Why economic growth is bad

And I believe it's because we are financially, politically and socially You just mentioned the financial system. At the heart of our financial system is the drive to maximize the return on investment. And that means that all publicly-traded companies, I speak to chief financial officers and many say, 'We want to be more sustainable. We want to be more ethical.

Otherwise, the markets punish us. They are structurally caught in the pursuit of endless growth. And that that's what means they'll have a better life. I don't see children marching in the streets today demanding higher incomes than their parents. I see children marching in the streets for a stable climate. They have switched metrics. And our politics and our politicians and our businesses need to catch up. I mean, I think that we have to conceive of, from the economic side, that growth occurs because fundamentally, we can either add more inputs into the economy, more labor, we could use more resources, we could build more capital; or we can get more productive at using those things.

And productivity is the thing that has been driving the economy for decades and centuries, this is the fundamental source of all this growth. There's two ways to respond to that productivity.

One, the way we've been pursuing for a very long time, is to use the existing inputs, have higher productivity and have higher growth, higher GDP. An equally valid response to higher productivity is to use fewer inputs, work fewer hours, use fewer resources, take a longer vacation. Those are all valid ways of taking advantage of productivity.

And it's not in the sense that the economy would become comatose. Productivity growth is the thing that we don't want to get rid of. So let's look at the dynamics of what our economies are producing. And I think Western, high-income economies like yours, like mine, are degenerative. Growth is often measured as an increase in income or inflation-adjusted GDP per capita. But these measures are not the definition of it — just like life expectancy is a measure of population health, but is certainly not the definition of population health.

To see how difficult it is to measure growth, take a moment to think about how you would measure it. How would you determine whether the quantity and quality of all economic goods and services produced by a society increased or decreased over time?

Finding a measure means that you have to find a way to express a huge amount of relevant information in a single metric. As the sketch shows, you have to first measure the quantity and quality of all the many, many goods and services that get produced and then find a way to aggregate all of these measurements into one summarizing metric. No matter what measure you propose for such a difficult task, there will always be problems and shortcomings of any proposal you might make.

In the following section I will show four possible ways of measuring growth and present some data for each of them to see how they can inform us about the history of material living conditions. One possible way to measure growth is to make a list of some specific products that people want and to see what share of the population has access to them.

We do this very often at Our World in Data. The chart here shows the share of the world population that has access to four basic resources. All of these statistics measure some particular aspect of economic growth. You will find that judged by this metric some countries achieved rapid growth — like Indonesia — while others only saw very little growth, like Chad.

The advantage of measuring growth in this way is that it is concrete. The downside is that it only captures a small part of economic growth. There are many other goods and services that people want in addition to water, electricity, sanitation and cooking technology. You could of course expand this approach of measuring growth to many more goods and services, but this is usually not done for both practical and ethical considerations. One practical reason is that a list of all the products that people value would be extremely long.

In practice any attempt to measure growth as access to particular products therefore means that you look only at a relatively small number of very particular goods and services that statisticians or economists are interested in.

This is problematic for ethical reasons. It should not be up to the statisticians or economists to determine which few products should be considered valuable. You might have realized this problem already when you read my list at the beginning of this text. You might have disagreed with the things that I put on that list and thought that some other goods and services are missing.

On our site you find many more such metrics of growth that capture whether people have access to particular goods and services:. We have to look at the ratio between income and prices. The chart here does this for one particular product — books — and brings us back to the history of growth in the publishing sector that we started with. It shows how long the average worker had to work to buy one book.

Note that this data is plotted on a logarithmic axis. Before the invention of the printing press in the 15th century the price was often as high as several months of work.

The fact that books were unaffordable for almost everyone should not be surprising. The chart also shows how this changed when the printing press increased the productivity of publishing. As the labor required to produce a book declined from many months of work to less than a day, the price fell from months of wages to mere hours. This shows us how an innovation in technology raises productivity and how an increase in production makes it more affordable.

How it increases the options that people have. In the previous section we measured growth as the ratio between income and the price for one particular good. But of course we could do the same for all the many goods and services that people want. A means to many ends in fact. It is because a person has more choices as their income grows that economists care so much about these monetary measures of prosperity.

