Gittins: forget growth, aim for quality of life

By Leith van Onselen

Fairfax’s Ross Gittins has penned a good article questioning the economics profession’s infatuation with growth and calling for policy makers to focus on quality and raising living standards instead:

Most economists I know never doubt that a growing economy is what keeps us happy and, should the economy stop growing, it would make us all inconsolable.

They can’t prove that, of course, but they’re as convinced of it as anyone else selling something.

I’m not so sure. I’m sure a lot of greedy business people would be unhappy if their profits and bonuses stopped growing, but I often wonder if the rest of us could adjust to a stationary economy a lot more easily than it suits economists and business people to believe…

That’s been my big problem with economists’ obsession with economic growth. It defines prosperity almost wholly in material terms. Any preference for greater leisure over greater production is assumed to be retrograde.

Weekends are there to be commercialised. Family ties are great, so long as they don’t stop you being shifted to Perth.

But I’d like to see if, in a stagnant economy, we could throw the switch from quantity to quality. Not more, better.

I feel your pain, Ross. I have previously argued that “economists’, the media’s, and the Government’s infatuation with GDP is one of the biggest shortcomings in macro-economics”.

This infatuation with real GDP growth has led to spurious (and damaging) policies like the pursuit of endless population growth on the basis that it stimulates headline GDP (more inputs equals more outputs), even though it provides next to no long-term benefits to everyone’s share of the economic pie and arguably reduces living standards of the incumbent population (think greater competition for jobs, more time stuck in traffic, smaller and more expensive housing, environmental degradation, etc).

Then there is the focus on the quantity of growth in GDP, rather than the quality (and sustainability) of growth, such as frivolous debt-fuelled consumption and the Government and RBA’s never ending drive to increase house (land) prices and private debt, which creates structural imbalances and damages longer-run productivity and competitiveness.

The sooner economists, commentators and policy makers abandon their fetish with “growth” and replace it with broader measures of well-being, the better.

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Comments

  1. In a low growth universe increasing nominal GDP via population growth is an easy short term way to shink goverment debt as %GDP (increasing the denominator) and not make dificult reforms whilst keeping our rent seeking true masters happy.
    All the negetive effects creep up and are politcally deniable..

  2. Sacrilege!!
    The first thing students of Economics are told about is The Economic Problem, unlimited wants and all that. More is Better.
    Next thing you’ll be telling us is that there is no such thing as the perfect market and that the ‘free market’ does not, with a few minor exceptions, lead to optimum outcomes.

  3. Small is Beautiful: A Study of Economics as if People Mattered.
    EF Schumacher

    “The book is divided into four parts: “The Modern World”, “Resources”, “The Third World”, and “Organization and Ownership”.

    In the first chapter, “The Problem of Production”, Schumacher argues that the modern economy is unsustainable. Natural resources (like fossil fuels), are treated as expendable income, when in fact they should be treated as capital, since they are not renewable, and thus subject to eventual depletion. He further argues that nature’s resistance to pollution is limited as well. He concludes that government effort must be concentrated on sustainable development, because relatively minor improvements, for example, technology transfer to Third World countries, will not solve the underlying problem of an unsustainable economy.

    Schumacher’s philosophy is one of “enoughness”, appreciating both human needs and limitations, and appropriate use of technology. It grew out of his study of village-based economics, which he later termed Buddhist economics, which is the subject of the book’s fourth chapter.

    He faults conventional economic thinking for failing to consider the most appropriate scale for an activity, blasts notions that “growth is good”, and that “bigger is better”, and questions the appropriateness of using mass production in developing countries, promoting instead “production by the masses”. Schumacher was one of the first economists to question the appropriateness of using gross national product to measure human well-being, emphasizing that “the aim ought to be to obtain the maximum amount of well being with the minimum amount of consumption”. In the epilogue he emphasizes the need for the “philosophy of materialism” to take second place to ideals such as justice, harmony, beauty, and health.”

    My hippyish parents loved this book and ensured each of us received a copy on our 16th birthday. Remarkably, I still have mine.

  4. Strewth! next thing you know Gittins will be talking about Current Account Deficits requiring us to sell off our nation to any foreigner wants it!
    Bwahahahaaaaaa!!!!!!

  5. Jumping jack flash

    Growth is god.

    Can you imagine if house prices stagnated? The effects would be disastrous.
    And the economy is essentially a debt bubble secured against property prices, which increase as debt is sprayed onto them.

    Risk would concentrate in the banks as lending paused; existing bad loans would not be offset by new loans.
    Mum and dad investors would no longer benefit from flipping after a few years because they’d only get their repayments back, (minus interest plus improvements). It’d turn into a 30-year grind to repay a house rather than the current “hold for 7 years and then flip for double the price, pay off the original loan minus 7 years of repayments, walk away with instant riches!”

    with attention spans getting shorter with every generation, 30 years gets longer and longer.

    • mum and dad investors flipping houses in reality are most Pollies & appendeds such as Mal and Lucy.

  6. “It defines prosperity almost wholly in material terms”

    Even then they are using the wrong formulae. Relative to income the major costs of housing, healthcare, and education, have exploded over the last 25 years.