Notes about economic growth
These are notes from reading a book review article entitled The World Keeps Getting Richer. Some People are Worried by Idrees Kahloon, posted by The New Yorker on May 27, 2004. The book that is the subject of the review is “Growth: A History and a Reckoning” (Belknap), by Daniel Susskind, an economist at King’s College London.
Economic growth during the past half-century
In the fifty years since this manifesto (Limits to Growth book) was written, the American economy has increased fourfold, far outstripping the country’s population, which has increased by sixty percent.
Growth during this period has been even more dramatic for the rest of the world. The global economy has become twenty-six times bigger—or twelve times higher per person.
In 1970, half of humanity lived in extreme poverty, subsisting on less than two dollars daily.
Today, only a tenth of the global population lives in extreme poverty.
When “The Limits to Growth” was published, humanity had emitted half a trillion tons of carbon dioxide into the environment as a species.
We belched out triple that amount in the ensuing years.
The world was just 0.4 degrees Celsius warmer than the pre-industrial average back then; last year, it was 1.5 degrees warmer and on track to hit three degrees by the end of the century, at which point all kinds of cataclysms are expected—polar ice caps petering out, swollen oceans swallowing the coasts, almighty wildfires, famine, and more.
When significant economic growth began
The turning point, which some economists call the Great Divergence, came with the Industrial Revolution. This triggered an explosion in prosperity in Europe and North America and led to the sustained worldwide growth humans still enjoy today.
Recent agonizing about growth
When economic growth and productivity both went slack after the 2008 global financial crisis, there was much talk of “secular stagnation”—a term coined by the economist Alvin Hansen after the Great Depression to describe a state of low growth, low inflation, and high unemployment that could persist for years.
In “The Rise and Fall of American Growth,” published in 2016, the macroeconomist Robert J. Gordon identified major headwinds—increasing inequality, a dysfunctional education system, an aging population, and rising government debt—and forecast long-run stagnation for the coming twenty-five years.
Gordon thought that real GDP growth per capita would be below one percent per year, less than half the rate enjoyed by Americans in the preceding century.
More recent growth reality
Since 2020, though, U.S. growth per person has been more than two percent—even after taking high inflation into account and despite the shock of the pandemic. Tight labor markets and low unemployment mean that wage growth has been strongest at the bottom of the income ladder, so inequality in the U.S. seems to be on a downswing.
Despite notorious angst, people currently in their 20s, including millennials, Gen X-ers, and boomers, are richer than prior U.S. generations at that age.
Growth and carbon emissions have decoupled: U.S. annual emissions are seventeen percent less than the six billion tons emitted in 2007, our all-time maximum.
Future prospects
What was merely theoretical looks more practical now, as the world comes to terms with the immense task of decarbonization—and the immense amounts of capital that process will require.
We have more ability than is commonly imagined to shape the kind of growth we will experience in the future.
Public policy does not just influence the magnitude of future growth—it can also influence how green, equally distributed, and truly welfare-enhancing that growth will be.
Capitalism, as it has been practiced throughout the past century, has brought plenty of problems; as with any engine, harnessing it properly requires controlling it.
However, the premise that economic expansion is bound to be part of the problem rather than necessary to the solution is a myth.
