Why Economic Growth is Exponentially More Important Than Income Inequality
January 15, 2014
This column by ACRU General Counsel Peter Ferrara was published January 14, 2014 on Forbes.com.
In 1900, we had no airplanes, no computers, no cellphones, no internet. We had only rudimentary versions of cars, trucks, telephones, even cameras.
But in the last century, 1900 to 2000, as Stephen Moore and Julian L. Simon report in their under appreciated work, It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years, real per capita GDP in the U.S. grew by nearly 7 times, meaning the American standard of living grew by that much as well. The authors explain,
“It is hard for us to imagine, for example, that in 1900 less than one in five homes had running water, flush toilets, a vacuum cleaner, or gas or electric heat. As of 1950 fewer than 20 percent of homes had air conditioning, a dishwasher, or a microwave oven. Today between 80 and 100 percent of American homes have all of these modern conveniences.”
Indeed, in 1900 only 2% of homes enjoyed electricity.
Cox and Alm add in their insightful Myths of Rich and Poor that as a result of all that economic growth today, “Homes aren’t just larger. They’re also much more likely to be equipped with central air conditioning, decks and patios, swimming pools, hot tubs, ceiling fans, and built in kitchen appliances. Fewer than half of the homes built in 1970 had two or more bathrooms; by 1997, 9 out of 10 did.”
Such economic growth has produced dramatic improvements in personal health as well. Throughout most of human history, a typical lifespan was 25 to 30 years, as Moore and Simon report. But “from the mid-18th century to today, life spans in the advanced countries jumped from less than 30 years to about 75 years.” Average life expectancy in the U.S. has grown by more than 50% since 1900. Infant mortality declined from 1 in 10 back then to 1 in 150 today. Children under 15 are at least 10 times less likely to die, as one in four did during the 19th century, with their death rate reduced by 95%. The maternal death rate from pregnancy and childbirth was also 100 times greater back then than today.
Moore and Simon further recount, “Just three infectious diseases – tuberculosis, pneumonia, and diarrhea – accounted for almost half of all deaths in 1900.” Today, we have virtually eliminated or drastically reduced these and other scourges of infectious disease that have killed or crippled billions throughout human history, such as typhoid fever, cholera, typhus, plague, smallpox, diphtheria, polio, influenza, bronchitis, whooping cough, malaria, and others. Besides the advances in the development and application of modern health sciences, this has resulted from the drastic reduction in filthy and unsanitary living conditions that economic growth has made possible as well. More recently, great progress is being made against heart disease and cancer.
Also greatly contributing to the well-being of working people, the middle class, and the poor in America has been the dramatically declining cost of food resulting from economic growth and soaring productivity in agriculture. As Moore and Simon report, “Americans devoted almost 50 percent of their incomes to putting food on the table in the early 1900s compared with 10 percent in the late 1900s.”
While most of human history has involved a struggle against starvation, today in America the battle is against obesity, even more so among the poor. Moore and Simon quote Robert Rector of the Heritage Foundation, “The average consumption of protein, minerals, and vitamins is virtually the same for poor and middle income children, and in most cases is well above recommended norms for all children. Most poor children today are in fact overnourished.” That cited data comes from the U.S. Census Bureau. As a result, poor children in America today “grow up to be about 1 inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.”
That has resulted from a U.S. agricultural sector that required 75% of all American workers in 1800, 40% in 1900, and just 2.5% today, to “grow more than enough food for the entire nation and then enough to make the United States the world’s breadbasket.” Indeed, today, “The United States feeds three times as many people with one-third as many total farmers on one-third less farmland than in 1900,” in the process producing “almost 25 percent of the world’s food.”
Moreover, it is economic growth that has provided the resources enabling us to dramatically reduce pollution and improve the environment, without trashing our standard of living. Moore and Simon write that at the beginning of the last century,
“Industrial cities typically were enveloped in clouds of black soot and smoke. At this stage of the industrial revolution, factories belched poisons into the air–and this was proudly regarded as a sign of prosperity and progress. Streets were smelly and garbage-filled before the era of modern sewage systems and plumbing.”
Not any of these truly dramatic advances for the poor, working people and the middle class could have been achieved by redistribution from “the rich.” Only economic growth could achieve these results.
Nor would it have been worth sacrificing any of these world shattering gains for greater economic “equality.” And Barack Obama’s leftist protestations to the contrary notwithstanding, economists have long recognized the conflict between economic equality and maximizing economic growth. Put most simply, penalizing investors, successful entrepreneurs, and job creators with higher taxes, to reward the less productive with government handouts, to make everyone more equal, is a sure fire way to get less productivity, fewer jobs, lower wages, and reduced economic growth.
The above history, and the future prospects below, are why to most benefit the poor, working people, and the middle class, our nation’s overriding goal must be to maximize economic growth. Consider, if total real compensation, wages and benefits, grow at just 1% a year, after 20 years the real incomes of working people would be only 22% greater. After 40 years, a generation, real incomes would be 50% more. But with sustained real compensation growth of 2%, after just 20 years the real incomes and living standards of working people would be nearly 50% greater, and after 40 years they would be 120% greater, more than doubled. At sustained 3% growth in wages and benefits, after 20 years the living standards of working people will have almost doubled, and after 40 years they will have more than tripled.
