Growth doesn't equal Prosperity Question

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DavidLachman's picture
Status: Silver Member (Offline)
Joined: Jul 4 2008
Posts: 153
Growth doesn't equal Prosperity Question

There is a metaphor in the Growth doesn't equal
Prosperity section of the Crash Course that doesn't make sense to me.  In the metaphor there is a
family that represents the country or the economy and they make $40K a
year, they get a raise and they can choose to spend it on having a
child (growth), or spend it on themselves (prosperity).  The first few
times I watched the CC this did not bother me, but as I watch it with
my wife in preparation for the Rowe Conference, it seems to me that an
economist would call both spending the raise on having a baby or spending money on yourself as both economic growth and prosperity. 
The family spent the $4K raise, it doesn't matter how they spent it;
from my understanding of the economist's point of view if the GDP is increased, that is both
growth, and prosperity.

A better example might be that the breadwinner was offered a choice
between a raise (to spend on whatever) and being able to go home at 3pm
instead of 5pm every day.  Now this is really a choice between
prosperity (using your time to be with your family while keeping your
income constant ie GDP constant) and growth (more money moving around
the economy, i.e. an increase in GDP).

To make this even clearer by counter example, say a family member
died and they spend the $4K on a funeral.  From the economist's point
of view that is growth and prosperity as GDP grew. 

This issue
may rely too much on GDP as a measure for anything useful, for an
economist a car crash is growth.  If we eliminated car crashes then
there would be less work for mechanics and doctors and insurance
companies so the economy would shrink and the economist would think the
country was worse off because the GDP was smaller.  Heck, if we
magically eliminated car crashes that alone might put an economy that
was barely growing into a recession.

Perhaps I don't have a clear idea of what an economist would define
as prosperity.  If it is per capita GDP then CC example would make
more sense, but the focus of growth for economists is economic growth,
not population growth (the ponzi schemes aside) so that is not quite as
elegant a match for what the crash course was trying to teach at that point.

Thanks to anyone who can shed some light on this for me!  Or another metaphor for the same thing!

RussB's picture
Status: Silver Member (Offline)
Joined: Dec 9 2008
Posts: 101
Re: Growth doesn't equal Prosperity Question


I imagine the point is that, given how family planning (i.e. having fewer children) is a main criterion for a populace lifting itself out of poverty, we can generally posit a function of: "growth" in # of children (beyond some baseline - one? two? or whatever) is inversely proportional to per capita "prosperity" of each family member.

Of course this is reductionist, and elides all sorts of non-quantifiable benefits some may see in having a large family (not to mention how some think that, if energy descent requires us to do alot more manual labor for ourselves, the old ideal of it being better to have more "hands" may come back).

I think it's just an example, not meant to be scrutinized too closely. After all, your example of more time off vs. a raise might not appeal to everyone either. What if the guy doesn't want more time with his family, but would rather have the extra $ to spend on his mistress? :) 

As for what economists would say about it, although I can't speak for Chris, I imagine that would be precisely his point - it's economists who promulgate this flat-earth equation of growth with prosperity through the fraudulent GDP measure.

I, at any rate, believe true prosperity cannot be quantified except in the most contingent, metaphorical ways. That's how I took that part of the Crash Course.  

DavidLachman's picture
Status: Silver Member (Offline)
Joined: Jul 4 2008
Posts: 153
Re: Growth doesn't equal Prosperity Question

Thanks for your comment Russ.  I suspect you are right that scrutinizing the example was not useful in this case.  Quatifying prosperity is probably not possible, but I think defining might not be either.  If there is someone out there who knows how economist would define these concepts I would be interested especially if there is a way to do it that does not use spending dollars as the measure.  Does anyone with a deeper knowledge of the Austrian school of economics have an idea what they say about prosperity in a context of no growth or declining GDP?  Is prosperity a philisophical question more than an economic one?

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