economic growth and human flourishing

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The Policy Circlehttps://www.thepolicycircle.org/brief/economic-growth/ 1/16
KEY FACTS
Over the past two hundred and fifty years or so, economic growth has skyrocketed, especially where free enterprise has been allowed to flourish. What fundamentally changed was the attitude people had about business and entrepreneurship:
Decreased economic productivity means fewer goods and services produced overall but, more importantly, it represents a human tragedy because fewer people are working. Most people derive happiness and meaning from their work.
While you may read about the new jobs being created in the monthly jobs report, it is important to remember that the number of people who have dropped out of the labor force is at a record high, representing over 92
TABLE OF CONTENTS
Principles of Reform
Thought Leaders in Economic Growth
Questions for Discussion
goods and services economies produce – has
exploded over the last two and a half
centuries.Thanks to the free enterprise
system, millions have been lifted out of poverty. This
dramatic growth has afforded billions of people lives
of unprecedented opportunity, health, and happiness.
In this fascinating video
Rosling plot the evolution of 200 countries over 200
years in just 4 minutes. You’ll watch how the U.S. led
the way in increased life expectancy and economic
growth, and how the rest of the world is following us.
In this quirky whiteboard video
(https://www.youtube.com/watch?
ECONOMIC GROWTH AND HUMAN FLOURISHING
Economic growth drives our living standards. It drives innovations that make our lives better, keep our
children healthier, and create opportunities to lift everyone. But what is economic growth? What
policies affect growth?
of an incentive to invest in the United States
rather than abroad, and more investment will
lead to more growth.
Brooks, president of the American Enterprise
Institute, outlines a compelling moral case for
capitalism and explains how economic growth is
pulling billions of people out of poverty.
This animated short video
individuals and society alike benefit from economic growth.
Throughout most of human history, people barely scraped by. As the eminent intellectual, Deirdre
McCloskey explains in her seminal book Bourgeois Dignity
(http://press.uchicago.edu/Misc/Chicago/556659.html) (2010) that the average person anywhere in the
world in 1800 lived on the equivalent of $3 per day — a subsistence level of poverty that is now found only
in the developing world.  It had been that way as long as anyone could remember and no one expected it to
change. Local economies could barely support the basic needs of their citizens, and the human condition
was abysmal, rife with sickness and starvation, and those who wanted to improve their lot in life had very
few options. Wealth was concentrated among a tiny few, mostly those with political power, and secured by
force.
But then something truly revolutionary happened. Beginning in England and the Netherlands, and
eventually in America, average people began to get richer, and their situations improved dramatically.
Over the past two hundred and fifty years or so, economic growth has skyrocketed, especially where free
enterprise has been allowed to flourish. As you can see in the chart below, this miraculous rise takes off
shortly after the onset of the Industrial Revolution and the birth of the United States.
Economic growth over the past 1,000 years
5/6/2015 The Policy Circle
western-civilization-and-how-it-happened/))
As McCloskey points out in her book, the average Frenchman in 2010 consumed about $100 per day, the
average American about $120 per day. This represents on average a sixteen-fold increase in wealth since
1800. And even though the Chinese consume only about $13 per day, that represents a four-fold increase
since the Cultural Revolution in 1978 — an astonishing growth rate by any standard. She further explains
how, of the 6.7 billion people populating the world in 2010, 5.7 billion were doing extremely well by
historical standards.
This unprecedented economic growth fueled by free-market capitalism represents the largest and most
successful anti-poverty program in human history. But why did it happen? There are certainly many
economic factors that contributed to this remarkable transformation, but according to McCloskey
(http://www.nationalreview.com/article/253676/needed-economics-grownups-interview), what
fundamentally changed was the attitude people had about business and entrepreneurship:
“What changed was the sociology. That is, what changed was the attitude of the rest of the society toward
businesspeople, and with that new attitude came a change in government policy. It was suddenly alright —
most clearly in the most bourgeois country on earth, the U.S.A. — to get rich and to innovate.”
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 4/16
In the United States today, though, growth seems to be slowing. During the 2000’s, economic growth was
slower than in previous decades and the recovery from the crash of 2008-09 has been slower than
previous recoveries. Analysts have begun to talk about “secular stagnation”: The idea that our economy’s
growth potential going forward is lower than our past growth rates. If that’s right, we can expect living
standards to rise more slowly—and political conflict over the distribution of resources to increase.
Facts to Know Economic growth in the U.S. has been gradually declining and wages have stagnated for many Americans.
