“Most recessions… are not very important events. This one, though, has taken U.S. GDP almost 10% off its long-term growth trend.” So says Robert Lucas, 1995 Nobel laureate in economics as quoted by Dan Henninger in “The Disappearing Recovery” (6/13/11 WSJ Opinion).
Why is this important? Why do we care if we're 10% below the trend? Here's why: think back a couple decades to the cars, computers and medicine that we had in 1990. Breast cancer survival rates were much lower. Diseases like AIDS were thought to be a death sentence, whereas people now live a long time with the disease under control. Cars used more gas, created more pollution, were less comfortable and broke down much faster. Most computers didn't have graphics, much less high speed internet... not to mention cell phones, HDTV, tablets, etc. How many things do you enjoy today that did not exist 20 years ago?
In fact, the UN produces a calculation of “Human Development” that combines life expectancy, education and living standards into one number, and that shows a 5.25% improvement in the U.S. from 1990 to 2010. If that doesn’t seem like much, think again. In the whole of human history, human life has improved 5% in just two decades! That’s staggering improvement.
What about pollution you say? Turns out that as society grows, more people means more waste, but wealthy societies also care more about quality of life. Pollution where I live (Los Angeles, CA) has been improving dramatically in the last two decades. Look at the data yourself.
The wonderful things that we have today, the things that make our lives more interesting, better and, most importantly, healthier and longer, are the result of robust economic growth. If you are glad that you live in the world of 2011 instead of 1991, then you should be thankful that economic growth has averaged three percent since 1951 instead of two percent. If policies in 1951 had limited our growth by just that one percent, we would only now be achieving the progress that we had 1991. We would have lost a whole generation's worth of progress! Who wants to use a computer or watch a television from 1990? And, if you had an accident tomorrow, who would want to be transported back in time to a hospital in 1990, with vintage equipment and know-how? Who wants to condemn their children and grandchildren to that?
This is why we should always care about policies that promote growth, because they promote human life. A single percentage point difference in economic growth can result in 20 years of progress over the course of 60 years. That may be the difference between enjoying or aching for life saving advances 50 years from now when you and your loved ones need them. It may be the difference between finding a way to reverse global warming or suffering the consequences in 50 years. We can’t predict the next great advances that will improve and extend our lives, but we can count on one thing: we can push them further into the future by pursuing policies that retard economic growth today.