Economic growth
Economic growth defines the volume of natural resources flowing through a community related to its demand for goods and services. This is determined by the size of the purchasing population and its relative wealth.
The economy's need for workers originates in the demand for the goods and services they provide. So, as a first step in projecting employment, there has to be an estimate of the final demand for goods and services produced. In the United States this measure is called gross domestic product (GDP). The five major categories that make up demand are the following:
  • Personal consumption expenditures. These include purchases by individuals of goods (such as automobiles, clothes, and food) and services (such as education, healthcare, and rent).
  • Gross private domestic investment. This includes business investment in equipment and software, the construction of factories and office buildings, the construction of residential structures, and changes in business inventories.
  • Government purchases. Government purchases include goods and services bought by Federal, State, and local governments. These are goods and services produced in the United States and purchased in foreign countries.
  • Imports. Imports are goods and services produced abroad and purchased in the United States. Because GDP measures production in the United States, the value of imports is subtracted from the other four categories of GDP.
Finally, these categories are broken down  into more detailed ones, such as the demand for clothing.
Most charts based on this kind of data show changes in the level and composition of demand. These changes affect industry employment levels. For example, an increased level of business investment in microcomputers will increase employment in the computer industry and in all those industries, such as electronic components, that provide inputs to the computer industry. In turn, occupations that those industries employ will also grow.
Thus under certain conditions home consumption demand can boost economic growth. There are the following four main reasons for this: First, residents' daily necessities and durable consumer goods need to be constantly updated. Doing so can help upgrade consumer goods and increase total consumption demand; second, increase in demand for consumer goods can help promote the re- employment of urban workers, while increase in the employed population will bring about purchasing power and proceed to bring about more consumption and will need more consumer goods, that is to say, employment boosts consumption; third, at present, it is highly necessary to expand the rural market, if demand for food produced by farmers for urban consumption expands, it can increase farmers' income which, in turn, will promote the production of industrial goods. Such being the case, expanding demand for consumer goods can bring about the development of the rural market and the industrial goods market; and fourth, the aim of production is to improve people's living standards and the quality of life, increase in quality demand for clothing, food, housing and transportation and for better consumer goods has led to the constant emergence of new consumer goods and new consumption methods.
Almost two-thirds of the world's population lives on less than $2 per day. Families are hard-pressed, at this level of income, to meet their daily needs for food and shelter. They find it difficult to provide education for their children, build up savings for a rainy day, or improve their standard of living by making more investments in a business that can generate larger income flows.
Rural markets provide income to family operated micro-enterprises. These families live in low income countries with an average per capita gross national income (GNI) of less than $745 per year or lower middle income countries with a per capita income of less than $2,975 per year. USAID partners with these countries to support their efforts to improve the levels of income their citizens enjoy. Governments are responsible for adopting policies that provide a good environment for business that creates jobs and establish needed organizations and institutions of governance, such as courts, banks and telecommunications regulators. Governments also make specific investments in public services such as education, health, and transport systems using taxes collected on trade and incomes. Private entrepreneurs and investors, if provided appropriate incentives, security and access to markets, use their ideas, knowledge, and capital to establish companies that produce a wide variety of goods and services. In developing countries, many of the businesses are very small microenterprises that employ fewer than ten people.
Trading opportunities permit business enterprises to specialize in various products and services. The process of exchanging products and services through market operations, or trade, generates more wealth than would be otherwise created if companies were less specialized. Companies generally seek to build their businesses on the basis of some local advantage - oil, gold, land that can be used to produce crops, factories that make use of the labour that large urban populations provide, and so forth. USAID experience has shown that countries can boost the ability of the companies located in their territory to compete more effectively in trade if they pay attention to their policies and organizations of governance, the health and education of the workers, and the establishment of infrastructure such as modern energy systems, roads, airports, and seaports that enable goods to be produced and moved quickly and efficiently. Information about markets is increasingly understood to be an important element of efficient trade.
