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Is economic growth desirable?

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olevelcandidate | Student, Grade 10 | eNotes Newbie

Posted November 6, 2013 at 1:56 PM via web

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Is economic growth desirable?

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kipling2448 | (Level 1) Educator Emeritus

Posted November 6, 2013 at 2:49 PM (Answer #1)

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Economic growth is almost always desirable as being in the best interest of the most people.  Economic stagnation or negative growth – in other words, the economy actually contracts – create financial misery for the overwhelming majority of citizens of a particular country.  The reason the phrase “almost always” was used in the opening statement, however, is that there are circumstances under which governments or individual sectors of economic activity actually hope for adverse economic trends.  In the case of governments, slow or nonexistent growth may in rare instances be an objective of economic policy.  Economic contraction may not be the goal, and probably isn’t, but adverse economic conditions may be seen as a short-term remedy for long-term economic outlook. Such was the case during the administration of President George W. Bush. 

U.S. economic dominance has been tied in no small part to the strength of the U.S. currency, the dollar, relative to currencies of major trading partners like the European Union and China.  President George W. Bush and his economic advisers calculated that, if the value of the dollar declined relative to that of the Euro and the Chinese renminbi (also referred to as the Yuan), American exports would become less expensive in the European and Chinese markets, while foreign-manufactured goods would become more expensive in the U.S. market.  This would have the effect of spurring U.S. economic growth in the long term by increasing U.S. manufacturing and U.S. exports while redressing the negative trade balance between the U.S. its major trading partners.

The reality, unfortunately, was that, while American exports did in fact rise as the value of the dollar shrank, the trade imbalance was not reversed because (A) the Chinese government pegs its currency to the dollar (in other words, as the dollar sinks or rises in value, the renminbi sinks or rises with it) thereby ensuring that, while exports did increase, imports of Chinese goods did not decrease; and (B) the economic condition of much of the rest of world, which holds massive quantities of U.S. dollars as important components of their financial strength, saw that strength diminish with the drop in the dollar’s value.  In short, short-term economic weakness was the goal, albeit the intent was for long-term growth.

A second situation in which economic growth is undesirable involves complex financial maneuverings like the practices of arbitrage and so-called “short” selling of investments.  In these practices, small sectors of the business community calculate their self-interest in such a way that contraction in specific sectors of the economy benefits them personally.

Finally, while economic growth is desirable, too high a level of growth can cause uncomfortable rates of inflation.  The Chinese Government in particular had been wary throughout the 1990s and 2000s that their economy was growing too fast and that the result would be extremely high rates of inflation to the detriment of the health of the economy.  It consequently sought measures intended to slow but not stop economic growth.

 Economic growth, as a rule, is not just desirable, but essential.  As noted, however, growth may need to be regulated, and those who profit from adverse economic conditions should be regulated to the good of the country.

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