Change the Goal

Conventional economics has no goal except one by default: indefinite growth. In nature, this is the principle of cancer. To get back to health, it is time to give the economy a more meaningful purpose.

As illustrated by a widely used contemporary textbook,¹ economics is taught as “the study of how society manages its scarce resources.” Therefore, the focus is on evaluating and monitoring production conditions. This is technically accurate but does not say anything about the goal of economic activity. It is assumed that this goal is merely producing goods and services. By default, this means growth for the sake of growth.

Since the 1950s, under the seemingly reasonable assumption that we all prefer more to less, growth has indeed been presented as the panacea for virtually all human ailments. Prosperity is supposed to provide peace through the betterment of the human condition. As Kate Raworth reminds us, psychologically speaking, “The idea of ever-growing output fits snugly with the widely used metaphor of progress being a movement forwards and upwards.”

However seductive the idea that economic growth equates to human progress might have seemed during generations, it is increasingly questioned today. Confronted with the planet’s physical limits and recycling capacities, the concept of growth needs to be refined by answering which type of growth is referred to, how it is produced, and for what.

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Most importantly, these limits remind us that, as humans, we are primarily searching for meaning, not just more stuff. We know that material and financial growth is not in and of itself a measure of happiness, political stability, or even prosperity. We also know that there might be ways to thrive as a society without destroying the world around us by erasing biodiversity and fueling climate change. But if the concept of economic growth needs to be refined to serve genuine social and economic necessities, why has that not been done earlier? To answer this question, one needs to understand how economic growth became the paradigm of contemporary economics in the first place.

In the mid-1930s, the U.S. Congress commissioned economist Simon Kuznets to devise a measuring tool for America’s national income. That came to be the Gross National Product (GNP), defined as the value of all finished goods and services produced in a country in one year by its nationals. This proved to be an extremely useful tool in monitoring the changing state of the American economy in the first years of the New Deal. It also helped convert the U.S. industry into a planned military economy during WW II by maintaining enough domestic consumption to generate further economic output.

Simon Kuznets himself, however, was well aware of the limits of the GNP as a measuring tool. The first is that the income value of all finished goods and services produced in a country does not include the enormous other economic value of goods and services produced by and for households and society at large in daily life. Corporations’ bottom line does not reflect everything about the economy. Secondly, the GNP (later labeled GDP) gives no indication of how income and consumption are effectively distributed between households. A country considered financially wealthy can yet be plagued by severe income inequality. GDP is a flow measure that only records the amount of income generated each year, and Kuznets saw that, in Kate Raworth’s words, “it needed to be complemented by a stock measure, accounting for the wealth from which it was generated, and its distribution.” This is why Simon Kuznets said himself, “The welfare of a nation can scarcely be inferred from a measure of national income.”² Overall, he was adamant that “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term… Objectives should be explicit: goals for “more” growth should specify more growth of what and for what.”³

This was not some hard-core leftist speaking but a well-known, well-respected scholar trying to remind decision-makers about the necessity of critical thinking. Unfortunately, the appeal of a single, year-to-year indicator for measuring economic progress proved too strong. It became a convenient shortcut for politicians to seemingly prove with numbers how good they are at what they are doing. As for economists, GDP purportedly offered them a single metric neatly encompassing the whole of economic activity. As a result, virtually no one followed up on Kuznet’s reservations, basically making “growth” the object of a cult.

Handed down as its own evidence from one generation of students to the next, the preeminence of GDP has no methodological legitimacy but a strong psychological appeal. From a rational standpoint, as the systems thinker Donella Meadows put it in her groundbreaking book The Limits to Growth in 1972,⁴ “Growth is one of the stupidest purposes ever invented by any culture.” Put simply, it would come to no one’s mind to ask their physician to help them weigh three tons. We intuitively know that no human physiology would support such a burden. Besides, the obvious question remains: What for? And yet, this madman attitude is precisely the one we have toward the economy and the planet that supports our constant race for more.

1. Mankiw, N. Gregory, Principles of Economics
2. Kuznets, S. (1934) National Income 1929–1932, 73rd U.S. Congress, 2nd session, Senate document no. 124
3. (Kuznets, S. (1962) How to judge quality, in Croly, H. (ed.), The New Republic, 147: 16, p. 29.)
4. See A Synopsis: Limits to Growth: The 30-Year Update