Development is always a sensitive issue that polarizes the people into one camp or another. On one side, we can use our limited resources for economic development, on the other, social development.
When governments make choices how to spend their money, they have to decide how much to divide into economic issues such as job creation, and social issues such as welfare.
Let's look at our handy Production Possibilities Frontier graph:
Point C represents a country that spends most of its resources in social development of the country. Point D tries to strike a balance between social development and economic development. And point B spends most of its resources on economic development.
Although most countries alternate between overexpenditure at point X (budget deficit) and underexpenditure at point A (budget surplus), most countries sit around the point B side of the graph. Why?
As industrialization set in, the concept of economic development was new and exciting. It was changing peoples lives in ways they had not imaged, and faster than they had anticipated. Many industrial nations moved firmly around point B during this time. Unfortunately, most of these nations have never moved since then.
This is fine for economically developing nations that are still seeing growth. But for countries that have already reached a certain level, the cost for more growth has gone up.
As we learn in economics, there is always a tradeoff when a choice is to be made. The choice we give up is the opportunity cost.
The problem with pursuing more and more economic growth is that it consumes more and more resources, and increases the opportunity cost of our choice.
Here we imagine a "maximum" GDP level for a country. GDP is limited by current technology so this limit can change, but in the short-term we can consider it fixed. We can see that in the above imagined example, the cost of getting a 1% increase at 90% is the same as a 20% increase from 0. This is a basic example to explain how the law of diminishing marginal returns works in this case.
In my posts on economics, I always try to show how we can use these concepts in our daily life.
While the above relates to government choices, we also face the same decision. But for us, time is our resource. Because we can make money and reclaim energy, but we can only spend time.
We can divide our time between a career and material means, and improving the social and personal aspects of our lives. We need to decide what is the most important for us.
In the western world one thing is endemic. We are pushing for more and more material gain, both on a national level and an individual level. But the cost to our social lives, and our wellbeing, is getting higher and higher.
It's important to realize that every choice we make in our life always has an opportunity cost. And if we need to consider these costs to know if we are making the "right" choices.
So you can ask yourself where your priorities are. Where you fit in the above graph, and what you're giving up for the choices you make.
