When economic growth slows, policymakers often seek to lower interest rates to support credit, investment, and consumption, thereby boosting GDP growth. This approach is based on the assumption that higher GDP will automatically translate into greater social welfare. However, that is not always the case. GDP is useful for measuring the scale of economic activity, but it does not automatically reflect welfare. People do not live on GDP growth rates; they live on jobs, real incomes, purchasing power, and access to essential goods and services. Even real GDP per capita is only an approximate indicator of average living standards, as it does not capture income distribution, job quality, cost of living, environmental conditions, or access to public services. The issue, therefore, is not to dismiss GDP but to place it in its proper context: GDP is a means, not an end. The ultimate objective of economic policy is welfare—employment, real income, stable purchasing power, and equitable distribution. GDP growth does not automatically create more quality jobs The extent to which employment increases depends on the employment elasticity of output—that is, the percentage increase in employment generated by a 1% increase in output. A high elasticity means growth creates many jobs; […]
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