What is this "economic growth"? (Do we really want it?)

According to the Chancellor’s statement to Parliament on 23 September “Economic growth is the government’s central mission.” (paragraph 3.2).  Mr Kwarteng claimed that the Government’s tax-cutting policies will result in a boost to economic growth that will enable all the planned government borrowing to be repaid and future social benefits to be maintained.  For its part, the Labour Party, while rejecting some (but not all) of the tax cuts, agrees that economic growth is the primary objective.

So what do they mean by “economic growth”? and is it really the answer to our problems?

Definition

The most authoritative definition of “economic growth” is that of the International Monetary Fund:

 “the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy over a certain period of time. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP” .

Problems with this definition

However, it is widely acknowledged that this definition raises many problems:

• Depends on market valuation – but markets are imperfect and reflect unequal distribution of income and differing tastes and priorities

• Ignores diseconomies (“externalities”) – e.g. pollution, noise, congestion, exhaustion of resources – climate change itself
  

• Ignores goods and services that are not marketed – caring for relatives, housework, voluntary work, the value of leisure time
  

• Perverse – e.g. manufacturing weapons and exporting  them to kill foreigners adds to GDP

So economic growth does not necessarily result in an increase in human happiness. Indeed it may increase it for some, but reduce it for others (e.g. if “smart meter” installers replace meter readers).

What this suggests is that some forms of economic growth may (on balance) be beneficial – e.g. an offshore wind farm, whereas others may (again on balance) be harmful – e.g. opening a new coal mine. 

So when Government spokespersons endlessly repeat the mantra of “growth”, they are really just mouthing a meaningless slogan.  It is disappointing that the media rarely analyse or challenge this woolly thinking.