I'm an economics PhD student and throughout my macroeconomics education I've found the topic of economic growth always being discussed at great length. From an Naive perspective id expect that one of the main topics should be around the distribution of income and inequality (i.e. Bewley models) as these seem to be some of the more policy driven discussions these days (at least in the first world hemisphere).

With this in mind, why is economic growth such a core part of macroeconomic analysis?


4 Answers 4


Have you read:

  1. Barro and Sala-i-Martin (2004, 2e), Introduction
  2. Acemoğlu (2009), Introduction
  3. Paul Romer (2016), "The Deep Structure of Economic Growth"
  4. Robert Lucas (1988), "On the mechanics of economic development", Introduction:

I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what, exactly? If not, what is it about the 'nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.

Ultimately what one believes is the most important topic is a subjective/normative question, but I think the above pieces make a strong case that economic growth should be it.


There are two reasons for that as far as I can see:

  1. In past macroeconomics combined not just what we think of macroeconomics today but also a great deal of public economics which deals with inequality (one can see that just by looking at the writings of Keynes or Hayek).

However, nowadays macroeconomics don’t deal with distributional questions any more because these questions got subsumed into the subfield of public economics. If you check the public economics literature it is almost all about income and wealth taxation under different social welfare functions (like Ralwsian max min principle or utilitarianism or libertarianism/conservatism or respectively charitable libertarianism and conservatism which are similar to Ralwsian objective but instead of placing 0 welfare weight for anyone else then poorest person it still puts positive weights on those).

I think that the transition happened mainly because the models from public economics are mostly all micro models and they are rarely general equilibrium models, so by natural evolution partial equilibrium models simply didn’t got published much in macro so they developed their own niche and now even general equilibrium redistribution models get published in public economics literature (although this is just my conjecture I am young scholar myself so I did not witnessed the transition first hand but when you look at the literature this seems to be the reason).

  1. Second reason why macro does not pay much attention to the inequality is that simply reducing inequality is small change compared to what economic growth can do for you.

Consider the following though experiment: you start at point $t$ where you have 1 rich person with 100e and 1 poor person with 50e now imagine you have two options either reduce inequality by redistribution to zero or not touching inequality but have 2% growth. In the first scenario the poor person will get 25e more which is good but in the second scenario just after $50t$ the income of the poor person is more than 100 that is more than originally the rich person had, and this increase is by nature exponential.

This should not be interpreted in a way that inequality does not matter but if you look at the “big picture”, which many would say is the point of macroeconomics, then the real prosperity and better life comes from economic growth not redistribution. Think of how the life would have been if our production would be at the medieval level and we would just be living in egalitarian society. However, this should under no way be interpreted as dismissing concerns about income inequality. They are valid and depending on your moral philosophy if you are Ralwsian or Utilitarian they are moral imperative, but from macro perspective it’s small change compared to great wealth that comes from growth. Hence assuming economists want to research the more valuable source of prosperity (even if just looking at the poor) then it makes sense they will look more at growth than inequality.


It's not about riches.
According to the CIA World Fact Book, World Gross Domestic Product per person in Purchasing-Power-Parity USD was estimated at 17,500 in 2017. And it was only 7,200 PPP USD in 2000.
Now assume away all inequality. That would mean that a family of four, say two adults and two children, would have 70.000 USD living in USA... sounds a lot? No, if one realizes that this figure is NOT about discretionary disposable income, but income out of which this family should pay also for all the infrastructures that structure our lives -law, security, transportation, education, public and private health, scientific research, etc. In other words, two hundred and thirty years after the Industrial Revolution we are still far away from the "affluent society" (viewing humanity as a whole), proving the grim axiom of economics that resources are always scarce, relative to what (most) humans have in their minds and imagination.

From a psychological point of view, growth was always important because it represents an "escape to the the future", compared to the nasty realities of distribution and inequality, which are a "what about today?" issue. "Look how to make the future brilliant" would be the schematic answer of growth theory. Growth is also viewed as an answer to social stability in the face of inequality: at least it gives the opportunity that all will improve their material well-being, even if to different degrees.

From a history-of-science angle, economics largely ignored distribution and inequality in order to become as much of a "positive" social science as possible -avoiding the hot and often bloody fights we fight over distribution of income and wealth.

Only relatively recently pragmatic models started linking inequality to reduced growth -and again, without arguing that inequality is morally/philosophically/ideologically bad, but that, even if it is fully "justifiable", it is "bad for growth". Ah, growth again.


At its core, the fixation on growth follows from the assumption of an endlessly growing population. Maintaining or improving on the utility-maximizing outcome with a growing population means that, in real dollar-denominated terms at least, growth of the economy must occur. The reason I say "must" here is that whether your favorite social welfare function is Rawlesian or utilitarian, you're maximizing it with respect to a constraint that, under the assumption of positive population growth with no commensurate economic growth, becomes more restrictive with time.

This is not to say that equality considerations are unimportant - just that, if we could wave a magic wand today and solve that issue, it would remain that growth is necessary, because economists assume that population growth is inevitable. There are deep and interesting philosophical discussions to be had about population growth, but as China will surely illustrate in the coming decades, these are conversations best kept rhetorical.

EDIT: I should qualify that I think that the fixation on growth as measured by GDP has long been uncoupled from the fundamental argument I'm making here - and that the luxury of simply not talking about population growth as an item for policy consideration isn't one we can enjoy forever.


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