Negatives Of Economic Growth

The term economic growth, meaning an increase in the production of goods and services over a period (normally linked with population), at a superficial level seems unequivocally good: what negatives could there even be? This simplification will be considered in this essay whilst also considering the definite negatives of economic growth. I will also end with a statement about the best source of economic growth for the general population – in my eyes the ones who matter most.

One of the most directly potent benefits of economic growth is an increase in the standard of living within the population. This growth is demonstrated in the AD/AS graph above. Having a higher GDP output from Y1 to Y2 means that we had a higher AD (a shift out to the right).

We have assumed the economic growth will affect most people in the population leading to a general higher standard of living. But this might not necessarily be the case; we have assumed the trickle-down effect is in full force here as the majority of those directly affected by increased GDP are those who are well off already as they tend to invest the most as they already have the necessities. But if these people tend to invest the most (or “invest” in off-shore accounts) then the trickle-down effects stops, leading to many not benefitting from the higher GDP. This is heavily apparent in the UK due to a relatively-high Gini coefficient, 0.32 in 2015-16 with tax, meaning we are quite unequal compared to other developed countries. For non-developed countries they have far higher Gini coefficients (closer to 1) leading to a smaller increase in the standard of living when there is economic growth. Overall, in the UK’s case, it is unlikely that many would benefit in terms of standard of living from economic

Firstly, I think economic growth in poor regions and thus those in non-service jobs should be focused as it closes the income gap and so would reduce our Gini coefficient even further to zero. Secondly economic growth should solely be sustainable: built for the future. By being sustainable it would ensure a reduction in negative externalities, making the future more accessible as we would use up fewer non-renewable resources. However, to do this we would need both short-run (demand-side) and long-run (supply-side) policies to ensure we had a continuous growth in our economy while expanding our capacity to grow. In the UK, due to the 5-year government cycle, very few parties opt for the supply-side policies due to their long-term effect benefiting those who are voted in next. So it seems that to be able to have better economic growth in the UK we’ll need to think of a new way of integrating supply-side policies and hopefully focusing on those in less-fortunate