The pursuit of growth is an obsession for politicians the world over. Olaf Scholz thinks more growth would make him a more popular German chancellor. Xi Jinping sets growth targets in China and they are invariably met. Here in Britain, Rachel Reeves mentioned the word 58 times when she delivered the prestigious Mais lecture this week.

The almost fetishistic worship of gross domestic product as a measure of how well a country is doing is curious, because even the statisticians responsible for producing economic data accept it is an incomplete performance measure. GDP rises as a result of cleaning up after oil spills, but takes no account of the benefits of unpaid work. As a yardstick, it is clearly flawed.

A classic example of GDP’s limitations came just this week with the release of the 2024 World Happiness report. This showed that the US had dropped out of the top 20 list of happiest nations despite being comfortably the fastest growing of the G7 developed economies in recent years.

The study suggests much more attention should be paid to rising levels of misery among Americans aged 15 to 24 and rather less to whether the quarterly GDP figures show growth accelerating or not. Sadly, that almost certainly won’t happen because higher levels of growth are axiomatically considered to be a good thing while any fall in GDP is viewed as a disaster. In the grand scheme of things, it didn’t matter much that Britain had slipped into technical recession after two successive quarters of negative growth in the second half of last year, but it was still seen as a big setback for the government.

This obsession with GDP is relatively modern. As Daniel Susskind writes in his book Growth: A Reckoning, to be published next month, Adam Smith and Karl Marx both saw themselves as moral scientists rather than economists, a tradition that was abandoned in the second half of the 20th century. Today, “practical people who use economic ways of reasoning about the world are encouraged to flatten multidimensional moral questions like ‘how should one live?’ into simple technical ones, such as ‘how can we increase GDP?’,” he writes.

Judging by what she said in her Mais lecture, Reeves is aware of the drawbacks of GDP, noting that a model based on the pursuit of “narrow-based, narrowly shared growth” would neither lead to higher living standards, nor command democratic consent.

Unless Rishi Sunak makes the greatest comeback since Muhammed Ali floored George Foreman in the Rumble in the Jungle 50 years ago, Reeves is going to be this country’s first female chancellor before long, so what she thinks matters. Labour’s large and consistent opinion poll lead suggests voters have stopped listening to the Tories and are ready for change.

View image in fullscreen

Reeves says she will improve Britain’s growth rate – which has been weak since the global financial crisis of 2008. She has little time for those who say higher growth is not just undesirable but harmful to the planet, and insists what she is aiming for is rapid growth that benefits everybody and is environmentally sustainable. There can be no durable plan for economic stability and no sustainable plan for economic growth that is not also a serious plan for net zero, she says.

These aims are laudable. Until about 250 years ago, living standards for the average person had remained unchanged not just for hundreds but for thousands of years. For most people it was a short, miserable, subsistence existence. The higher levels of growth since the dawn of the industrial age mean people live longer, eat better and stay healthier than their forebears.

So when growth rates fall, as they have across the world since the financial crisis of 2008, it is clearly a concern. Slower growth means less tax revenue and less money on public services. Unless governments are prepared to break out of their self-imposed fiscal straitjackets and borrow more, which they are reluctant to do, growth offers a seemingly pain-free escape route.

Asked in the question-and-answer section at the end of her Mais lecture whether she would “run the economy hot”, Reeves said that wouldn’t be her approach. She will leave it up to the Bank of England to set interest rates and will run all her tax, spending and borrowing decisions past the Office for Budget Responsibility. There will be no attempt to replicate Joe Biden’s subsidies to boost green industry because Britain lacks the US’s fiscal firepower. Labour’s flagship policy – the green prosperity plan – has been watered down. Instead, she says she can deliver faster growth by working on the structural problems of the economy: reforming the planning system, boosting investment and improving skills.

Let’s be clear. There are problems on the economy’s supply side that need fixing, and Reeves’s proposals might make a modest difference. But as Sharon Graham, general secretary of the Unite union, said in response to the Mais lecture, as yet they don’t add up to a plan that would transform the economy.

“Ripping up building regulations and tinkering in the public sector are not going to deliver serious growth – that’s for the birds. Only sustained long-term public investment in our crumbling infrastructure can turn the tide on decline,” Graham said.

Reeves has things going for her. Inflation is falling. Interest rates will be cut by the Bank of England in response. Recovery should be well under way by the time Labour comes to power. But then what? Green growth is certainly a desirable goal. Reeves has yet to show she can deliver it.

• Larry Elliott is the Guardian’s economics editor

• Rachel Reeves
• Opinion
• Economic growth (GDP)
• Labour
• Green economy
• Economics
• comment