The economy has rebounded since the crisis of 2008-09, but the recovery has been weak and wages for
most people have not been rising. Median household income in 2013 is lower than it was in 1989, and the
long-term unemployment rate remains dangerously high at 1.86%, or 2.9 million
(http://www.bls.gov/news.release/empsit.nr0.htm) people. The total unemployment rate is 5.8%, or 9
million people.
Decreased economic productivity means fewer goods and services produced overall but, more
importantly, it represents a human tragedy
(http://www.nytimes.com/2012/05/13/opinion/sunday/the-human-disaster-of-unemployment.html?
pagewanted=all&_r=0) because fewer people are working. Most people derive happiness and meaning
from their work. Work allows them to support themselves and their families, giving them independence
and an outlet for productive activity. Unemployment is correlated with increased rates of drug and alcohol
abuse (http://money.cnn.com/2013/11/26/news/economy/drugs-unemployed/), divorce, and even
suicide (http://www.pbs.org/newshour/making-sense/suicide-and-the-older-unemploy/).  The
emotional strain associated with job loss is often tremendous, as people lose much of their identity when
they lose their jobs. 
Effects of the sluggish economy on individuals:
Families, on average, have had no gain in income for six years,
(http://www.bloombergview.com/articles/2014-11-06/one-chart-explains-democrats-loss)
resulting in financial stress and decreased consumption.  A rising cost of living amid stagnant wages
has a lot to do with these worries and pressures.
Young people have an unemployment rate that is more than double the national rate, at 13% for
those under the age of 25.
The Middle Class is demoralized. As Pete Wehner reminds us (http://ygnetwork.org/wp-
content/uploads/2014/05/Chapter-1-Introduction-The-Problem.pdf), “A Pew Research Center
analysis of government data . . .  found that since 2000, the middle class has shrunk in size, [and]
fallen backward in income and wealth . . . An overwhelming majority of self-described middle-class
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 5/16
adults (85 percent) said it is more difficult now than it was a decade ago for middle-class people to
maintain their standard of living.” Longer working hours combined with stagnant wages cause many
to fear that they could fall out of the middle class altogether. (See median household income graph
in KEY METRICS TO KNOW section.)
The poor are really suffering. The average income of the bottom fifth of earners has fallen 16%
since 1999, compared to 2% for the richest fifth (http://fivethirtyeight.com/datalab/five-years-
of-recovery-havent-boosted-the-median-household-income/). 
Effects of the sluggish economy on civil society:
Business: When companies face weak economic growth, they do less hiring, leading to increases in
the unemployment rate. They also have fewer opportunities to grow.  Banks are reluctant to lend
money, and many private investors are too. Companies that are afraid to make capital investments
in the U.S. often focus their resources on emerging markets — those economies around the world
that are growing at a faster rate.  And when times are tough on consumers, businesses that could
otherwise succeed go bankrupt or don’t even get off the ground.
Non-profits: Surprisingly, charitable giving hit an all-time high in 2013
(http://www.nbcnews.com/business/economy/charitable-giving-hits-record-high-thanks-
wealthy-n132496).  This increase was driven mostly by very wealthy individual donors who are
benefitting the most from our economic recovery.
Schools: Philanthropic giving to education increased in 2013.  But tighter budgets
have meant many state and local governments have had difficulty funding
(http://www.usatoday.com/story/money/business/2014/11/02/24-7-wall-st-
commitments.
Religious groups: Giving to religious groups has declined overall, although they still
receive the biggest share of total giving, with 31 percent of total giving in 2013.
Costs to the taxpayer:
Almost everyone believes the government has an obligation to provide a safety net for those in need –
including those who need temporary assistance due to economic hardship or health problems. But it is
important that this net be carefully designed so as not to trap people in dependency.  Rep. Paul Ryan
recently issued an important report (http://budget.house.gov/waronpoverty/) that shows that our
byzantine anti-poverty system is anything but that well-designed safety net.
Unemployment insurance: A weak economy has meant elevated numbers of people receiving
unemployment benefits, and repeatedly led Congress and states to lengthen time limits for receipt
of those benefits.
https://www.thepolicycircle.org/brief/economic-growth/ 6/16
Welfare payments: During the recession the number of people on Temporary Assistance for Needy
Families or TANF (the main welfare program in the U.S.) and especially on food stamps
(http://www.heritage.org/~/media/images/reports/2012/07/b2708/bfoodstampreform2012chart1.ashx?
w=500&h=636&as=1) has increased and remained higher than it was beforehand.
