Why growth is good - Essay Example

?Running Head: Critical Review: Why Critical Review: Why Growth is Good Critical Review: Why Growth is Good Introduction This paper is a critical review of the article Why Growth is Good. The article focuses on the recent trends and issues in the way of economic growth particularly regarding the developed countries. Slower growth rates have unfavourable effects on the socio-economic system. Because monetary gains are smaller, the affluent people struggle harder to uphold their interests. The middle class people fight irately against any supplementary taxation or job cuts. The poor people are hit even worse. Therefore, Reich (2010) advocates more sensible economic policies to be implemented. An analytical evaluation of this text would suggest that Reich (2010) has expressed very practical viewpoints in relation to the present economic slowdown. A lucid language and smooth flow of thought processes make the text remarkable. Critique Claims and Arguments In the beginning of the article Why Growth is Good, the author frankly asserts, “Economic growth is slowing in the United States. It’s also slowing in Japan, France, Britain, Italy, Spain, and Canada. It’s even slowing in China.” (Reich, 2010) Apparently, this claim has not been statistically interpreted or supported in the article which may be regarded as a significant drawback. Yet, the claim is simple and has a well defined argument. We can see in our day-to-day experience that in the developed countries, demands are lowering, unemployment is increasing and no significant industrial start-up is taking place. The next important claim is that Gross Domestic Product (GDP) is a very important standard in measuring the socio-economic situation of a country. Unfortunately, the writer has not provided with a contextual definition of GDP anywhere in the article. Also, the writer is apparently not much worried about the controversies regarding GDP, while academicians are debating over it more and more. However, Reich (2010) forthrightly writes, “Nations with high and growing GDPs have more overall capacity; those with low or slowing GDPs have less.” This argument reflects that the author tries to establish a proportional relationship between the GDP of a country and its overall prosperity. Further, Reich (2010) has put significant blame on the United States for today’s gloomy economic situation. The author argues, “The United States has the largest capacity in the world. But relative to other rich nations it chooses to devote a larger proportion of that capacity to consumer goods, health care, and the military.” (Reich, 2010) In this way, the author tries to focus at the irresponsible behaviour of the United States and indirectly regrets that it did not take up a proactive role in handling the global economic slowdown. Evidences The author avoids providing statistical evidences in favour of his claims in the article. However, circumstantial evidences have been put forward. In the context of slowing growth, Reich writes that if the governments continue to hack away at their fiscal policies and budgets while the consumers are becoming more watchful about their expenses, “global demand will shrink to the point where a worldwide dip is inevitable” (Reich, 2010). This tendency of the governments have sent shockwaves across the corporate sector, who are now trying to downsize their organisations leading to job cuts (Kumar and Pranjal, 2009). Similarly, Howitt (2007, p. 10) points out that “the speedup of productivity growth since the mid-1990s” is gradually slowing down. Nell (1998) has focussed on the interfaces between growth driven economic models and social economic theories. His rejection to conservative economics has not found much practical implication. Unplanned chasing of profits has finally resulted into a sort of global economic slump, which was gradually becoming evident since the 1960s with plummeting trends of growth. Figure – 1: Falling GDP growth rates in major developed countries Source: Mullan, 2012 The evidence of falling GDP growth rates combined with economic slump shows that the Reich’s (2010) interpretation of GDP as a significant economic parameter is justified. “GDP adds together many different kinds of products into a single measure of the nature of economic activity.” (Manikiw, 2011, p. 198) Further, literature research testifies the importance of GDP all the more. “White House and Federal Reserve officers view the GDP as a report card on how well or poorly their own policies are working.” (Baumohl, 2008, p. 107) Furthermore, literature research provides evidence of Reich’s claim that the developed countries, especially the United States, did not do enough to keep the global economic conditions vibrant. Mullan (2012) rightly writes, “For most countries today, including Britain and the US, a focus on debt in its own terms is misplaced because it is looking too much at one economic consequence rather than the cause of the problem: anaemic economic growth.” UK, which is a close economic ally of the United States, clearly shows irresponsible debt policies (see Figure – 2). The United States is also incurring very high debts throughout the last decade in a similar statistical pattern (see Figure – 3). Figure – 2: UK national debt Source: Mullan, 2012 Figure – 3: US national debt Source: Hall, 2008 Conclusions and Justifications The shift of policies in the economic world is evident and Reich’s (2010) reasoning is highly justifiable despite there is negligence towards contextual definitions and statistical explanations. “The surge of anti-Keynesian sentiment in the realm of macroeconomic policy” (Halevi, Laibman and Nell, 1992, p. 1) has copious effects on the governmental policies. Particularly, debt policies of the governments of the Western world have maintained flow of funds in the public sector. Therefrom, this money is being redirected to the corporate sector in the form of tax exemption, privatisation and bad debts. Consequently, despite high national debt, general public is becoming poorer. This is leading to shrinking consumption and hence slows growth rates. Therefore, Reich’s perspective should be justified in a more general sense. The reputed policy making organisations like Consumers’ Association of Penang (CAP), Third World Network (TWN) and South Centre (2011) have also taken the spectre of slowing growth seriously. Most of the contemporary economic experts like Mullan (2012), Manikiw (2011), Baumohl (2008), Hall (2008), etc. would agree with Reich’s (2010) interpretation of the concept of economic growth and its slow down. Conclusion In the text critically discussed so far, the perspectives of the author are rather appealing to even an average reader due to its simple presentation. Yet, avoidance of statistical interpretations of the assumptions cannot be justified. But the overall assertion of the text would guide the reader towards a right direction to understand the present global economic slowdown. It also helps to eliminate several misconceptions regarding economic growth. List of References Baumohl, B. (2008). The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities. Upper Saddle River: FT Press. Consumers’ Association of Penang (CAP), Third World Network (TWN) and South Centre (2011). Report of the International Conference on Global Financial Turbulence: Options for Developing Countries. Geneva: International Labour Organisation. Halevi, J., Laibman, D., & Nell, E. (1992). Beyond the Steady State: Essays in the Revival of Growth Theory. London: Macmillan. Hall, E. (2008). U.S. National Debt Clock FAQ. Available: http://www.brilling.com/debt_clock/faq.html. Accessed on 17th March, 2012 Howitt, P. (2007). Innovation, Competition and Growth: A Schumpeterian Perspective on Canada's Perspective. Toronto: C.D. Howe Institute. Kumar, N., & Pranjal, B. (2009). From emotional reactions to economic slowdown: A longitudinal study of HR downsizing in organization. Advances in Management, 2, 50-69. Manikiw, N. (2011). Principles of Macroeconomics. Scarborough: Cengage Learning. Mullan, P. (2012). ESSAY: Demonising debt distracts us from what caused the public-debt crisis in the first place – the sluggishness of the productive economy. Available: http://www.spiked-online.com/index.php/site/lowgraphicsarticle/12243. Accessed on 18th March, 2012 Nell, E. (1998). The General Theory of Transformational Growth: Keynes after Sraffa. Cambridge: Cambridge University Press. Reich, R. (2010). Robert Reich (Why Growth is Good). Available: http://robertreich.org/post/968048444. Accessed on 18th March, 2012 Read More