Some Thoughts On Economic Growth
Updated: Jul 1
In the second week of Directed Studies, a yearlong course at Yale that gives a survey of the history of Western Thought, we read Herodotus’s Histories. Covering the valiant story of the Greeks’ resistance to the Persian behemoth, the often-quizzical effects of culture, and conversations on law and power that have defined Western political theory for millennia afterwards, Herodotus’s writings offer a smorgasbord of different narratives. However, one stood out to me: the story of Solon and Croesus.
The story proceeds as follows: Solon is a traveler who, after traversing countless countries and regions, is invited to stay in the court of Croesus, the extraordinarily wealthy King of Lydia. Knowing the variety of Solon’s travels and the wisdom that he likely would have acquired from them, Croesus asks Solon a simple question: who is the happiest person that he has met? Croesus, fishing for compliments, expects Solon to name himself, due to his glamorous riches. Solon does not.
He instead names Tellus, a man with a deep and fulfilling life and family who lived in accordance with his honor and principles, ultimately dying in war. Solon does not even name Croesus the second happiest. That honor goes to Cleobis and Bito, two men graced by incredible good health and natural fortitude. Upon hearing this, Croesus is indignant – shouldn’t his vast wealth justify him being the happiest as well? Solon, quite simply, does not think so. For Solon, there are more important things that underpin happiness than simple material accumulation. This is as true now, on the level of countries, as it was two and a half millennia ago.
Wealth is often associated with success – consider the almost religious prestige the names Goldman Sachs or McKinsey carry with them. At Yale, people will lie, deceive, and position their entire lives around getting an analyst position at either firm. Every year Econ 115 – an introduction to microeconomics - is normally the most enrolled-in class (and is being taken by me right now). If you Google synonyms for prosperity, one of the first results that comes up is riches.
On a national level, economic growth is often sacralized as the ultimate indicator of success – a President is good if the economy is strong and keeps growing. Ronald Reagan, in his inaugural address, suggested his primary goal was providing a “healthy, vigorous, growing economy”. According to research from Pew, the strength of the economy is Americans’ top national priority, with 71% of Americans saying in February that the economy should be a top priority of the President and Congress this year – a focus more supported than any other represented in their polling.
There is a lot of merit in viewing economic growth as an indicator of national prosperity, especially in developing economies. However, in this article, I want to posit the idea that economic growth is an imperfect and limited definition of success. While we still have good reason to use it now, there may be a point in the future where we no longer need to rely on metrics of economic growth to determine how successful our country is.
To consider the imperfections in economic growth, it is first worth considering why it is viewed so favorably. The economists’ argument is that economic growth allows everyone to have greater purchasing power, and consequently to buy more. Since a foundational premise of economics is that we buy things that we value and think will be good for us, economic growth allows people to have more of what they desire. To many, this is itself valuable.
This argument is very compelling for many parts of the world. For the 650 million people below the poverty line – a threshold below which people struggle to acquire basic necessities such as food, transport, and shelter – having more money would clearly make them more prosperous. It would be absurd to suggest that somebody who can’t afford enough food would not be more prosperous if they suddenly could.
This general principle holds up for most of the world’s population. If I live in a developed country such as the US or UK, and can barely afford rent, having more money and the ability to, for instance, purchase my own house, will likely increase my personal wellbeing.
However, this rule only holds up to a point. An increasingly robust body of social-scientific and psychological research finds that the increases in one's personal happiness associated with rising wealth tend to plateau. A 2018 study by Andrew Jebb in the Journal of Nature Human Behaviour, for instance, found that, among people who make more than $75,000 a year, increases in one’s personal income are not significantly correlated with an increase in happiness.
This finding is not uncontested. A recent response to this, a study by Matthew Killingsworth at the University of Pennsylvania, found that, in the US, there is a continuous increase in reported happiness beyond $75,000. Many have taken this as evidence that growth benefits us without any apparent limit.
However, there are problems with this line of thought. Killingsworth’s study is not controlled for our tendencies of comparison and jealousy – how people have a proclivity to compare themselves to others to determine whether they are happy or prosperous. People may not be content with $75,000 because they look at millionaires and billionaires. This is analogous to how, in a recent paper, I was happy with an B+ grade until I realized a lot of my friends got As, making me feel worse about my otherwise decent result.
As such, a significant limitation of Killingsworth’s study is that, while it justifies that some individuals in our present society may be happier if they make more than $75,000, it does not prove we will be dramatically happier if we all make more than $75,000. Even then, its findings are opposed to other studies such as Jebb’s, and there is little reason to arbitrarily elevate Killingsworth’s findings. It is thus hardly clear that economic growth endlessly leads to happiness. If it does continue to bring additional happiness once one is sufficiently wealthy, it is clear that money’s marginal value, on average, significantly diminishes.