They are shown in this chart. Both measures show that global inequality is very large. An income of int. If you are living in a rich country and you want to have a sense for what it means to live in a poor country — where incomes are times lower — you can imagine that the prices for everything around you suddenly increase fold. If you ask yourself how these price increases would change your daily consumption and your day-to-day life, you can get a sense for what it means to live in a poor country.

Income as a measure of economic prosperity is much more abstract than the metrics we looked at previously. The comparison of incomes of people around the world in this scatterplot measures options not choices. It shows us that the economic options for billions of people are very low.

Economic growth, as we said before, describes an increase in the production of the quantity and quality of the economic goods and services that a society produces. This means that the average income corresponds to the level of average production so that the average income in a society increases when the production of goods and services increases.

The chart shows the income of people around the world over time, as reported in household surveys. Many of the poorest people in the world rely on subsistence farming and do not have a monetary income. To take this into account and make a fair comparison of their living standards, the statisticians that produce these figures estimate the monetary value of their home production and add it to their income. Again, the prices of goods and services are taken into account: these measure real incomes.

As explained before, incomes are adjusted for price differences between countries and they are also adjusted for inflation. Global economic growth can be seen in this chart as an increasing share of the population living on higher incomes. In the following 17 years this share fell by 22 percentage points. In and — during the economic recession that followed the pandemic — the size of the world economy declined and the share of people in poverty increased.

As soon as global data for this period is available we will update this chart, but for now only preliminary estimates are available. The data shows that global poverty has declined, no matter what poverty line you choose.

It also shows that the majority of the world still lives on very low incomes. Most people in the world do not have access to them. An advantage of household survey data over GDP per capita is that it captures the inequality of incomes within a country. GDP per capita is a broader measure of real income and in contrast to survey income, it also takes government expenditures into account. A lot of thinking has gone into the construction of this very prominent metric so that it is comparable not only over time, but also across countries.

Another advantage of this measure is that historians have reconstructed estimates of GDP per capita that go back many centuries. This historical research is an extremely laborious task and researchers have dedicated many years of work to these reconstructions. The chart shows how average incomes in different world regions changed over the last two centuries.

Looking at the latest data you see again the very large inequality between different parts of the world today. You now also see the history of how we got here: small increases in production in some world regions and very large increases in those regions where people have the highest incomes today.

One of the very first countries to achieve sustained economic growth was the United Kingdom. It is no accident that the shape of this chart is very similar to the chart on book production at the beginning of this text — very low and almost flat for many generations and then quickly rising.

Both of these developments are driven by changes in production. Average income corresponds to average production and societies around the world were able to produce very few goods and services in the past. There were no major exceptions to this reality. As we see in this chart, global inequality was much lower than today: the majority of people around the world were very poor.

Large amounts of output captured by GDP are also wasteful, such as the hundreds of thousands of tonnes of food wasted in Britain each year, or the Christmas jumpers bought for one night, only to degrade in landfill for centuries. Many economists would agree, arguing that GDP is incapable of connecting the economy with social and environmental outcomes that determine our wellbeing and the sustainability of the planet.

Should we wish to move away from measuring our success on monetary terms alone, GDP would be inadequate. Whether our economies can continue to grow forever is open to debate, with the continual rise of living standards, for growing numbers of people, dependent on a multitude of factors. There are three main schools of thought. First, that growth by any means can be justified if it improves the lives of the broadest number of people possible.

The first is increasingly being challenged, though outright rejection of growth poses problems for the developing world. Degrowth is not for these people. But few economists think that the global economy is decoupling from carbon fast enough to prevent a climate crisis. Kate Raworth, an economist at the University of Oxford who has written about the problems of growth for the environment in her book Doughnut Economics, says that despite advances in green technologies, growth is not decoupling from carbon fast enough.

It would require people to stop buying stuff and that would put a lot of people out of work. That would only work if income was decoupled from labour, and that feels like an idea that is some way off. The concept of degrowth is promoted by some more radical economists, calling for a focus on wellbeing and pushing for a reduction of production and consumption in developed nations. A focus on sufficiency is demanded, rather than relying on the ability of technology and productivity gains to solve ecological problems.

Raworth argues that governments should adopt metrics that assess whether a country is operating sustainably, using her doughnut model. Using a simple diagram, she suggests that the hole in the middle is where people fall short of the essentials of life, where nobody should be.

But I believe these are the existential economic questions of our time. So we need to start asking them, no matter how jarring they are to mainstream policy debate.