economic growth

Compare daily life in a country today with life there a century ago. People live longer, eat more reliably, travel farther and use machines their great-grandparents could not have dreamed of. That long climb in how much an economy can produce, and therefore in average material living standards, is economic growth. It is one of the most consequential facts in all of human history.

Economic growth is usually measured as the percentage increase in real GDP over a year, and growth in living standards is measured by real GDP per capita, which strips out both rising prices and a rising population. If real GDP rises from 100 to 103 in a year, the growth rate is (103 minus 100) divided by 100, which is 3 percent. Economists separate short-run growth, recovering toward the economy's potential after a slump, from long-run growth, the slow expansion of that potential itself as the economy gains more workers, more capital, and better technology. It is long-run growth that lifts whole generations.

Growth matters enormously because, compounded over decades, small differences in the growth rate produce vast differences in prosperity. A country growing at 2 percent a year doubles its income in about 35 years; one growing at 7 percent doubles it in only 10. But growth is not the same as wellbeing, and it has costs as well as benefits: it can strain the environment, and it says nothing about who gets the gains. The honest view is that sustained growth has lifted billions out of poverty and is hugely valuable, while not being the only thing that matters.