Why does economic growth or increases in real GDP such a good thing? Is it because unemployment generally goes down when GDP rises and spending and incomes rise?

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A growing economy, as measured by increasing GDP, certainly helps lower unemployment, and historically at least, it also tends to increase wages as more positions become open and as already employed workers feel emboldened to seek better paying jobs or to negotiate for higher wages and better benefits. That having been said, with increasing automation, the loss of influence of labor unions, and the practice of outsourcing jobs to countries where wages are lower, GDP has become partially decoupled from wage growth and thus income growth.

In other words, it used to be that when GDP growth was strong, wages increased pretty much proportionally. That is no longer the case, particularly for workers without college educations or highly sought after technical skills. So while growth in the economy as a whole, as measured by GDP, is undoubtably a positive development, the benefits of expanding GDP tend to help those higher up the socio-economic strata, particularly those with retirement accounts that are invested in the stock market.

One reason for this change in wealth distribution is that many fewer workers today have jobs protected by labor unions, so workers' abilities to negotiate for higher wages and better benefits are muted as compared to the 1960s through 1980s, when many more workers benefitted from collective bargaining. Another reason for this decoupling of wage and income growth from GDP has been the rise of stock buybacks, in which publicly traded companies use earnings to purchase their own stock, thus decreasing the amount of shares outstanding and raising the price for each individual share. This practice is so common now that most large corporations set aside a portion of their earnings each year to buy back their own shares. These payouts go to the shareholders of these stocks, with much less capital remaining for raising workers' wages.

Finally, whereas CEOs of companies used to make thirty to forty times the median wage of a worker at his or her company, those CEOs now make several hundred times the salary of a mid-level employee, so again, the gains in GDP growth do not get distributed evenly. That is why GDP is only one measure of economic growth, and a limited one at best. If you really want to capture how average members of a society are doing economically, a better metric to use is the average personal savings rate, as well as average household debt ratios. Those measurements show us how individuals and families are faring in the larger economy better than GDP, because they calculate not only income but also help us peek into expenses. One other place to look for the health of individuals is the rate of home ownership and the rate of car payment delinquent. If individuals are buying homes, we can infer that they have saved up for a downpayment and feel confident enough in the future to take out a mortgage. If individuals are failing to make their car payments, that is a very troubling sign, because most people pay that bill before any others, since they cannot get to work without a car.

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Yes, that is pretty much it.

The assumption is that it is better to have more money rather than less.  When the Real GDP of a given country goes up, the people of the country are more likely to be well off.  Unemployment generally goes down.  Economic growth does not have to go along with a decrease in unemployment, but it usually does.  When people have more money and when more people have jobs, people's lives are, for the most part, better.

Economic growth just makes for happier, less stressed people in general and that is a good thing.


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