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The Complexity of Economic Growth

The Complexity of Economic Growth
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little-house-on-the-prairieWhat is economic growth?

Economists talk incessantly about it. Whether in newspapers or textbooks, the dismal science appears predicated on the idea of increasing growth. Politicians love pointing to economic growth that occurs under their watch, and shrinkage under the opponent’s. For all this talk of growth, the term itself is never really defined. Growth is good; contraction is bad. And if the family breadwinner has a decent-paying job then everything is booming.

That’s how economic growth comes off to the layman, anyway. Intellectuals have a bad habit of condensing complex matters into pithy statements that have no bearing with reality. By focusing strictly on “growth,” the term is a buzzword with little meaning. Thankfully, we have real, human stories to reflect on how far the modern economy has “grown” from just a half-century ago.

Wall Street Journal columnist Peggy Noonan, reflecting on Senator Joni Ernst’s homespun rebuttal speech to President Obama’s latest State of the Union, recently wrote about the “old days” of America. These golden years of yore were not as romantic as modern fiction often makes them out to be. Material convenience wasn’t ubiquitous. Basic clothing was rare. As Noonan writes, “If you were from a family that was barely or not quite getting by, you really had one pair of shoes.”

Nowadays, the lower class can afford multiple pairs of name-brand shoes. This was unheard of over a generation ago. There simply were less goods around for everybody. And that includes basic necessities like food, clothing, and the most important resource, spare time.

Piggybacking off Noonan, Bloomberg View columnist Megan McArdle points out that the scenic, salt-of-the-earth living portrayed in the classic The Little House on the Prairie series was far from idyllic. The characters put a high value on trinkets we don’t think twice about before throwing away. The joyous family feasts? They took over a day to prepare; not to mention being a rare treat. Meals in 19th-century America usually contained, according to McArdle, “beans, bread or some sort of grain porridge, and a little bit of meat for flavor, heavily preserved in salt.” Living small but fulfilled with the hard rewards of organic life sounds wonderful on paper. Actually living that way was a whole different matter. Life was hard, and sometimes brutally short.

Our lives have been freed from such drudgery by the process of economic growth. While professional economists like to point to numbers and stats to demonstrate growth, it’s easily observable when looking at everyday appliances. Washing machines, air conditioners refrigerators, cars, and microwaves are all products of “growth.” What does that mean? It simply means economic growth is the result of a greater number of goods available. No charts, no data tables, no percentages, and no formulas. Growth is being able to purchase a pair of durable sneakers for two hours of work at a minimum wage job.

It’s worth keeping in mind the economic gains we’ve experienced over the past half-century when confronted with the issues of poverty and income inequality. Many calls for government welfare are ripe with an empathetic message but not an understanding of our economic fortune. By losing the knowledge of how much progress we’ve made, we also lose the context of understanding how problems can be mitigated.

One particular example of this was a story featured in a recent New York Times editorial by Nicholas Kristof. Asking “where’s the empathy?” Kirstof tells the story of his friend Kevin Green who recently passed away at the age of 54. Green was not a decadent man by any means. Near the end of his life, he was living on food stamps, disability insurance, and the small profit he made from collecting recyclables and selling home-grown marijuana.

Somewhere in life, Green’s road to the leisurely life took a wrong turn. After growing up in a steady, middle-class household, the kind of job market that sustained his parents started to disappear. Green’s father had little education but worked a union job that payed well. His son was not so lucky, shifting from low-wage job to low-wage job while fathering two children to a girlfriend who eventually left him.

Child support and a back injury left Green with little means to support himself. Diabetes, drug arrests, a lost driver’s license, and heart issues came after. As Kristof writes, “The upward mobility that had seemed so promising a generation ago turned out to be a mirage.” Rising inequality and a lack of good jobs is what felled Green, Kristof concludes. How true is this?

Bastiat taught through parable that imagination is the best tool an economic thinker can have. So imagine if Kevin Green were alive 80 years ago: how much harder would he have had it? The little income Green earned could not purchase nearly the amount of food, clothing, and shelter it does today. The blessing of economic growth is that it helps the less well-off get by, however sparingly.

Stories of hardship like Green’s should provoke empathy. But they are not necessarily indications that government must take action or that we live in dark ages. Just 100 years ago, the richest of the rich could only dream of the kind of material abundance that exists today. Having the most gold in the world didn’t mean ready access to high-calorie food or medicine.

“The poor you will always have with you, and you can help them any time you want,” the Bible tells us. What happened to Mr. Green is tragic. His death should cause us to question the stupidity of drug laws and efficacy of welfare payments. But we should also take the long view on economic growth to better understand the complexity of rising living standards. Green would be better served with a more generous government in the short-run only. Opportunity is what’s important; opportunity for jobs and purchasing goods are the byproducts of economic growth. These take time. If Green has access to more of the fruits of growth, perhaps he would not have succumb to such an early death.

Economic growth is a slow process that isn’t readily apparent. It’s occurring all the time, whether noticed or not. America didn’t go from a nation of one pair of shoes per child to multiple variations of footwear overnight. The transition required productivity and capital accumulation. That’s something few economists will ever tell you. They would rather give you the simple, most politically-savvy explanation than the truth. People like Kevin Green suffer as a result.

  • D A D

    Nicely done

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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