One of the most widely published measures of the economy is the economic growth as a % of the GDP; i.e. the degree to which an economy grows exponentially. In my understanding, when the rate of economic growth is declining or close to 0%, this is considered undesirable and acts are undertaken to avert recession.

In a situation where population is not growing, why do we want the economy to grow? In other words, is there something inherently wrong with a steady state economy?

See also: Why is economic growth measured exponentially rather than linearly?

  • 1
    $\begingroup$ Instead of asking two questions in one post, I would recommend splitting this question into two posts (one for each part). That way, (1) you will get more specific answers, (2) more people will provide answers (because they don't have to have an answer for both parts of your question), and (3) it allows for others on this site to more easily find a specific answer for their question (rather than sift through answers for their question and the other question). $\endgroup$ – Mathematician Dec 4 '14 at 20:51
  • 2
    $\begingroup$ In mainstream economics, people care about levels, not growth. (That is, they care only about the present value of lifetime utility.) I'm sure there are non-mainstream models in which people care about growth either a) by direct assumption or b) as a consequence of some other assumption. If you're asking for a survey of all the economic literature in which growth rates enter the utility function, I think this question is too broad. If you're asking why growth matters in some specific model, it would be good to ask an appropriately specific question. $\endgroup$ – Steven Landsburg Dec 4 '14 at 20:57
  • 1
    $\begingroup$ @Mathematician Done (economics.stackexchange.com/q/460/332) $\endgroup$ – gerrit Dec 4 '14 at 21:06

Because according to utility theory: more is better- or at least not worse (nonsatiation- or free disposal).

Your question seems to actually be: why is growth good?

Firstly, It's axiomatic. Utility theory very formally assumes the law of nonsatiation/free disposal. Things that result in the death of the cosmos are bad not because we are dead, but because we cannot consume and improve our happiness afterwards. Evidince: We observe that consumption improves happiness.

Second, in cases of limited resources, we have situations where optional growth paths are negative-But this is only because it allows for increased overall consumption.

  • 1
    $\begingroup$ Sure, but growth could be linear and things would still get better. $\endgroup$ – gerrit Apr 6 '15 at 21:55
  • $\begingroup$ That's a different question- OP asks why we want growth, but the answer is still similar: exponential growth outpaces linear growth eventually. $\endgroup$ – RegressForward Apr 6 '15 at 22:00
  • 1
    $\begingroup$ I did include the word exponential. Either way, could you expand on your answer? If I have a shelter, food, transportation, consumption goods, etc., what evidence is there that more is better, and better according to what criteria? Do 3 TVs make happier than 1 TV? $\endgroup$ – gerrit Apr 6 '15 at 22:03
  • $\begingroup$ There are examples of goods that only help in fixed amounts, but the economy is not composed entirely of those goods. It also includes beer, and more beer is better. $\endgroup$ – RegressForward Apr 6 '15 at 22:27
  • 1
    $\begingroup$ Do people drink beer endlessly if their beer drinking is not limited by money? I don't think that's true either. In fact, I rather have the impression alcoholism is negatively correlated with wealth... $\endgroup$ – gerrit Apr 6 '15 at 22:34

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.