The Cost Of Economic Growth

I’ve often wondered about this topic and have never found a paper to explain it so well.

Abstract (via Stanford)

The benefits of economic growth are widely touted in the literature. But what about the costs? Pollution, nuclear accidents, global warming, the rapid global transmission of disease, and bioengineered viruses are just some of the dangers created by technological change. How should these be weighed against the benefits, and in particular, how does the recognition of these costs affect the theory of economic growth? This paper shows that taking these costs into account has firstorder consequences. Under standard preferences, the value of life may rise faster than consumption, leading society to value safety over economic growth. As a result, the optimal rate of growthmay be substantially lower than what is feasible, in some cases falling all the way to zero.

Introduction (via Stanford)

Technologies need not pose risks to the existence of humanity in order to have costs worth considering. New technologies come with risks as well as benefits. A new pesticide may turn out to be harmful to children. New drugs may have unforeseen side effects. Marie Curie’s discovery of the new element radium led to many uses of the glow-in-the-dark material, including a medicinal additive to drinks and baths for supposed health benefits, wristwatches with luminous dials, and as makeup — at least until the dire health consequences of radioactivity were better understood. Other examples of new products that were intially thought to be safe or even healthy include thalidomide, lead paint, asbestos, and cigarettes. The benefits of economic growth are truly amazing and havemade enormous contributions to welfare. However, this does not mean there are not also costs. How does this recognition affect the theory of economic growth?

Favorite Bits:

“This paper explores what might be called a “Russian roulette” theory of economic growth. Suppose the overwhelming majority of new ideas are beneficial and lead to growth in consumption. However, there is a tiny chance that a new idea will be particularly dangerous and cause massive loss of life.”

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About Miguel Barbosa

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17. September 2009 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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