Economics, Free Enterprise

Making the case for economic growth: Q&A with authors Stephen Smith and Edd Noell

Image Credit: Shutterstock

Image Credit: Shutterstock

In a new AEI book, Economic Growth: Unleashing the Potential of Human Flourishing,” three professors — Edd S. Noell, Stephen L. S. Smith and Bruce G. Webb — explore the benefits of growth and address common concerns regarding how growth impacts the poor, the environment, and culture.

We recently asked Edd Noell and Stephen Smith to address common critiques of economic growth and describe its benefits. Below is part one of our two-part series with the authors.

Tell us about your book. What motivated you to write it?

We had wanted to write on this topic for a long time. In our work and lives we have seen vivid evidence of growth’s benefits, and yet there’s often a sense of guilt about it in society at large — at least in the rich West. A sense that growth is somehow greedy, morally problematic, a thing that we rely on but probably shouldn’t — as if it is a kind of dirty secret.

Stephen, as a child and teenager growing up in Hong Kong, saw rapid economic growth first hand. Its power to transform lives is dramatic — people he knew were moving out of shanty towns into homes with running water and electricity. People were getting good jobs and were experiencing the dignity and flourishing that come with being able to pay for education and health care and other good things. For Edd, visits on academic programs to Russia, China and Germany spurred a curiosity about the different growth performances of each economy. How do institutions, culture and government policy in these countries yield different patterns and levels of growth? As professional economists, we’ve been in countries where property rights and rule of law encourage growth, and also in places where, sadly, this is not the case.

People in rich countries are particularly prone to think that we can get by without much growth, and that growth is inherently problematic. And, at one level, it’s true that present wealthy societies cannot grow as fast as poorer countries that can engineer rapid “catch-up” growth. The United States, being on the technological frontier, won’t grow as fast as China has in the past 30 years! But we need more growth than the sickly 1 or 2 percent a year that’s been the norm since the turn of the century. Some people’s unwillingness to face this reflects a kind of failure of the moral imagination — an inability to see the real good that more rapid growth can accomplish.

How does economic growth benefit people?

When countries grow, they produce more goods and services and generate more income for workers and families. That’s essential for providing the material goods and services that people need in sustainable, non-dependent ways.

First, growth provides the dignity of jobs, of earning income to care and provide for your family. This is true in rich countries and particularly true in poor countries. When you notice that income in Honduras, say, is only $3,800 per person per year — compared to more than $50,000 in the United States — that means that Honduras is truly poor in a material sense. Simply redistributing rich Honduran’s incomes towards poor Hondurans won’t really cut it — it results in shared poverty, not prosperity. Second, sustained improvements in every dimension of material wellbeing require financial resources. Bridges, schools, clinics, offices, better homes, hospitals, vaccines, better clothes, food, and cellphones: all these require real resources that come only from long-term growth.

Rich counties, too, need growth to fund all kinds of important parts of human flourishing. Curing Alzheimer’s or paying for baby-boomers’ retirements — you name it, these kinds of big social goods need funding that can’t simply be whistled out of thin air, but which does come as the fruit of sustained growth.

Why should Millennials care about economic growth?

Promises made by the federal government to your parents and grandparents regarding provisions for their income security are now coming due. Through raising tax revenues as per capita incomes rise, economic growth offers the best opportunity to soften the fiscal burden of these entitlement spending obligations.

Moreover, to the extent you wish to look beyond your own economic circumstances, you should consider how economic growth policies in recent years have aided the poor in the developing world.

And your care for the environment should encourage attention to growth. The environmental improvements that activists long for are best achieved in wealthy, relatively rapidly-growing economies. Environmental protection is a “good” that can be paid for more easily in rich societies than in poor ones, where the temptation to ransack the environment for short-term gain is powerful. Long-run economic growth under democratic governance and the rule of law offers the most secure basis for environmental care and regulation. And the institutions that promote growth are the very institutions that can best develop the new technologies that are essential for ongoing environmental improvements.

Also be sure to check out this related video on the power of economic growth to help people rise out of poverty.

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