Recently, I tripped on a defective structure in Reno, fell and broke my hip. An ambulance took me to Renown Hospital, where I got great treatment from a wonderful staff and left four days later with my sainted wife Kathy driving. With me benefiting from strong pain meds and feeling relief and optimism on a sunny day, I waxed philosophical.
I noted how smooth were the streets and the travel of our car; how much I appreciated the wheel chair ride and walker to the curb; and how easy it had been to get from the walker into our roomy car; etc. Then I wondered what my experience would have been had this matter happened 100 or 200 years earlier. I had a high-tech device to lift me comfortably from where I had fallen to the ambulance, and a smooth and secure ride to the hospital, followed by efficient rapid in-processing and evaluation on a gurney in comfortable quarters. Back then, it would have required travel on a wagon or horse in the cool wind, waiting triage in a room with primitive accommodations and equipment by barely trained personnel, etc. The treatment would not have involved titanium rods, great pain-killers and other meds, diagnostic tools, etc. Talking later with a colleague, he suggested I might have died after a descending spiral, as folks sometimes did in those days.
Then I went into full Ron mode, explaining to Kathy how the difference between my actual experience and the likely ones of one to two centuries ago illustrate the real meaning and value of economic growth. First, I observed that most people’s eyes glaze over when trying to think about this subject because economic growth is about some nebulous mix of GDP aggregates, GDP per person, monetary and other financial policy, inflation, market baskets of goods and services, government spending, economies of scale and scope, personal savings rates, corporate and personal income taxes, etc. My own head sometimes hurts juggling all that.
But that obscures the real meaning, importance and human value of economic growth. When innovation and invention take place, workers, firms, consumers and the whole economy benefit from increasing productivity per working hour and per dollar of company investment. Thus, the workers and their employers produce more goods and services outputs per unit of input, and so their customers and the people as a whole are significantly enriched economically and benefited by greater human flourishing throughout the society. And we develop devices like the one used to get me from where I fell up to the ambulance, X-rays and MRIs to let doctors see just where and what the damage is, blood-pressure cuffs, medicines to avoid infection and many other wonders that had me comfortable, hopeful and grateful that day.
Invention, innovation and resulting productivity growth are the keys to all this. Invention is familiar to nearly everyone, encompassing MRI machines, new medicines, automobiles, new materials for pavement, new structural designs for bridges, and even automated looms, telecommunications electronics, etc. Innovations are just as important, including the classic development of assembly lines, use of new materials, mining at new distant inexpensive sites, transportation and logistics reconfigurations, and surgical techniques. When firms invest in inventions and innovations and workers use them, then labor hours produce more goods, services and wages; companies and their investors make higher rates of return on their investments; and consumers, all workers, firms, investors and society as a whole grow richer. That’s the essence and human value and flourishing from economic growth.
The degree to which we continually add value to production processes determines whether we have one percent per person real annual economic growth, or 2.5 percent, etc. If one percent, then human wellbeing doubles every 41 years. If 2.5 percent, then every 28 years and each generation is twice as well off as its parents. Economic growth, far from being esoteric, is a key to human happiness.
Ron Knecht is Senior Policy Fellow at Nevada Policy Research Institute.