NC Budget and Tax Center

When growth isn’t enough (in four charts)

For decades, policymakers and economists alike have all assumed that a growing economy automatically translates into increased prosperity and improved quality of life for a majority of citizens. This is the theory that “a rising tide lifts all boats.” As the American economy continues to transition in the 21st century, however, it is increasingly clear that economic growth by itself neither lifts all boats nor delivers the benefits to America’s working families that have long been promised.

In a point echoed by a recent BTC report, economic growth just isn’t enough—positive change in Gross Domestic Product (GDP) no longer translates into increased prosperity for all.

In fact, the opposite is true. As shown in the following charts developed by Demos, decades of economic growth have yielded little in the way of increased incomes for working families;

Personal_Income_Lags_Behind_Growth_1

…. or meaningful reductions in poverty.

No_Progress_On_Poverty_4

Given this reality, it is no surprise that we’ve seen rapidly growing income inequality. Taken together, these trends are dramatic evidence that growth just isn’t enough to generate meaningful economic progress.

Inequality GDP

 

If GDP growth no longer translates into economic progress, then we need a better way to measure what progress looks like.  One such measure is the Genuine Progress Indicator (GPI), which seeks to capture a fuller range of the various factors that influence quality of life and well-being. The GPI is designed to give a much fuller account of a state’s economic health by incorporating environmental and social factors not included in GDP, including the costs to the natural environment and to society generated by economic growth. This includes negatives like crime, pollution, resource depletion, and increases in poverty. For example, the GPI will drop in value when the poverty rate goes up, whereas GDP can continually increase even in the face of rising poverty.

As a whole, the GPI is oriented around the concept of sustainable income—the total amount a person or economy can consume in a given period without decreasing consumption in the next period of time. The GPI extends this idea to society at large—the state of a community’s welfare in a given year depends in large part on its ability to maintain the same level of welfare in the future.

In the following chart, we can see that while economic growth has increased over much of the last 30 years, genuine progress has essentially remained flat.

Growth_vs_Progress_12_0

Given this reality, it’s clear that economic growth just isn’t enough to ensure genuine economic progress.

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