than the rest of the population in times of disparity. The study found that the decrease in income for the poor in relation to the rest of the country was again “one for one.” The study does well to note, however, that while this may be true, it can not be denied that a decrease in income hits the poor harder than the rich, even if the decrease is of an equal percentage. Lastly, the article looks at those things that are necessary in promoting this kind of economic growth. Many of these policies are again targeted as unfairly favoring the rich. Again, the article finds this to be false. The study found that the policies and institutions that are encouraging to economic growth, such as globalization and strong property rights, are beneficial to the poor as well as the rich, and do not affect the distribution of income. In its conclusion, the study found that only two policies seem to have a “systematically biased effect”,” meaning that they have an effect on the distribution of income in addition to the growth of the economy overall. Those two things are cutting inflation, and cutting public spending, both of these were found to benefit the poor over the rich, not the other way around. The reasoning for the latter was that, while public spending is often intended to aid the poor, it slows growth and ultimately has the opposite effect. It is worth mentioning that the authors of the article note that the study was conducted by researchers from the World Bank, whom some may accuse of being biased. Nevertheless, the findings are convincing and should be considered.

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Dorfman, Jeffrey. “Why Growth Matters.” Forbes, Forbes Magazine, 22 Dec. 2017″,

www.forbes.com/sites/jeffreydorfman/2017/12/22/why-growth-matters/

#7d4f7e397141.

The author of this article from Forbes argues that the solution to the strife between parties over the distribution of income through governmental policies is not necessary found on one side or the other, but rather with a mutually beneficial economic growth. The author argues that with more economic growth, we can redistribute less, seeing as the poor will have more money and therefore will not be in as much of a need for federal assistance. Alternatively, the author argues, low to zero rates of economic growth require more money to be “take[n] from the rich and give[n] to the poor”,” and reduce politicians to rent-seeking and other negative behavior as they fight over a smaller amount of resources. When rates of economic growth increase, a larger pool of resources become available which allows for people to be more self reliant, or so the article claims. The author is clearly biased towards more conservative and anti-distribution policies, and it is perhaps a bit naive to believe that even a strong rate of economic growth would completely solve the argument between liberals and conservatives in the distribution of income. However, it seems safe to say that a high rate of economic growth would certainly ease some of the tensions as proponents on both sides of the argument become more prosperous, and therefore less desperate. The author points to the years under President Bill Clinton, when economic growth (adjusted for inflation) averaged 3.8 percent. During this time, the poverty rate dropped 3.6 percent as a result of the new jobs and higher wages. The author points to this as evidence that economic growth will solve the debate and cease the need for redistribution of income. Again, this seems unlikely. Even in a prosperous economy there will always be a lower class that feels that the wealthy upper class holds an unfair amount of money, just as there will always be an upper class that will fight back against them, and so the debate will continue. That being said, the author’s main point still stands, a growing economy and higher incomes will do more to lesson the tension than a triumph on either side of the debate ever would.

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