“Growth: A Reckoning” by Daniel Susskind: book review by former RBA governor Guy Debelle on the subject of economic growth

Why does the economy grow? How does the economy grow? Should the economy grow? How do we even know how fast the economy is growing?

If superstition triumphs over science, suspicion over reason, and prejudice over expertise, then the future of growth is in jeopardy.. Timely, because a number of the critical factors that Susskind argues underpin growth are currently under threat. This is most apparent in the US in the form of Donald Trump, where science is being supplanted by superstition, reason by assertion, experience by prejudice.

Even through the Industrial Revolution, not much thought was given to economic growth as a concept. Susskind documents how the great classical economists such as Adam Smith and John Stuart Mill did not write about growth; economic progress yes, economic growth no. One of the reasons for that is that there was no measurement of economic growth until gross domestic product was conceived as a measure of economic activity.GDP was conceived in the 1930s.

All of these challenges around the measurement of GDP highlight the futility of focusing on quarterly or even annual GDP growth rates with any degree of precision. The fixation on a quarter point of growth here or there is a pointless exercise, with. Small differences in GDP forecasts are inconsequential and much less than the measurement error of GDP itself. It makes for good clickbait but adds no insight.Once we have a measure of GDP, we can then set about analysing economic growth.

Once we accept the key role of new ideas in underpinning economic growth, Susskind argues convincingly that there is infinite potential for ideas. Ideas have the benefit of being non-rivalrous and cumulative. Ideas build on ideas: standing on the shoulders of giants, as Newton famously said. We are seeing similar outcomes in addressing climate change encouraged by policy such as the Inflation Reduction Act in the US, though in a much less co-ordinated and focused manner, notwithstanding the threat to health and living standards that climate change poses.

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