Wikipedia explains that Gross Domestic Product is “a monetary measure of the value of all final goods and services produced in a period of time (quarterly or yearly).” Exactly how it is calculated – what it includes and what it ignores – is very complex.
Clearly just from the simple definition of GDP, the output of an economy can be increased by 1) putting more people to work, 2) having people work longer and harder or 3) achieving greater efficiency through technology and innovation.
To take a nice loaded example, the invention of the cotton gin made feasible much larger cotton crops. It combined with a five-fold increase in the labor force (imported slaves who could be forced to work as long and as hard as their health permitted) to yield an increase in cotton production in the South from 750,000 bales in 1830 to 2,850,000 bales in 1850. In terms of GDP the economy was booming and this might be described as explosive growth. This may be a good example of why economic growth is not always good for society no matter how much the plantation owners may have benefitted in the short run. The Southern economy became completely dependent on cotton exports and most of its “capital” was tied up in slaves. Dependence on Southern cotton did not persuade England and France to actively side with the South in the Civil War and defeat involved not only wiping out capital tied up in slaves but also destruction of much of the infrastructure required for rebuilding the economy.
Increase in output does not necessarily produce a corresponding increase in the monetary value of the output. Excess production of a good can cause a drop in the price commanded by the good. Farm produce is notoriously susceptible to over-production, and governments have resorted to extreme measures to protect farmers from bankruptcy. GDP measures the monetary value of the output. That value may decline simply because of a decline in the demand for the product. Growth in GDP may also come at the expense of damage to the environment that is not adequately factored into calculations of cost. A farmer who depletes his soil by maximizing his output for several years running is undermining his own long-term economic viability. A manufacturing plant that pollutes the air and water may not be undermining its own viability, but it may be undermining the longer-term viability of the whole society.
One way an economy can grow while avoiding over-production of any given good is to increase the diversity of goods produced. This may happen spontaneously because of creative people or it may be engineered by stimulating demands with advertising. There seems to be no end to the things people can desire once they have enough to survive. Technology and desire feed off each other in a way that seems inevitable, but for the economist an increase in GDP attributable to the Pet Rock, Hula Hoop, or Frisbee is just as real as the increase due to the personal computer or cell phone.
To the extent that economic growth is a goal of policy it would seem to be justified either by the fact that it satisfies more (and more diverse) individual desires or by the fact that it promotes fuller employment (which in turn permits more individuals to satisfy their desires). Satisfying seemingly frivolous desires of some may produce jobs for those whose most basic needs are going unsatisfied. Reducing unemployment is obviously the best justification for continued growth. There is also the possibility of raising the average standard of living even if full employment is never achieved. This benefit is often characterized as the way in which “a rising tide lifts all boats,” but it may not be noticed by the people drowning because they have not been able to get into a boat.
In the end the benefits of economic growth may well depend on how growth is measured, what is included or excluded in the calculation of the GDP. There should be better ways to measure the success or health of an economy.
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