Question

Why is economic growth so important?

Answer 1

Economic growth enables more benefits to share among society members.

Explanation:

Growth is one of my favorite topics. It is -- for better or worse -- perhaps the only real solution for major issues associated with poverty or related problems.

While it is possible in theory to redistribute wealth, income and other resources to alleviate some of the impacts of inequality, such efforts are political and have little or no economic theory to guide them. Growth, on the other hand, has a lot of macroeconomic theory and evidence to make it an exciting possibility.

Consider a "boring" rate of growth for per capita real GDP (adjusting for inflation) -- let's say about 2% per year. This rate of growth will double the per capita real GDP in 35 years - roughly a generation or so. The United States has achieved this rate of growth (which also adjusts for population increases, because it is "per capita") for over a century. That's an eightfold increase in average well-being.

While growth does not solve problems related to inequality, consider how much more even the poorest of our citizens have today, compared to the end of the nineteenth century (1800s), just over a hundred years ago.

In 1900, about 97% of Americans lived and worked on farms; today, fewer than 3% do so -- yet, we still have more than enough food. Poor households do struggle with nutrition but not with calories, which was the primary challenge of agriculture before the modern economy. Life expectancy at birth has increased from about 48 to more than 75 years. We have electricity in nearly every home and appliances, including air conditioning, in most homes. (Imagine trying to have this discussion a hundred years ago.)

In short, we have more of everything, and even those in the bottom percentiles of well-being measures (income, wealth, etc.) have more today than their counterparts enjoyed even a generation ago.

Growth did that! (Education can reduce inequality, too!)