eli5 How do economies grow? Who grows them?
In: 9
It’s largely about the flow of money. Money that is flowing is doing work, money sitting around is doing nothing
Increasing production increases cash flow in, but also increases expenses which is cash flow out, more movement of money is generally seen at a healthier economy
Therefore the summed up difference between cash flow in vs cash flow out of all businesses is the primary metric we use to measure “the economy”, its how much “profit” *hypothetically could* be realized in a given time period
Example: Various countries have a VAT (value added tax) which is an attempt to spread the taxing of the economy through the various steps of manufacture. As opposed to sales tax which on the books is only paid by the customer, not the intermediate businesses who only sell to other businesses. One is taxing the economy, one is taxing consumption, both have trade-offs
Please do let me know where I got this wrong, as I have no formal economic education. The “example” is very weak and poorly explained
It’s largely about the flow of money. Money that is flowing is doing work, money sitting around is doing nothing
Increasing production increases cash flow in, but also increases expenses which is cash flow out, more movement of money is generally seen at a healthier economy
Therefore the summed up difference between cash flow in vs cash flow out of all businesses is the primary metric we use to measure “the economy”, its how much “profit” *hypothetically could* be realized in a given time period
Example: Various countries have a VAT (value added tax) which is an attempt to spread the taxing of the economy through the various steps of manufacture. As opposed to sales tax which on the books is only paid by the customer, not the intermediate businesses who only sell to other businesses. One is taxing the economy, one is taxing consumption, both have trade-offs
Please do let me know where I got this wrong, as I have no formal economic education. The “example” is very weak and poorly explained
They usually measure economies in GDP – basically the total of everything that’s produced in a country within a year. So to increase that the country’s workers either become more productive (better machines, factories, IT, other productivity improvements) or the country has immigration. Both make the economy bigger but only the former makes the country wealthier. I guess a third option for growing the economy would be conquest (i.e. annexing parts of other countries) but that doesn’t happen that much anymore.
They usually measure economies in GDP – basically the total of everything that’s produced in a country within a year. So to increase that the country’s workers either become more productive (better machines, factories, IT, other productivity improvements) or the country has immigration. Both make the economy bigger but only the former makes the country wealthier. I guess a third option for growing the economy would be conquest (i.e. annexing parts of other countries) but that doesn’t happen that much anymore.
They usually measure economies in GDP – basically the total of everything that’s produced in a country within a year. So to increase that the country’s workers either become more productive (better machines, factories, IT, other productivity improvements) or the country has immigration. Both make the economy bigger but only the former makes the country wealthier. I guess a third option for growing the economy would be conquest (i.e. annexing parts of other countries) but that doesn’t happen that much anymore.
Explain like im 5.
We do. We grow the economy. My role in growing it has changed a couple times, right now I spend about 40 hours a week taking metal that my work buys and I help turn it into medical instruments and implants. If your knee stopped working well, would you prefer to have it taken out and replaced with a random steel cylinder or maybe go with a knee replacement that looks a lot like a natural human knee and will function similarly? 50 years ago the first knee replacement surgery happened, now some dummy like me has a role in making those metal parts we use to replace them.
Everyone from the original designers and engineers who made that first replacement knee, the machinists who operate the machines that take blocks of metal and cut them down into what will become a finished piece, the cleaning staff who clean the bathrooms and breakrooms, the surgeons who actually put those knees into patients and so many more people, they all grow the economy. That patient who needs a knee replacement after 40 years of labor? Yeah, he grew the economy too.
There are definitely some bigger picture perspectives to be shared here but if a 5 year old asked me this, this would be my answer.
Explain like im 5.
We do. We grow the economy. My role in growing it has changed a couple times, right now I spend about 40 hours a week taking metal that my work buys and I help turn it into medical instruments and implants. If your knee stopped working well, would you prefer to have it taken out and replaced with a random steel cylinder or maybe go with a knee replacement that looks a lot like a natural human knee and will function similarly? 50 years ago the first knee replacement surgery happened, now some dummy like me has a role in making those metal parts we use to replace them.
Everyone from the original designers and engineers who made that first replacement knee, the machinists who operate the machines that take blocks of metal and cut them down into what will become a finished piece, the cleaning staff who clean the bathrooms and breakrooms, the surgeons who actually put those knees into patients and so many more people, they all grow the economy. That patient who needs a knee replacement after 40 years of labor? Yeah, he grew the economy too.
There are definitely some bigger picture perspectives to be shared here but if a 5 year old asked me this, this would be my answer.
Explain like im 5.
We do. We grow the economy. My role in growing it has changed a couple times, right now I spend about 40 hours a week taking metal that my work buys and I help turn it into medical instruments and implants. If your knee stopped working well, would you prefer to have it taken out and replaced with a random steel cylinder or maybe go with a knee replacement that looks a lot like a natural human knee and will function similarly? 50 years ago the first knee replacement surgery happened, now some dummy like me has a role in making those metal parts we use to replace them.
Everyone from the original designers and engineers who made that first replacement knee, the machinists who operate the machines that take blocks of metal and cut them down into what will become a finished piece, the cleaning staff who clean the bathrooms and breakrooms, the surgeons who actually put those knees into patients and so many more people, they all grow the economy. That patient who needs a knee replacement after 40 years of labor? Yeah, he grew the economy too.
There are definitely some bigger picture perspectives to be shared here but if a 5 year old asked me this, this would be my answer.
If I take a hillside that’s worth basically nothing and pull shiny rock out of it that is worth a dollar, I have grown the economy by turning useless hillside into valuable shiny rock.
If I take one dollar’s worth of shiny rock and turn it into a 10 dollar ingot of iron I have increased the economy by turning 1 dollar into 10.
And if I turn that 10 dollar ingot into 10 machine parts that are each worth 10 dollars individually I’ve increased the economy by turning 10 dollars into 100.
If I take a hillside that’s worth basically nothing and pull shiny rock out of it that is worth a dollar, I have grown the economy by turning useless hillside into valuable shiny rock.
If I take one dollar’s worth of shiny rock and turn it into a 10 dollar ingot of iron I have increased the economy by turning 1 dollar into 10.
And if I turn that 10 dollar ingot into 10 machine parts that are each worth 10 dollars individually I’ve increased the economy by turning 10 dollars into 100.
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