All we Need is Growth?

"The planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it wasn't the small green pieces of paper that were unhappy." Douglas Adams, The Hitch Hiker's Guide to the Galaxy.
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There's plenty of reasons why I find most media discussions around the state of the New Zealand economy vexing: trade offs are rarely discussed honestly, etc.

One particular source of irritation is the almost invariable tendency in discussions on the economy to portray economic growth either as an ends in itself and/or as some sort of magic elixir that will vanquish our problems, and which needs to be pursued at all costs.

Missing in all this is one important question: will increased economic growth actually make New Zealand a 'better' place to live? will it make us feel happier or more secure? will it improve our well being?

I'm not claiming that the answer to these questions is invariably no. But I just don't think that it's not inevitably yes either. Indeed, there seems to me room for an interesting national discussion about economic priorities and direction, associated with economic growth that basically never happens. Which is something we're all poorer for.

Accordingly - being a helpful young man* - here's my stab at the case 'for' and 'against' growth.

When people talk about economic growth what they mean is an increase in real (inflation adjusted) Gross Domestic Product. Usually, growth measurements also take into account population growth (i.e. it will be measured as GDP per capita growth).

Very approximately, one can think of growth as the rate of increase of our total domestic income.

Following from this, comes the standard defense of growth: if our economy grows, we all get wealthier. And increased wealth enables us to do more of what we want to in life.

Being a wealthier country also provides us with greater potential tax revenue, which in turn means that we can spend more on health care and education or, at least, spend the same amount while taking a smaller percentage of GDP as tax.

Being wealthier also means that we ought to be able to pay higher wages theoretically reversing things like brain drain.

Finally, low growth always seems to be accompanied by other issues that are bad in their own right such as high unemployment. I'm not an economist and don't know why this is the case or if it even has to be the case (and perhaps it's cause and effect that are getting mixed up here: high unemployment leads to low growth not vice versa) but the relationship does seem to be there.

On the other hand:

There is no guarantee that increased wealth will make us happier. Indeed, the evidence available on this suggests that happiness exhibits diminishing marginal returns to overall wealth. An that other contributing factors such as social ties and inequality are more important in how content we feel.

On top of this, standard measures of economic growth fail to take into account depletion of 'environmental capital'. Meaning that we could, and almost certainly are, growing at the expense of the environment and future generations. To be fair not all growth needs to be environmentally destructive, but until simple measures are replaced by something better growth stats do not allow us to distinguish between environmentally friendly development and environmentally unfriendly development.

Of the arguments for growth I don't, as you can see, buy into the first one - that it really makes us better off, of it's own accord, in a meaningful sense of the term**.

And I'm skeptical, at least in the short to mid term about the brain drain argument. I think as many people are motivated by quality of life as by GDP per capita.

I do think that the 'more money for health care' and the 'economic stagnation bad' are sensible though.

Which is why I think that some importance has to be placed on generating (or, more accurately, facilitating, economic growth).

At the same time though, discussions around the phenomena sorely need to be set in the right context.

Here's three thought experiments to show what I mean. Please note that these are only thought experiments and the trade offs outlined may not exist in the real world:

1. In order to preserve of areas of natural beauty we establish national parks and a resource management act to 'protect nature'. These restrictions means that growth, while still existing, is marginally slower than it would be otherwise. A growth only framework would see this as a bad thing. A growth amongst other priorities would not. At New Zealand's level of wealth, a healthy environment may well lead to a happy populous.

2. A strongly progressive tax regime is used to tackle rising inequality. This leads to slightly slower growth. Once again, 'growth-only' sees this as bad. But a true utilitarian, going by current evidence, would support this policy as it appears that, in wealthier countries, issues such as inequality are more important to happiness and health than absolute wealth is.

3. Instead of being rewarded for increasing productivity by an annual pay rise, New Zealand workers are offered an annual 'hours cut', they become no wealthier, but they do become happier, as they now have more leisure time. But your growth stats won't pick this up.

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* This is, of course, an utter lie: I'm not young, nor particularly helpful.
** My answer would be completely different if we were talking about a developing country though.