Why do we need GDP to grow anyway?

With a chart showing federal spending as a percentage of Gross Domestic Product in the background, U.S. Treasury Secretary Timothy Geithner testifies before the Senate Budget Committee March 12, 2009 on Capitol Hill in Washington, DC.

U.S. GDP grew at an annual pace of 2.5 percent in the first quarter, falling short of the 2.8 percent that economists predicted and disappointing investors. But in uncertain economic times, why aren't economists satisfied if GDP simply holds steady?

"GDP growth is linked to jobs growth," says David Weil, a professor of economics at Brown University. "So unless the economy is growing rapidly enough, it's not going to be able to absorb the new workers who are coming in, much less reduce unemployment."

Each year, as a new -- and bigger -- crop of young people enters the job market, they are counting on GDP growth to make room for them in the job market. But it isn't just about jobs. Economists say that GDP growth affects how we view ourselves as a nation. 

"Most people agree, I think, that output, and hence, their ability to consume should improve. This is sort of the American Dream -- things get better as you look toward the future," says Richard DeKaser, an economist with Wells Fargo. 


Audio Extra: Marketplace Economics Correspondent Chris Farrell discusses GDP growth, consumer confidence and the financial industry -- and it doesn't look good.

 

Audio Extra: Chris Low, chief economist with FTN Financial, explains whether 2.5% GDP growth is the new normal.

 

About the author

Noel King is a reporter for Marketplace's Wealth and Poverty desk.

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