The U.S. economy sustained a real rate of economic growth of 3.3% from 1945 to 1973, and achieved the same 3.3% sustained real growth from 1982 to 2007. (Note that this 3.3% growth rate for the entire economy includes population growth. Real wages and benefits discussed above is a per worker concept). It was only during the stagflation decade of 1973 to 1982, reflecting the same Keynesian economics that President Obama is pursuing today, that real growth fell to only half long term trends. If we could revive and sustain that same 3.3% real growth for 20 years, our total economic production (GDP) would double in that time. After 30 years, our economic output would grow by 2 and two-thirds. After 40 years, our prosperity bounty would grow by 3 and two-thirds.
If we are truly following growth maximizing policies, we could conceivably do even better than we have in the past. At sustained real growth of 4% per year, our economic production would more than double after 20 years. After 30 years, GDP would more than triple. After 40 years, a generation, total U.S. economic output would nearly quadruple. America would by then have leapfrogged another generation ahead of the rest of the w
Achieving and sustaining such economic growth should be the central focus of national economic policy, for it would solve every problem that plagues and threatens us today. Such booming economic growth would produce surging revenues that would make balancing the budget so much more feasible. Surging GDP would reduce the national debt as a percent of GDP relatively quickly, particularly with balanced budgets not adding any further to the debt. Sustained, rapid economic growth is also the ultimate solution to poverty, as after a couple of decades or so of such growth, the poor would climb to the same living standards as the middle class of today.
With sustained, robust, economic growth, maintaining the most powerful military in the world, and thereby ensuring our nation’s security and national defense, will require a smaller and smaller percentage of GDP over time. That security itself will promote capital investment and economic growth in America. The booming economy will produce new technological marvels that will make our defenses all the more advanced. With the economy rapidly advancing, there will be more than enough funds for education. There will also be more than enough to clean up and maintain a healthy environment.
With such booming growth, imagine where our exploding, rapidly advancing science will take us from 2000 to 2100. In a March, 2012 interview in the Wall Street Journal, pathbreaking, pioneering, futurist physicist Michio Kaku explained, “Every 18 months, computer power doubles, so in eight years, a microchip will cost only a penny. Instead of one chip inside a desk top, we’ll have millions of chips in all of our possessions: furniture, cars, appliances, clothes. Chips will be so ubiquitious that we won’t say the word ‘computer.'” Kaku further projected, “In this ‘augmented reality,’…the Internet will be in your contact lens. You will blink, and you will go online. That will change everything.”
Kaku continued, “To comprehend the world we’re entering, consider another word that will disappear soon: ‘tumor.’ We will have DNA chips inside our toilet, which will sample some of our blood and urine and tell us if we have cancer maybe 10 years before a tumor forms.” He adds, “When you need to see a doctor, you’ll talk to a wall in your home, and an animated artificially intelligent doctor will appear. You’ll scan your body with a hand-held MRI machine, the ‘Robodoc’ will analyze the results, and you’ll receive a diagnosis that is 99% accurate.”
On the distant horizon beckons the personalized medicine made possible by the mapping of the human genome, so contrary to the central planning of Obamacare. Modern genetics is rapidly advancing to a redesign of plants and agriculture, the leftist European cant over “frankenfood” to the contrary notwithstanding. While Star Trek style teleporting eludes our science, high definition and 3D video conferencing will provide a similar feel. While Barack Obama thinks modern technology causes unemployment, 3D printing offers new vistas in manufacturing. Robotics has already produced driverless, automated cars, “lights out” factories, and robotic surgery. And that is mostly without advances in artificial intelligence that can expand the effectiveness of the human race to vast new realms.
George Gilder’s transformative book, Power and Knowledge, unrecognized in the current generation’s temporary Dark Age of the West, explains how breakthroughs in information theory are opening new vistas for previously sidetracked frontiers of physics, chemistry, and biology. That is opening the way for currently frustrated visionaries to achieve their dreams: “Peter Thiel wants supersonic flight and real genetic medicine, robotic vehicles, and new libertarian city-states at sea. Ray Kurzweil pushes for a prosthetic life, an upgraded bionic body with veins vamped with nanobots, chasing down viruses and cancers, repairing outworn tissue and extended by virtual worlds of glass and light.”
Kaku concludes, “If you could meet your grandkids as elderly citizens in the year 2100, you would view them as being, basically, Greek gods.”
This is the future that today’s so-called “progressives,” fixated on their literally dumb, static analysis concepts of economic “equality” and “redistribution,” would be denying tomorrow’s otherwise poor, working people, and middle class. Today’s so-called “progressivism” is just the late 19th century reactionary response to the rise of the industrial revolution. It is the surviving nostalgic project to stop history at Karl Marx, and return to the imagined, more bucolic world of the 18th century. This is all best reflected in the environmentalist extremist fraud of global warming/climate change, with Barack Obama’s EPA serving as the spear carriers even now still openly trying to reverse the industrial revolution (even if that is not what they themselves imagine they are doing).
But the future will overwhelm the present, and reject the past. Just as the technological breakthrough of fracking, and the resulting oil and gas boom, is overwhelming today’s EPA. The American people, pursuing the same vision of freedom and prosperity that inspired the first, original, American revolution, will not be denied the bounty of the future. And ultimately leading that fight for the infinitely prosperous future will ironically be the very same young immigrants that today’s “progressives” think will put them over the top in their reactionary war to restore pre-capitalism.