Macroeconomics: Growth and Sustainability Notes

Key Concepts in Macroeconomics: Growth and Sustainability

• Long-term economic trends: Focus on growth beyond mere GDP metrics, emphasizing growth's significance in quality of life and well-being.

• Growth Types:

  • Extensive Growth: Increase in total GDP.
  • Intensive Growth: Increase in GDP per capita (GDP divided by the population).
  • Intensive growth is a better indicator of improvement in living standards.

• Impact of Growth Rates:

  • Small differences in growth rates can lead to significant income disparities over time.
  • For example, a growth rate of:
  • 2% leads to a 7-fold increase in a century.
  • 3% leads to a 20-fold increase.
  • 5% results in a 150-fold increase.
  • The UK has seen a trend growth rate of about 2.5% for real GDP.

• Historical Context:

  • The industrial revolution fundamentally transformed living standards in the Western world.
  • GDP per capita provides insights into economic well-being over time.

• The Great Escape:

  • Concept from Angus Deaton discussing improvements in health and wealth over time, not merely economic growth.
  • Advances in health technology and communication have significantly raised life expectancy and efficiency.

• Classical Growth Theory:

  • Founded by Malthus, emphasizing limitations due to fixed resources (like land) and diminishing returns.
  • Malthus believed that population growth would always outstrip food production, leading to perpetual poverty.

• Neoclassical Model:

  • Introduces the production function Y = A(K,L) where:
  • Y = Output, A = Technological level, K = Capital, L = Labor.
  • Demonstrates diminishing returns to capital but allows for sustained economic growth through technological progress.
  • Population growth is exogenous (not influenced by the model).

• The Productivity Puzzle:

  • Recent evidence suggests worldwide productivity growth has slowed, especially post-2008 financial crisis.
  • Potential factors include:
  • Decreased investment.
  • Employment shifts towards low-productivity sectors.
  • Decreased job mobility and business dynamism.

• Environmental Sustainability Challenges:

  • Continuous economic growth raises concerns regarding natural resource depletion and environmental degradation.
  • There is a debate about whether technological developments can mitigate these issues or lead to sustainable growth.

• Climate Change and Population Growth:

  • Projections indicate population stabilization around 11 billion by 2100, potentially alleviating some environmental pressures.
  • However, significant climate change and biodiversity loss issues remain crucial for future sustainability.

• Carbon Emissions and Global Warming:

  • The Paris Agreement aims to limit global temperature rise, but actual progress is uncertain due to political and social dynamics.
  • Evidence of climate change continues to mount, stressing the need for urgent action.

• Biodiversity Crisis:

  • Estimates indicate species are dying at unprecedented rates due to human activity.
  • Protecting biodiversity is essential for ecological resilience, food security, and economic stability.

• Long-term Outlook:

  • Economic models predict convergence towards similar income levels, but significant regional disparities persist.
  • Future growth must balance economic goals with environmental sustainability to ensure resource availability for coming generations.

• Importance of Policy and Global Cooperation:

  • Policymakers face the challenge of implementing growth strategies that account for environmental impacts.
  • The transition towards sustainability requires new approaches beyond traditional economic metrics like GDP.