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What is Economic ‘Growth’? Politicians seem Confused!

August 22, 2012

Is more government spending equivalent to ‘economic growth’?

I continually hear the pundits talking about our need for MORE ‘economic growth’ to solve our deficit and debt problems. So what is ‘economic growth’. Do the policies of the Fed create ‘economic growth’? Will the policies of Obama, Romney, or Ryan create ‘economic growth’. Let’s give some thought to the concept of ‘economic growth’. What is it and what is it not?

Historically, growth was calculated from an increase in ‘material’ resources. If we manufacture more widgets for the market we have increased economic growth. If we increase the yield within farming (grains, cattle, hogs, chickens, etc.) we have increased economic growth. If we build more cars for consumers and the global markets we have increased economic growth. Another word for ‘growth’ is WEALTH. The goal of economics is to increase the ‘wealth’ for our society. Economic growth (more material production) creates this ‘wealth’ for distribution to everyone.
But let’s think about what is NOT economic growth. Does increasing the number of jobs in the public (government) sector, create more economic growth? I would suggest NO. Does increasing the quantity of money units (dollars) spent for non-producing employment (say Food Stamps) increase economic growth? I would suggest NO. Do the QE policies of Bernanke and Company at the Fed increase economic growth? I would suggest NO. Does increasing SPENDING (government or retail) automatically create more economic growth? I would suggest NO. Does trading trillions of currency units (digital dollars) via the global currency markets create economic growth? Again, I would suggest NO. In reality, money is NOT ‘wealth’ and increasing units of money does not necessarily increase economic growth. Check out some history on the concept of ‘economic stimulus’ to discern the difference between ‘growth’ and real ‘material’ wealth!
Evidence that increased government spending does not help economic growth. There seems to be a clear negative correlation, across OECD nations, between recent increases in government spending and corresponding changes in the GDP growth rate.

What we need to understand is that ‘economic growth’ involves creating MORE material ‘wealth’! Creating more QE money units or creating more jobs which produce ‘nothing material’ will not increase ‘economic growth’. Spending more money units (dollars, yen, euros, pounds, etc.) by our politicians will not produce more ‘economic growth’. Today, the American economy has some 46 million potential producers on Food Stamps (digitally loaded monthly credit cards). There are now some 55 million retired persons on Social Security. All this spending by non-producers does not really create any NEW ‘economic growth’…only SPENDING.

What we need to recognize is that our current government spending polices and general administrative policies will NOT create meaningful NEW ‘economic growth’. Capitalism is based on workers and entrepreneurs creating ‘economic growth’ from our natural RESOURCES. Money is merely a TOOL for helping with this endeavor. Money is NOT ‘wealth’ and today our money units are really NOTHING (merely units of imagination). We need to think more seriously about the meaning of the words that we enunciate when we talk about ‘economic growth’. I agree that ‘economic growth’ should be our goal going forward. I doubt, however, that any of our politicians or our monetary policy elite (Bernanke’s QE and Twist policies) will create this needed ‘growth’ going forward.
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