When economic growth slows, policymakers often seek to lower interest rates to support credit, investment, and consumption, thereby boosting GDP growth. This approach is based on the assumption that higher GDP will automatically translate into greater social welfare. However, that is not always the case.

GDP is useful for measuring the scale of economic activity, but it does not automatically reflect welfare. People do not live on GDP growth rates; they live on jobs, real incomes, purchasing power, and access to essential goods and services. Even real GDP per capita is only an approximate indicator of average living standards, as it does not capture income distribution, job quality, cost of living, environmental conditions, or access to public services. The issue, therefore, is not to dismiss GDP but to place it in its proper context: GDP is a means, not an end. The ultimate objective of economic policy is welfare—employment, real income, stable purchasing power, and equitable distribution. GDP growth does not automatically create more quality jobs The extent to which employment increases depends on the employment elasticity of output—that is, the percentage increase in employment generated by a 1% increase in output. A high elasticity means growth creates many jobs; a low elasticity means GDP can rise while employment grows only marginally. In other words, the same GDP growth rate can have very different welfare implications depending on where the growth originates. Growth driven by labor-intensive industries generally creates more direct employment than growth driven by capital-intensive, asset-based, or financial sectors. When employment elasticity is low, an economy may experience “jobless growth,” where output expands but employment and incomes for the majority of people do not increase proportionately. Therefore, the composition of growth is just as important as the growth rate itself. If GDP alone becomes the policy target, economic expansion may look impressive on paper while generating limited real welfare benefits for citizens. Lower interest rates: supporting growth but potentially distorting distribution Lower interest rates can support the economy by reducing borrowing costs, encouraging investment, stimulating credit-financed consumption, and improving market sentiment. If businesses use cheaper credit to expand production, create jobs, and stabilize workers’ incomes, lower interest rates can contribute not only to GDP growth but also to social welfare. However, low interest rates do not affect all groups equally. Their impact depends largely on where capital flows. If funds are directed into productive sectors, the benefits can spread through employment, wages, and incomes. But if productive sectors absorb capital weakly while easy credit and rising asset-price expectations prevail, low interest rates may instead fuel increases in real estate and financial asset prices. In such circumstances, the benefits tend to accrue disproportionately to those who already own assets. Holders of real estate and financial assets are more likely to benefit from asset appreciation. By contrast, low-income households and many younger people—who rely primarily on wages, possess limited accumulated assets, and typically hold savings in cash or small bank deposits—may find themselves increasingly priced out of the housing market if property values rise faster than incomes. They may also be unable to benefit from rising financial asset prices due to limited disposable capital and lower risk tolerance. The issue, therefore, is not the act of lowering interest rates itself, but the context in which the policy is used, how long it is maintained, and the credit channels it activates. Lower interest rates may be necessary during periods of weak aggregate demand, but if they become a permanent lever for driving GDP growth, they can tilt benefits toward existing asset holders and widen wealth inequality. High inflation often hurts vulnerable groups more One possible consequence of maintaining excessively low interest rates for an extended period—especially when credit expands rapidly or asset-price expectations rise sharply—is inflationary pressure. Inflation does not affect everyone equally. When inflation is high and unexpected, considering both assets and liabilities, it generally causes greater harm to those with fewer means of protection. From the perspective of income and assets, unexpected inflation tends to hurt the poor the most. They rely primarily on wages and hold their savings in cash or bank deposits. A large share of their income is spent on essential goods that cannot easily be cut back. They possess few inflation-hedging assets, while nominal wages often adjust more slowly than prices. As inflation rises, essential goods become more expensive, living costs increase, and real incomes decline. Inflation can therefore be viewed as a form of “hidden tax” that falls most heavily on cash holders, fixed-income earners, and those with limited means to protect themselves through asset ownership. Individuals with assets and access to financial markets generally have more options for hedging inflation, such as allocating wealth to real assets, financial instruments, or foreign currencies. From the debt perspective, inflation can reduce the real value of outstanding liabilities. However, those who benefit most are typically borrowers with access to long-term financing at relatively low interest rates who use leverage to acquire assets, such as businesses or individuals who already possess substantial assets. Poor households that borrow often rely on consumer loans, short-term credit, or higher-interest borrowing and therefore gain far less from this mechanism. For this reason, controlling inflation is not merely a technical objective of central banks; it is also essential for protecting the real incomes and welfare of vulnerable groups. GDP is a means, interest rates are a tool, and welfare is the ultimate goal. The same growth figure can carry very different implications depending on which sectors generate it, what kinds of jobs it creates, whose real incomes it raises, and who bears the costs of inflation. What policymakers should pursue is not GDP growth at any cost, but high-quality growth—growth that creates jobs, protects real incomes, preserves purchasing power, and distributes benefits broadly across society. That is the true measure of an economy that serves people.