Economic
growth in any country is the most well understood and significant index of the
economic wellbeing of the population.
It is usually measured as the percentage change in the gross domestic
product (GDP). However, it
is not explicitly known to most that it may also spread a sense of happiness,
hopefulness and tolerance, hence a sense of cohesiveness among people. The divisiveness among people occurs
when there are winners and losers, and the winners are reluctant to provide
opportunities to losers to achieve a satisfying economic status and are self-centered
in pursuing their own economic gains, even at the cost to others.
Professor
Benjamin Friedman in his book “The Moral
Consequences of Economic Growth”, provides some thought- provoking insights
into the non-economic consequences of economic growth. He states, “The value of rising
standard of living lies not just in the concrete improvements it brings to how
individuals live but in how it shapes the social, political, and ultimately the
moral character of a people.” In his view, economic growth that lifts all boats
“…fosters greater opportunity, tolerance of diversity, social mobility,
commitment to fairness, and dedication to democracy”. These attributes are also the hallmark
of innovation and growth. Fear of
growth due to negative side effects of environmental damage, congestion and
diminished biodiversity are unwarranted, since growth provides more resources
to offset these effects.
In
a winner and loser society, where winners are relatively better off and the
losers are relatively worse off against some benchmarks, economic and social
divisiveness among people increases and perception of fairness falters. Professor Friedman remarks, “ The
central question is whether, when people see that they are doing well (in other
words, enjoying ‘more’) compared to the benchmark of their own prior
experience, or their parents’ – or when they believe that their children ‘s
lives will be better still – they consequently feel less need to get ahead
compared to other people.” If most people perceive that they are worse off as
compared to these benchmarks, it creates a ripe environment for divisiveness, hostility
and intolerance to economically well-off groups and other competing groups. The opportunistic political leaders and their sympathizers
use this rift for their own political, social and economic ends.
President
Trump constantly reminds his supporting base that winners, immigrants and
international trade are responsible for their plight. But, he is also telling them that he is working on policies
to stimulate economic growth. However, there are no visible signs of meaningful and
sustainable high growth policies.
The economy is growing between the average annual rates of 2% to 3%, but
as compared to historical standards, it has not trickled down in significant wage
gains to workers severely affected by the deep economic recession of 2007-08.
The Wall Street Journal,
August 24, 2017, reported that world wide economic growth has picked up and forecasts
for US are in the range of 2 to 3 percent per year. This US growth forecast will not improve the economic
predicament of most Americans in the lower rung of the income distribution
without substantive policy initiatives to stimulate productive investment in
human and physical capital and R&D. The Trump administration’s aspirations
for higher economic growth are incongruous with their regressive budget and tax
proposals and strategies to restrict international trade and immigration. Former Congressman Jack Kemp once
remarked, “Economic growth doesn’t mean
anything if it leaves people out.”
NAFTA
trade pact is in jeopardy since Mexico and Canada are not willing to agree with
the stringent concessions the Trump administration wants in the trade
agreement. The President has
already withdrawn from the Trans Pacific
Partnership trade pact with countries in South East Asia, a burgeoning
regional trade market.
Restricting trade could prove to be a severe blow to economic growth.
A
great source of unhappiness and divisiveness among the general population is
the increasing income and wealth gap. C.I. Jones of Stanford University shows
in his study on growth that, since 1980, GDP per person grew at the average
rate of 6.8% per year for the top 0.1%, while it grew at the rate of only 1.82%
per year for the bottom 99.9%, thus widening the income gap over time. This has created a perception of unfairness
and has led to general intolerance, especially fueled by the rhetoric of the President
against immigrants and so-called elites.
The
increasing income gap is accompanied by an increasing wealth gap. The study by Daniel Carroll and
Nicholas Hoffman, Economic Commentary, Cleveland FED, June 28, 2017, finds that wealth mobility has also decreased over
the past three decades. On average,
household are more likely to stay within their wealth quintiles over a period
of 10 years than in the past two decades.
Some
claim that income inequality is essential for economic growth, but the evidence
for the US is at best murky. However,
evidence points out that any marginal growth effects of inequality may not be economically
beneficial to most people in the lower income distribution. Aspirations for high growth rates
and its trickle down effects in the Trump administration should be tempered by
the fact that during 1973-1995, 1995-2001 and 2001-2017 the average annual
growth rates of GDP per person were 1.82%, 2.17% and 1.72% respectively (see
C.I. Jones).
Hopefully,
President Trump and his team recognize that in a slow growth economy policies
matter to make people feel economically secured, to bring harmony among people,
and to promote a healthy and vibrant society.
