Neoclassical economics is based on a fundamental concept that the economy is expected to grow indefinitely. One way in which this is expected is through developments in technology and thus continued efficiency gains made in the use of capital, labour and natural resources.
There are generally speaking two types of neoclassical economy. One is based on a command economy, in which resources are allocated by a central planning authority and major industries and resources and both owned and controlled by the state. The second is based on a market economy, in which resources are allocated through the mechanism of price and resources and primarily owned and controlled by private companies and individuals.
The market economy has developed and globalized over the last 40 years and is now widely accepted as the foundation of virtually all economic activity in the world today. It is also that the market economy is superior to other forms of economic organisation because of its superior efficiency. As such, economic growth has become the primary objective of almost every government.
Is economic growth good or bad?
It is widely believed that increased economic growth leads to an increased standard of living and that it can potentially eliminate poverty; this is based on the ‘trickle down effect’.
But it is also increasingly now argued that chasing economic growth as a primary goal is also having negative impacts on both people and the environment. Aldred (2010) argues that there are limitations attached to a dogmatic focus on economic growth and that government policies should focus on outcomes, such as improved quality of life, human well-being and happiness, which do not necessarily result from increased consumption.
Aldred (2010) also questions the increasing monetisation of many aspects of human life, which erodes the intrinsic values that people hold, such as those arising from moral convictions. For example, viewing climate change mitigation as a purely economic decision amenable to cost-benefit analysis, when mitigation should be viewed as an ethical decision that has major implications for future generations.
References and further reading
- Hardwick, P., Langmead, J. and Khan, B. 1999. An Introduction to Modern Economics, Pearson Education, Harlow.
- Aldred, J. 2010. The Skeptical Economist: Revealing the Ethics Inside Economics, Earthscan, London