Disability Insurance: The rise in disability applications (Social Security Disability Insurance or SSDI)
closely tracks the rise in the unemployment rate.  There is no reason these two things should
correlate: The modern workplace is safer, healthcare is better, and there are more flexible jobs than
ever before.  It would seem this would lead to a decrease in disability claims.  However, there is
strong evidence that workers discouraged by the job market are claiming disability status as an
alternative to looking for work. At the end of 2011, there were 10.6 million
(http://online.wsj.com/news/articles/SB10001424052970204296804577121392750460030?
wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052970204296804577121392750460030.html)
Americans collecting SSDI, up from 7.2 million in 2002. The share of the U.S. population receiving
SSDI benefits has risen rapidly (http://www.nber.org/bah/fall06/w12436.html) over the past two
decades, from 2.2 percent of adults age 25 to 64 in 1985 to 4.1 percent in 2005.  Some state
governments also contribute to the increase in disability payments, preferring to lighten their state-
funded welfare rolls by dumping “eligible” individuals onto the federally-funded SSDI program.
How is a nation’s economy measured?
Gross domestic product (GDP) is defined as “a measure of economic activity in a country. It is
calculated by adding the total value of a country’s annual output of goods and services.” (Source:
Economics A-Z, The Economist (http://www.economist.com/economics-a-to-z/g#node-21529906))
GDP per person (2013, in U.S. dollars)
Canada: $51,958
China: $6,807
France: $41,421
Germany: $45,085
India: $1,499
order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=desc))
Real GDP growth in the US
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(http://www.whitehouse.gov/blog/2014/04/30/advance-estimate-gdp-first-quarter-2014)
Decade Average Annual Growth Rate (%)
1960-1969 3.1
1970-1979 2.2
1980-1989 2.1
1990-1999 1.9
2000-2009 0.7
Taxes:
https://www.thepolicycircle.org/brief/economic-growth/ 8/16
been increasing.  As of 2013, the top marginal rate in 2014
(http://taxfoundation.org/article/2014-tax-brackets) is 39.6%, which affects taxpayers with an
adjusted gross income of $406,751 ($457,601 for couples).
The US has the second highest effective corporate tax rate in the developed world at 27.9%,
behind only New Zealand, according to the World Bank and International Finance Commision
(http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Special-
Debt: Current US Debt is almost $18 Trillion
Median Household Income is the dollar amount that divides the income distribution into two equal
parts, so that half of households have incomes above that amount, and the other half have incomes
below that amount.
As illustrated in the chart below, the income of the median U.S. household was $51,900 in 2013. “That’s
essentially unchanged from 2012, after adjusting for inflation, and is 8 percent lower than in 2007, before
the recession began. Median income hasn’t shown a statistically significant increase since the recession
ended in 2009 . . . [this] makes clear how little progress the American middle class has made — not just over
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 9/16
the past few years, but over recent decades. Median household income was lower in 2013 than in 1989
and is 8.7 percent below its 1999 peak.” (Source: FiveThirtyEight (http://fivethirtyeight.com/datalab/five-
years-of-recovery-havent-boosted-the-median-household-income/))
NOTE: a lot of great data about the unemployment rate, but is it too academic; what one metric is the most
important?]
The long-term unemployment rate takes account of people who want to work, but can’t find a job.
The measure includes active jobseekers who haven’t held a job in over six months. As of October
2014, there are 2.9 million (http://www.bls.gov/news.release/pdf/empsit.pdf) individuals in this
category, accounting for 32% of the unemployed. (It is important to remember that many of these
jobseekers give up and end up falling out of the job market altogether.  And when people drop out of
the labor force, it makes the unemployment rate look better.)
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 10/16
The unemployment rate takes into account those individuals who want to work, but haven’t found a
job. (If someone is out of a job but is not actively searching for one, they are not included in the
unemployment rate.)  Economists generally assume that the lowest sustainable unemployment rate
is approximately 5.5%.  As of October 2014, the unemployment rate is 5.8%
(http://data.bls.gov/timeseries/LNS14000000), representing 9 million unemployed people.
Economists also pay attention to the number of persons employed part time for economic reasons
(sometimes referred to as involuntary part-time workers).  These are workers who would have
preferred full-time employment but were instead working part time because their hours had been
cut back or because they were unable to find a full-time job.  There were 7 million
(http://www.bls.gov/news.release/pdf/empsit.pdf) of these workers in October 2014.
