Today you’ll be hearing a lot about this latest bit of bad —really, really bad —economic news:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis.
There are a lot of reasons why slow or negative economic growth is terrible, and I plan to write more about that soon. But many people don’t really understand why economic growth matters. While the issue is complex and requires some nuance to fully explain, the simplistic answer is that economic growth matters because of babies. If you love babies — and want more of them around — you should love economic growth.
I’ve written about this topic before, but today seems an ideal time to revisit the issue. Before we explain the baby-GDP connection, though, let’s consider the consequences if there were to be a long period in the U.S. with no economic growth:
• Unemployment and poverty would skyrocket.
• The national debt would increase as tax revenues declined.
• Banks and other financial institutions would go bankrupt, leading to housing and credit crises.
• Housing and land prices would sharply increase.
• Food prices would increase, leading to famine in other countries and hunger in our own.
• Social welfare programs would have to be scaled back.
• Federal and state governments would not be able to service their debts.
• Workers would have to work longer hours to maintain their current standard of living.
In other words, as soon as economic growth stops, economic decline starts.
But what causes the immediate decline? In a word: babies. As the population increases, more resources are needed to feed, clothe, and shelter all of the new people that are being created. To understand why this is happens, let’s consider a scaled-down economic model.
Imagine a village that has 100 people living in a state of economic equilibrium, that is, their economy is neither growing nor shrinking. Everyone has just enough food, clothing, shelter, and other amenities to take care of themselves—no more and no less than enough for subsistence living. Now let’s imagine that a “baby boom” occurs, and 20 new children are added to the village. What happens to the standard of living for the villagers? Assuming that they redistribute their resources equitably, everyone (including the new children) will only have 83% of the resources they need to survive. Over time, they will begin to starve or die of malnutrition.
We can see this occurring today in countries with low economic growth. As the population increases, there are not enough resources for everyone to rise above the poverty level.
Similarly, in the U.S. we need to create around 400,000 new jobs every month just to keep up with the babies that are growing up and entering the labor market. If the economy does not grow there will be no jobs for them. In the short term, redistribution of resources (e.g., unemployment compensation, welfare) will prevent the unemployed from going hungry. But without long-term growth a country’s wealth becomes depleted, causing instability and social breakdown.
However, if the new workers do find jobs and are engaging in productive labor, the economy will automatically grow as these laborers buy goods and services. Economic growth is, after all, a natural byproduct of productivity.
Economic growth is not a goal that should be pursued for its own sake, nor is it a means to achieve a materialist paradise. Economic growth is not the chief end of man, but merely the blessing that results from fulfilling God’s dual cultural mandate: Be fruitful and mulitply and steward the earth’s resources.