Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.
The Term: ‘The Economy’ (aka Gross National Product)
What it Means: When people refer to “the economy” they are usually referring to a particular idea—Gross Domestic Product (GDP)—which is itself simply an economic metric. GDP is often used as a single number that “measures” the economy. Imagine you wanted to put a price tag on the value of all the final goods and services produced by every sector of the economy (all of the crops grown, all of the lattes served at the coffee shop, all of the hours billed by lawyers, etc). The total number you’d put on the price tag is the GDP.
Why it Matters: Humans have seemingly unlimited wants and needs—but a limited amount of resources. This is known as scarcity, and it’s the fundamental problem in economics. The primary way we solve this problem is through market exchanges: you make something I want or need and I give you something you want or need in return (we do this indirectly through the use of money). The occurrence of all of these exchanges is what we call “the economy,” which is why we can use the metric that measures the sum of all of these exchanges—GDP—as a synonym. When we say the economy is growing/shrinking, we are saying the total value of the goods and services being exchanged (GDP) is increasing/decreasing.
An economic unit (whether a family, country, etc.) is generally better off when everyone is able to meet all (or nearly all) of their material needs and many of their material non-necessary desires. That is why economic growth is so important. While the issue is complex and requires some nuance to fully explain, the simplistic answer is that economic growth matters because people continue to have babies.