There are 2.2 million marginally attached workers, people who want to work  and have looked for
work in the past year, but are not counted in the unemployment rate because they have not looked
for work in the previous four weeks (often because of family responsibilities or school attendance).
 However, this number also includes 770,000 (http://www.bls.gov/news.release/empsit.nr0.htm)
discouraged workers, who have looked for work in the last year but have given up because they
believe no jobs are available for them.  The number of discouraged workers has remained relatively
steady for the past year. While these discouraged workers do not show up directly in the
unemployment rate, they have an effect on another indicator of the strength of the labor market:
the employment-to-population ratio, which remains well below pre-recession levels.  The graph
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 11/16
below shows the percentage of people who are working (but not in the military).  As you can see, the
labor market is markedly worse than it was a decade ago.
The labor force participation rate measures the active members of the economy–those who are
working and those who are actively looking for work. The labor force participation rate is currently
at a 36 year low (http://www.businessinsider.com/labor-force-participation-rate-september-
2014-2014-10). So while you may read about the new jobs being created in the monthly jobs
report, it is important to remember that the number of people who have dropped out of the labor
force is at a record high, representing over 92 million people.
5/6/2015 The Policy Circle
for-a-falling-unemployment-rate/)
What Role Should Government Play? Contemporary liberals tend to place a higher emphasis on economic equality than economic growth, and
thus to be more interested in redistributing income from the rich to the poor than in trying to make the
economy larger. They are less likely to emphasize, as well, the role of initiative in making individuals and
societies better off. And they think that experts are capable of identifying promising industries and
companies and encouraging them, often to ill effect. (Tax breaks for “clean energy” are a good example of
this.)
Conservatives by contrast tend to think that the trial-and-error process of bringing new products and
companies to market is more likely to yield progress; that no one person or group of experts is capable of
planning an economy’s development; and that it makes more sense to make sure that people have the
incentive and opportunity to better themselves.
These differing assumptions about human nature lead to divergent policy prescriptions.
Here are some videos:
Learn Liberty – The Surprising Answer for How to Handle The Next Recession
(http://www.learnliberty.org/videos/surprising-answer-how-handle-next-recession/)
Learn Liberty – Adam Smith and the Follies of Central Planning
(http://www.learnliberty.org/videos/adam-smith-and-follies-central-planning/)
Story of the Pencil (https://www.youtube.com/watch?v=IYO3tOqDISE)
Principles of Reform The Rule of Law: Respect for the rule of law–especially property rights–is a critical precondition for
economic growth. When governments do not secure property rights, extra-legal economic activity
(the black market) thrives, and economies stagnate and decline. Growth depends on government
actions being as predictable and impartial as possible.  
Competition and Openness: Governments often encourage the formation of industry cartels allied
with them, but competition does more to spur innovation and promote consumer welfare–not to
mention to keep corruption in check. To foster economic growth the government be open to having
new entrants bring competition to markets (think of Uber in transportation or charter schools in
education).
Government Restraint:  The more of a society’s resources are allocated by the government, the less
the market can direct to their most productive uses. Excessive government spending, taxes, and
regulation stifle growth and should be kept limited.
For more on these principles and the value they create see The Index of Economic Freedom.
(http://www.heritage.org/index/book/chapter-2)
Engage: Solutions for your Elected Representatives Cutting taxes on business would give companies—both American and foreign—more of an incentive to
invest in the United States rather than abroad, and more investment will lead to more growth.
A more educated and specialized workforce—achieved by raising academic standards and creating more
opportunities for learning—would increase the productivity of the workforce and over time enlarge the
economy.
Shifting immigration policy to bring in more high-skilled workers would have the same effect.
PRIVATE SECTOR ROLE: In each of these cases it’s up to individuals and businesses to make the
most of their opportunities. Entrepreneurs and investors take risks to expand their businesses and
hire more workers–even creating new fields of work that had not existed before.  The private sector
(for-profit companies) is responsible for roughly 84% of all jobs in the U.S. These businesses are the
real drivers of economic growth, adding to society’s wealth rather than merely transferring it
from one group to another as the government does. Nonprofits can play a role too, for example in
providing educational services and advocating for the removal of obstacles to growth.
5/6/2015 The Policy Circle
GOVERNMENT ROLE: Supporters of the free-market believe that the government shouldn’t
directly manage or direct the economy but create the conditions for the private sector to succeed
and for more people to be able to participate in markets.  They also tend to think that for structural
reasons–for example the lack of competitive discipline–government often becomes unaccountable
and ineffective.  One measure of this is that our government cannot even account for the number
of agencies and programs it runs (http://dailycaller.com/2013/05/03/the-government-has-no-
idea-how-many-agencies-it-has/).