It is thus unclear how much the endless pursuit of growth actually would lead to us being happier. However, even disregarding this, there is a strong reason to question growth as a metric of success – the fact that our planet’s resources are finite, and that growth encourages endless consumption. Accumulation of more items, except in rare sustainable practices, encourages us to use more of the planet’s resources and, in general, releases carbon dioxide in the production processes of additional items. The premise that growth is intrinsically valuable, conversely, encourages us to make, buy, and consume more, even if we do not necessarily need more. Consequently, the endless pursuit of growth problematically accelerates our current climate crisis.
While environmental sustainability goals – the business world’s response to our global environmental capacity – can go some way to mitigating environmental destruction and are not valueless, they cannot change the fact that acquiring more does use more resources, and is thus harmful for the planet. I propose that, morally, it is not just to buy more than we need, as opposed to endless acquisition justified by growth.
There are thus two overarching reasons to question the value of growth as an indicator of success – firstly, the fact that growth does not always lead to additional happiness and, secondly, that growth generally causes environmental destruction. With this in mind, it is worth raising the following question: if countries, now or in the future, have enough wealth to not be drastically benefitted by having more, how should countries focus on increasing the prosperity of their citizens? How should we as individuals focus on our personal happiness if not by becoming richer?
To answer this question, I will once again (in a habit definitely developed in my Fall semester in DS) refer back to the classics as a source of inspiration. Aristotle’s concept of Eudaimonia – often translated as happiness, but more accurately translated as wellbeing or flourishing – is a good starting point.
Eudaimonia is significantly more robust than modern concepts of happiness. It does not simply equate happiness with pleasure. Instead, Eudaimonia focuses on all elements of a good life – virtue, friendship and family, pleasure, and the pursuit of things which are higher than ourselves and a greater purpose. In my view, Eudaimonic values are a strong alternative to focusing on growth as a metric of success.
Eudaimonia provides a much more robust way to consider happiness than simple wealth. This is illustrated well by the story of Solon and Croesus that I began this article with. Somebody can have all the wealth in the world – the ability to buy mansions, yachts, make everything out of gold and encrust them with diamonds to top all this off – and still not be happier than somebody with a mere ordinary amount. Instead, our relations to others, our appreciation of beauty, order and the pursuit of goodness and a higher purpose, are a surer route to prosperity. Once a country is wealthy enough, a society which focuses on these seems more likely to improve the wellbeing of its citizens.
This discussion, however, raises one obvious problem. It is easy to see how a government and society can pursue growth, by creating structures which provide incentives to people to work and employing fiscal and monetary resources to work toward this goal. Growth can easily be quantified, making its measurement and actions based on it far easier. However, it is significantly harder to imagine how a society could focus on increasing people's happiness in a similarly robust way. Many would even suggest the government and society can’t help us develop Eudaimonistically.
However, it does seem to be the case that many things that underpin a Eudaimonistic conception of happiness – health, interpersonal relationships, the pursuit of a higher purpose – can be significantly facilitated by the government. The most obvious example of this is health – governments can provide their citizens health care which, while not solving all health problems – genetics and lifestyle will still have a significant impact – will go a significant way to cultivating good health.
Governments also can indirectly sponsor other elements of Eudaimonia. By encouraging definitions of success beyond simple economic growth in education, we could help individuals work towards a more robust wellbeing. Governments can help create greater social bonds and ties of solidarity by encouraging communal and social events, both in education and for adults. Governments can help us fixate on higher powers by supporting religion, and encouraging courses on philosophy and the meaning of life. If we realign our view of the purpose of government and society, we may find they can do far more than we think. While the extent to which we achieve Eudaimonia cannot be quantified rationally in the same way growth can, perhaps this is not necessary. Despite what some utilitarians may have us believe, happiness and wellbeing cannot be fully quantified numerically. Perhaps all we need to do is rethink the role that the government plays in our lives, to promote a fuller definition of happiness.
I thus conclude that growth is not intrinsically valuable. Once we have enough money, Eudaimonistic views of happiness are far more fitting. At some point, we may no longer need to pursue growth to the same extent we do now. However, it would be wrong and unnecessarily elitist to suggest that everyone in the United States has enough money. While America’s GDP per capita is currently about $70,000, only marginally less than the likely threshold for what makes us more happy, the country’s wealth is distributed extremely unevenly. While the 52nd percentile of American households makes $75,000 per year, a quarter of the country makes less than $35,000 per year. This means that there is a very significant share of the country that would be benefitted by further household economic growth.
However, if we no longer view growth as our sole focus, perhaps policies which remedy America’s extreme inequalities could become more palatable. Redistributive economics, addressing the fact that the least wealthy people in society lack the money to focus on things other than wealth acquisition, are more feasible if we worry less about their impacts on growth. Besides, it is unclear how much growth taken in the abstract actually benefits the least well off – growth in the real income of the wealthiest sections of society has far outpaced real wage growth of the bottom quartile for the last 50 or so years.
When I began writing this article, I did not really think I would end up rejecting some of the basic principles of capitalism – growth, private property, and unbridled individualism. However, that is where I finish. Perhaps that is not a bad thing.