The Growth Mania

March 18, 1963

The American public, as H.L. Mencken used to point out, lives through a succession of crazes. In the economic field the last generation has lived through many. Once the great watchword was “full employment.” Now the supreme goal is “economic growth.” Even the American Bankers Association has just held “A Symposium on Economic Growth.”

If we took the word “growth” to be merely a shorthand expression for an improvement in economic conditions, this would be a vast improvement over previous catchwords. But the “growth” mania rests on a special set of assumptions and has taken a peculiar form. It assumes that there is something called “the gross national product,” or “GNP,” that can be precisely measured. Anyone who has seriously studied how these statistics are compiled knows that they are full of arbitrary and questionable assumptions. GNP is measured in a dollar that is itself constantly fluctuating in value. The GNP can be pushed up to any amount simply by inflating the currency enough.

Dollar fluctuations are only one of the dubious elements. Government expenditures are counted as part of GNP. So if the government seizes half of Peter’s income and pays it over to Paul, the GNP total counts the addition to Paul’s income but not the subtraction from Peter’s. GNP is built out of arbitrary decisions as to what activities are “productive” and what are “unproductive.” On the one hand it includes only goods and services that pass through the market. On the other hand it involves double counting at a hundred points.

WHY 4 PERCENT?

Every country measures its GNP in a different way. Every GNP figure is an arbitrary estimate subject to error. The estimate of Communist countries, with no free-market guides, is wholly unreliable. Yet the growth zealots assume that all these estimates can be precisely compared. They even assume they can precisely measure and compare annual percentage rates of growth. And for some reason they have made their goal a precise annual rate of growth. Thus President Kennedy, addressing the American Bankers symposium, recommends “pushing our economy to 4 percent [annual rate of growth] instead of 3 percent.” This, he adds, “might total over the next ten years in today’s prices $400 billion more in output of goods and services.” But why just 4 percent? Why not 5 percent or 6 percent, which would mean many hundreds of billions more still in goods and services?

And why a fixed rate of growth at all? No individual sets such a goal for his own income. If Paul has an income of only $1,000 this year, he will hardly be satisfied with $1,040 next year. He wants to jump to $5,000 or $10,000 right away, or as soon as possible. If Peter already has an income of $25,000, he may not fight very hard for $26,000 next year, or any increase at all.

TELEVISION RECORD

Does a specific industry want or need to grow just 4 percent a year? In a Newsweek column (March 2, 1959) I pointed out that the output of TV sets increased 2,757 percent between 1946 and 1947, 387 percent between 1947 and 1948, 211 percent between 1948 and 1949, and 146 percent between 1949 and 1950. And then “growth" stopped entirely. So what? The U.S. has more and better TV sets than any country in the world.

What we need is not some fixed national “rate of growth” established by the fiat of government officials, but freedom for each of us to improve his own economic condition as much as his energy and talents allow.

The true role of government is to protect life and property and to stop killing incentives. It will not promote growth by cutting taxes while maintaining or increasing huge government spending. That can only bring about deficits, inflation, and debasement of the dollar. It can best promote growth by preserving a sound currency, by ensuring free and fluid markets in goods and labor, and by encouraging saving and investment. It is above all investment, which puts more and better machines in the hands of the workers, that increases their productivity and wages and promotes “economic growth.”