Ken Rogoff Raises Questions About The Goal Of Economic Growth

Ken Rogoff raises an important question. He asks whether the goal of constant GDP growth in macroeconomics is possible or desirable. Since he does not come from a background in environmental economics, his question has more significance that if it had been raised by an economist with a reputation in that field. Perhaps more mainstream economists will consider the implications of his question.

Clearly, it is impossible to grow the global economy at even 1% per year over an extended period of time. There are limits to natural resources, and there are limits to the carrying capacity of the planet. We are coming up to those limits today and Rogoff's simple lesson on compounding growth, even at 1%, would double economic output in only 70 years. (The rule of 72 is an easy way to calculate compound growth.

At an individual level, research indicates that there is a diminishing return on growth in income. After we reach a certain level of income, the marginal growth in happiness from additional income declines. Frankly, some of the happiest years of my life were during my period of graduate study when my income was a fraction of what it became after graduation. Most of my friends at a similar level of income and we found ways to enjoy ourselves at low cost. Moreover, the intellectual and social atmosphere of the university environment provided a priceless benefit without draining natural resources and polluting the environment.

Rogoff attributes some of fetish about economic growth to competition between nations. Certainly, there is competition between nations using GDP growth as part of the scorecard. Perhaps more importantly, the drive for growth is built into almost every business. The stock price won't grow without growth in revenues and profit. Perhaps we need to develop a reward system for managers that compensates them for achieving goals related to the consumption of scarce natural resources with lower environmental impact.

Given that some nations already have enough economic output to provide a high standard of living to its citizens, and many nations are to poor to provide even the necessities of life to many of its citizens, it would be rational to enable them to grow at a fast rate while richer nations found ways to deal with limited growth. In a rational world that would happen, but it is doubtful that our species has evolved to that level.

Slow growth in the global economy has raised concerns about the ability of nations to provide employment for its workforce. There is also a concern that growth in productivity will enable us to produce products and services with fewer workers. These are reasonable, and legitimate concerns, that dominate macroeconomic thinking today. Its pretty clear that we are going to be faced with problems, in the near future, about how to organize a society that requires fewer people to provide the desired output. Employment is the only means by which most individuals are able to achieve a desired standard of living.