USAID economic growth and trade programmes provide support both to government and private sector partners. Economic growth and trade programmes are closely integrated with other programmes that support democracy and governance, sound management of the environment, increased agricultural output, and, of course, education and health. Telecommunications and internet facilities are critical to trade.
The average per captita income of the developing countries in the Latin American and the Caribbean regions is about $2.320; the average for 49 countries in Africa is only $670. Within Africa, per capita income is projected to vary widely among countries. In many of them it will be lower than in the mid-1980s. The least developed countries had increased their average per capita income from $240 in 1985 to only $270 in 2000.
Swift progress in raising labour productivity and per capita income levels is an essential prerequisite for full economic and social development. This is true although the process of world development involves much more than economic growth and structural transformation in the developing countries. The alleviation of poverty, greater employment opportunities, good nutrition and health, and better living conditions all contribute to increasing the level of productivity of the labour force. There are many aspects of the income distribution process: the allocation of world income over countries, the proportion of income received
Growth for the US economy in the third quarter of 2003-4 was the fastest quarterly rise recorded since 1984. Much of the subsequent analysis has focused upon the surge in consumer spending and its presumed role in the impressive numbers. For example, spending on housing rose by 20 percent and spending on consumer durables increased by 27 percent.
A debate has already begun over whether this good news is sustainable. One reality check is the fact that few new jobs are being created since continued increases in consumer spending depend upon employment growth.
However, the primary focus on consumption is misplaced. It turns out that both household spending and job growth both depend upon increased business investment. If consumption and demand are essential to economic growth, then government spending on armaments and weaponry will boost the economy.
But neither war nor terrorist acts are beneficial to overall economic growth. Were it otherwise, the rebuilding after natural disasters like hurricanes and floods would make them welcome events.
And so it is that the appropriate direction of causation is that production creates the basis of purchasing power that allows consumption to take place. Evidence of this is seen in that those countries with high levels of consumption are those with the highest levels of production.
Non-economists might be forgiven for being misled by commentators that note that consumption spending makes up about 65 percent of total demand. But consumer demand does not drive economic growth.
It turns out that estimates of GDP greatly understate business spending and grossly over- exaggerate consumer spending as a proportion of total economic activity. When calculations of total business expenditure take into account spending between stages of production, it is considerably higher than consumer spending. However, most business spending is left out of GDP calculations because this supposedly would involve double counting.
Growth is driven by capital accumulation, not consumption. Increases in productivity that give rise to higher living standards come from capital accumulation. These increases in the material means of production require a stock of real savings. As more capital is accumulated, more can be produced and more can eventually be consumed. 
Much of economic policy response is focused upon manipulating the demand side of the economy. This is the aim of the interest rate cuts by the Federal Bank and the expected stimulus effects of eliminating the budget surpluses and replacing them with public- sector deficit spending.
None of these steps can create a sustained rise in the economy. For there to be persistent increases in growth, there must be an increased level of real savings accompanied by technological change and a group of entrepreneurs willing to take risks.
Neither deficit spending nor interest rate cuts, nor even temporary tax rebates, change fundamentals in the economy. A politician might think that stimulating the economy is a good idea since it may win votes. But economists should realize that short-term economic stimulus is a misguided idea that leads to long-term losses.
What then can be done to change economic fundamentals in order to encourage a sustained recovery? Instead of one-time tax rebates, permanent reductions in marginal tax rates to reduce the disincentives caused by high taxes along with reduction or elimination of capital gains taxes.
Capital gains taxes and the imposition of high marginal tax rates do not punish the wealthy. In both instances, those who seek to increase their wealth bear the burden. In so doing, such a tax regime reduces the level of productive economic activity and leads to slower job growth.
Moving forward toward a strong recovery will require jettisoning much of the conventional wisdom that has become deeply imbedded in economic analysis. In the end, this might prove to be as difficult as rooting terrorists out of their lair in faraway places.