Think about the economy as a pie. Growth means that the pie is getting bigger. But looking only at this is an over-simplification. It assumes that the pie is sliced fairly between everybody in society, so everybody profits when the pie is bigger. But we all know that this is not the case. Usually, some people get a bigger piece of the pie than others. Growth, then, is only good, if the benefits of it go to the majority of the people, instead of to the people who already have a lot of pie. But this is not necessarily the case. The reason that we look at growth is because we have all been told that the market will naturally ensure that the pie is fairly divided and that profits will naturally trickle down from the richest to the poorest (e.g. through purchasing services, hiring employees, reinvesting in business, etc.).
Growth doesn’t take into account a lot of things that are really important for how much the economy actually benefits humans. These include inequality (which is bad for a bunch of stuff, like health, crime, and happiness), poverty, access to services (like healthcare and education), and social mobility. Any of these things are arguably better measures of how well a society is doing than growth, but growth is still the thing that we obsess over.
The other negative about growth is that it’s pretty bad for the planet, actually. Focusing on growth basically implies that no matter how rich a country is, it always needs to get richer, and it also assumes that there is an infinite amount of resources to make the stuff with. As it turns out, there isn’t. Focusing on growth also doesn’t look at the harm that making more stuff every year does: the use of resources, carbon emissions, pollution, deforestation. We all see that now that growth has plummeted, people in some countries have seen the sky for the first time in years, and wildlife is returning to places where we thought it never would again. Many economists, like Kate Raworth, are now looking at alternative models of economies, like de-growth, arguing that you can have a happy, stable society without any growth at all. This has been seen for a long time as quacky stuff, but actually Adam Smith, the father of modern economics, believed that this would eventually happen to economies. This idea is becoming increasingly mainstream, and the coronavirus pandemic, which gives us the opportunity to really think about what is important, may be just the right time for governments to start taking it seriously.
- Trickle-Down Economics
Trickle-down economics basically refers to the idea that what is good for business is good for the rest of society, because benefits to business trickle down to the rest of society. It’s a theory that basically advocates for tax cuts to businesses and the wealthy, because it incentivises them to do more business and therefore benefit society more. This fantasy has played out over the last 40 years, after Ronald Reagan and Margaret Thatcher convinced everybody that this idea was based on actual evidence (hint: it wasn’t). Prior to reforms in the 1980s, the UK and the US both had very high marginal tax rates for the richest people in their society. The marginal tax rate refers to the amount of tax somebody will pay if they earn an extra dollar. Most societies require people to pay different rates of tax depending on how much they earn. As hard as it is to believe, the US used to have a marginal tax rate of 91% (until 1963, after which it was 70%), meaning that if you were in the top tax bracket (which you had to be pretty wealthy to be in) and you earned an extra dollar, 91 cents would go to tax. This rate is now 37%. These low marginal tax rates incentivise things like incredibly high pay for CEOs. The argument of the neoliberal story is that CEOs are really productive and add a lot of value. This, they say, is why CEOs pay has grown 940% since 1978, although the pay for the average worker has only grown by 12% in the same period. I will leave it up to you to decide how convincing that argument is.