How much growth is enough?

How much economic growth is sufficient? Do we need to grow as fast as being suggested? Should 3-4% economic growth in developed economies be the norm which should guide policy making? 

Ruchir Sharma makes the point which has been made in this blog a few times earlier,

Even during the Industrial Revolution, in the 19th century, the world economy rarely grew faster than 2.5 percent a year, until the post-World War II baby boom began to rapidly expand the labor force. After 1950, the combination of more workers and more output per worker lifted the pace of global growth to 4 percent. Economists came to think 4 percent was “normal.” Yet by last decade, the baby boom had faded out from Europe to Japan and China. Even in the United States, younger and faster-growing than most developed countries, growth in the working-age population slowed to a mere 0.2 percent last year from 1.2 percent in the early 2000s. Because fewer workers correlates directly with slower growth, that decrease implied a 1-point drop in economic growth.

Roughly, economists should have expected that United States economic growth would slow to 2 percent from 3 percent — and it has. This is the new normal for the American economy. Stimulus measures like the Trump tax cuts can lift growth above this path, but at best temporarily, at the risk of higher deficits and debt.

For political leaders, the new age of slow growth is not a problem to solve; it’s a reality they need to accept and explain to the public. Because it’s just not that bad.

When populations are growing slowly, the economy doesn’t need to grow as fast to keep incomes high. Thus in the United States this decade, growth in gross domestic product per capita has slowed much more gradually than the overall economy, by half a point, to an average of 1.4 percent... In a rich country, that is fast enough to satisfy most people: Indeed, surveys show that Americans have rarely been more confident about the economy...

Growth in the economy is driven by growth in the number of workers and in output per worker, or productivity. But since the postwar surges of 1950s and 60s, productivity growth has slowed, also defying government efforts to lift it. For a time, the global economy kept motoring along anyway, fueled by a surge in debt. In the 1980s, central banks began winning the war on inflation, which allowed them to drop interest rates sharply. Lower borrowing costs unleashed a worldwide binge that saw debt surging from 100 percent of global gross domestic product in the late 1980s to 300 percent by 2008. Then the global financial crisis hit, ruining many private borrowers and lenders, many of whom are still wary of taking on new debt. After growing faster than the economy for three decades, debt growth in many countries, including the United States, has fallen back in line with economic growth... So the postwar miracle is over... Yet because economists continue to base forecasts on miracle rates of growth — 4 percent for the world, 3 percent for the United States — policymakers keep fighting to hit these targets. 

The problem lies with the interests that have captured policy making within both the Government and the Fed in the US. Slower growth and rising rates are simply unacceptable because of their adverse impact on the confidence fairy and stock markets thereon.

Thanks to excessive financialisation, we are in the world where Wall Street's welfare is driving fiscal and monetary policies.

Postscript 1 (12.04.2019)

Bloomberg has this very good essay on how Japan, despite three decades of low growth (rates which would be considered catastrophic in the US) has managed to remain a place of remarkable economic, social, and political stability.

Besides it has managed some of the most difficult challenges - ageing and related demographic shifts, low inflation bordering on deflation, large debts, and weak demand - with remarkable success. So much so, the country is perhaps the fastest growing developed economy in per capita terms. And it has managed to realise paradigm shifts like increasing the share of working women, immigration, robots etc with little of the disruption that such changes carry with them in case of other developed economies.