Saturday, July 28, 2012

Why did growth become the main objective of policy?

We're still talking about the Skidelsky's new book, starting here. Economic Growth has not always been the main goal of policy, they say.

It is worth recalling that the ideal of economic growth as an end without end is of fairly recent origin. When British prime minister Harold Macmillan told the voters in 1959 that they’d “never had it so good,” he was echoing the widely held view at the time that the capitalist countries of the West were rapidly approaching a consumption plateau, and the main problem of the future would be to ensure that the fruits of the new abundance were democratically distributed. Galbraith’s hugely influential The Affluent Society (1958) with its image of “private affluence, public squalor” caught this mood.
So why did growth become the overwhelming aim of policy, just around the time that the economy was already reaching mass affluence?

The simple, though surprising, answer is that, with the assumed achievement of permanent full employment by policy, there were no other objects of economic policy left. In these circumstances, economic thinking was free to concentrate once more on the efficiency with which output was produced. This was more congruent with the maximizing spirit of economics, getting the most use out of a given stock of resources.

There were some additional reasons, too.

That growth could become an object of economic policy was in large measure due to the development of national income statistics—GDP—which enabled comparisons between countries’ economic performance. And, in the aftermath of two supremely destructive wars, to make peoples richer, rather than nations more bellicose, seemed an eminently civilized object of striving.
Growth was also more necessary in the face of the arms race and military challenge from the Soviet bloc, however. Something had to pay for all those F-111s and troops in the Fulda Gap.

Economic growth also offered a way to improve the position of the poor without taking resources away from the rich. It was "a way of circumventing the facts of power".



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