Thought Leaders in Economic Growth Milton Friedman (http://www.econlib.org/library/Enc/bios/Friedman.html) was perhaps the most well-
known advocate of free markets in the last century. A Nobel prize-winning economist, he also wrote for a
general audience. Friedman radically changed how the economics profession viewed the Great Depression
of the 1930s and the inflation of the 1970s, in both cases showing that mistakes by the central bank were
larger factors than market failures.
“The world runs on individuals pursuing their self-interests. The great achievements of civilization
have not come from government bureaus. Einstein didn’t construct his theory under order from a,
from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way.” –Milton
Friedman
and-follies-central-planning/)
The Role of Government in Society (https://www.youtube.com/watch?v=LucOUSpTB3Y)
Thomas Sowell (http://en.wikipedia.org/wiki/Thomas_Sowell) is an extremely influential contemporary
supply-side economist who also writes articles (http://townhall.com/columnists/thomassowell/) for a
popular audience. He is also well known for his book, A Conflict of Visions, which provides a philosophical
treatment of modern politics.
“Competition does a much more effective job than government at protecting consumers.” –Thomas
Sowell, Compassion Versus Guilt and Other Essays
Hernando de Soto (http://www.ild.org.pe/index.php/es/about-us) is a Peruvian economist who is known
for his work on the informal economy. He argues that sustainable economic growth requires that all
individuals have easy access to a strong legal system that protects their property rights. He argues that
respect for the rule of law is critical for developing communities to create opportunity and prosperity. His
book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, is an excellent
primer on why private property rights are so critical.
5/6/2015 The Policy Circle
https://www.thepolicycircle.org/brief/economic-growth/ 15/16
To learn more about policies that could encourage economic growth, explore the links below:
In this touching video (https://www.youtube.com/watch?v=28PJPSms_xU) by the Values &
Capitalism project, learn how an American toy company is fighting poverty in Honduras by giving
their workers the means to help themselves. 
The CATO Institute, a libertarian think tank, has organized a collection of free-market economists
and authors in this online forum (http://www.cato.org/conference-forum/reviving-economic-
growth) to address the question, “If you could wave a magic wand and make one or two policy or
institutional changes to brighten the U.S. economy’s long-term growth prospects, what would you change
and why?” To see their answers, click on their photos.
In May of 2014, YG Network released a collection of important essays
(http://ygnetwork.org/roomtogrow/) that outline creative conservative approaches to solving the
economic problems faced by the middle class:
While the Left seeks to impose order on the chaos and complexity of a free society through the use of centralized
government programs, the Right seeks to protect, defend, and revitalize the space between individuals and the
state. This is the space in which families, communities, civic and religious institutions, and private businesses are
constantly finding new solutions to new challenges, and it is the space that is most threatened by the growth of
government.
For conservatives, the role of government is to enable and sustain markets and other arenas of common action,
ensuring competition, aiding the development of physical infrastructure and human capital, protecting consumers
and citizens, and allowing the poor and vulnerable to participate along with everyone else. In practice, this means
avoiding centralized programs that impose wholesale solutions from above in favor of those that enable a bottom-
up, incremental, continuous learning process.
The conservative reform agenda aims to replace a failing liberal welfare state with a lean and responsive 21st-
century government worthy of a free, diverse, and innovative society. The following chapters are an attempt to
show what such a government might look like, and how it could help the poor to rise, lift burdens off the shoulders

–Excerpt from Room to Grow: Conservative Reforms for a Limited Government and a Thriving Middle Class.
Chapter summaries can be downloaded here (http://ygnetwork.org/roomtogrow/).
Additional sources of U.S. Economic Data:
Bureau of Economic Analysis (http://www.bea.gov/), U.S. Department of Commerce
Bureau of Labor Statistics (http://www.bls.gov), U.S. Department of Labor
5/6/2015 The Policy Circle
collectionCode=ECONI), Prepared by President’s Council of Economic Advisors, Prepared for
Congressional Joint Economic Committee
Census Bureau, Economic Statistics (http://www.census.gov/econ), U.S Department of Commerce
Questions for Discussion How high of a priority should raising economic growth be?
Is America still capable of returning to the higher growth rates of its past?
What are the most important steps to take to boost economic growth?
What are the biggest obstacles that government puts in the way of economic growth?
State Information