Should economic growth be the main macroeconomic objective of governments?

Governments around the world all share a common goal: to achieve macrostability and sustained economic growth. With the integration of new macroeconomic policies in order to achieve this goal, new challenges arise, leading governments to ask a crucial question: to what degree is economic growth the most beneficial for the country, and do other macroeconomic objectives potentially outweigh economic growth?

Firstly, it is crucial to understand why, for centuries, economic growth has always been perceived as the main and only way forward for a nation. Economic models that are widely taught today in schools and at universities are those that were created decades ago by revolutionising economists, such as John Maynard Keynes and Paul Samuleson; therefore, they undoubtedly hold substantial importance even to this date. The Keynesian view, for instance, argues that government intervention is indeed necessary in the world. It stabilises a community making the goal of economic growth far more plausible. However, it is important to note that the economy and the overall state of the world of the 20th century were scarcely the same as those of the 21st century. For generations, it has always been commonly integrated and entwined in our minds that good is forward and up and bad is the contrary. This conventional mindset can be applied to economics. In the case of working out what is best for a country’s economy, it has always been assumed that the best and most promising way forward is simply to increase economic growth. Push forward no matter what. Make GDP figures go higher and higher because up is good. However, humanity is entering an era where other, previously disregarded, issues are becoming increasingly vital and essential to address, for instance, environmental sustainability. More than ever, it is being discovered that economic growth does not, in fact, capture important aspects of human well-being, such as health, education, social cohesion, and subjective happiness. Thus, economists and policymakers argue for a more balanced approach. They advocate for a broader set of macroeconomic objectives, such as promoting social inclusion, environmental sustainability, and well-being alongside economic growth. The United Nations' Sustainable Development Goals (SDGs) provide a comprehensive framework that encompasses various dimensions of development beyond economic growth. Governments are compelled to consider broader indicators and goals to ensure holistic development. As such, many other concerns must be taken into account by government bodies globally, rather than simply overlooking them and placing little emphasis on their importance. It is time for the world to stop and think: must it always be the case that the macroeconomic objective of economic growth, or the approach to go forward and up, is the best all the time?

Although becoming more frequently addressed, environmental degradation is an issue commonly overlooked and a pivotal matter scarcely even considered in 20th-century economics. In particular, the 20th century was a time of prolonged economic disasters, for example, the Great Depression and later the microscale and macroscale financial impacts of the Second World War. However, it was also a period of exciting and fresh economic discoveries, where new economic models and theories were created to best suit the state of the global economy at the time. One key phrase to remember is "at the time". Two points are crucial for individuals to lock into their brains. Firstly, times are changing rapidly, faster than people ever thought. Therefore, priorities and, in turn, emphasis on certain objectives constantly change. Additionally, economies rapidly change in nature, accelerated by the occurrence of unprecedented events, for example, the COVID-19 pandemic. Secondly, no model is ever perfect; they all contain flaws; however, it is the goal of economists to create one that would provide the best chance of achieving the ideal government objectives. Taking both of these aspects into account can help shape our world for the better. Linking back to why economic growth should not be the main macroeconomic objective, excessive focus can lead to unsustainable resource consumption, pollution, and environmental degradation. Prioritising growth without considering environmental impacts can exacerbate climate change and other ecological challenges, posing risks to future generations. It is now more critical than ever that the world slowly detaches itself from the typical economic frameworks and mentalities humanity has been compelled to believe in. As the world changes, our mindsets need to change in order to provide the best possible environment for society.

Arguably, economic growth brings substantial benefits to a population. For instance, economic growth can contribute to higher incomes, the creation of jobs, and improved living standards. This is because economic growth can provide fiscal stability. Governments can generate higher tax revenues and reduce their budget deficit (the inflow of money to the government as revenue exceeds expenditure). It provides the necessary resources for investment in essential public services, infrastructure, and social welfare programmes, which can enhance the well-being of citizens. Furthermore, economic growth has the potential to reduce poverty by generating employment opportunities and lifting people out of poverty. In conjunction with this, rising social spending has been used to combat income inequality, which comes with an increasing population. As the economy expands, there is a greater possibility of creating jobs and increasing access to basic necessities. As a result, the increasing economic development of a nation has the powerful ability to bridge the stark financial gap between the destitute rural areas and the affluent urban regions of a country. Income inequality and the social disparities between the elite upper class and the working class can be potentially resolved. Since income distributions are relatively stable over time, economic growth tends to raise incomes for all members of society, including the poor. This is illustrated by the example of economies characterised by good public education, increased opportunities, and encouragement of a more democratic society, such as Norway, with a GDP of $482 billion. In Norway, 8% of the population lives in relative poverty, and 4% reported low satisfaction in 2020. Although these figures could be lower, they are far lower than most nations globally, as they make significant investments to improve social satisfaction and living standards. All of these factors together close gender and income inequality gaps; however, this is only made possible by high levels of investment, which may only come about by focusing on predominantly economic growth. Moreover, on the other hand, economic growth does not guarantee an equitable distribution of wealth and benefits. In some cases, it can exacerbate income and wealth disparities, leaving certain segments of society behind. Focusing solely on growth may perpetuate social and economic inequalities rather than improving them through economic growth.

The question of whether economic growth should be the main macroeconomic objective for governments is a matter of debate among economists and policymakers to put forward a more balanced approach. While economic growth is often seen as a vital objective, the arguments against it being the predominant macroeconomic aim are increasingly strengthening. In all fairness, it depends on the country and its needs; if income inequality is the most significant issue, the government of that nation should immediately address it. There is an urgent call across the world to shift the focus from predominantly economic growth as the main macroeconomic objective to rectifying, or even at least improving, issues that could cause long-term disaster not only for the stability of a nation’s economy but also social standards and the state of the environment. In conclusion, while economic growth can bring numerous benefits, governments should aim for a more comprehensive set of macroeconomic objectives that include social, environmental, and well-being considerations. An overemphasis on economic growth may lead to short-term decision-making and neglect long-term sustainability. It is essential to balance economic growth with sustainable and inclusive development, resource efficiency, and environmental stewardship to address the diverse needs of societies and for the sake of future generations.