I often see statements in the news from economists saying things like “only 0.2% growth reported, which might have bad effects on the economy”. In my eyes infinite growth is simply impossible when we have finite resources, or is that a misconception from my part?
Edit: thank you for all the detailed an in-depth answers! Learned a lot of new things 🙂
In: 96
It’s not a misconception. It’s a fundamental flaw in modern capitalism. The only value of a publically traded company is it’s ability to generate returns, which it needs to grow to do. It’s a death sentence that makes a few people rich at the start. And then, inevitably, it collapses. Over and over again because that’s the way the system is designed to work. It’s simply not practical in the long run. Infinite growth is not physically possible. People realized this a century ago, though they may have had different motives when crafting their solutions to it.
I’ll also add that SOME growth is, or was, needed. As populations and societies grow, economies have to grow to match them. A growing population but a stagnant economy means each person will get progressively less of the pie. However, populations do not grow indefinitely. This was a baseless, early 20th century fear that has since been proven the exact opposite of the real issue. As countries develop, their populations actually SHRINK or stay the same. Many Asian countries have already advanced into population decline and most developed western nations are at the point of stable replacement. So a perpetually imploding economy is just going to become and bigger and bigger issue as its just not needed anymore.
Nobody needs INFINITE growth, because the world will not be here FOREVER.
You’re also missing the fact that value is measured in lumps of resources. A wooden log doesn’t have some fixed value. If I do some work on the wood, then I can turn it into any number of things that might be of more value. A chair, a table, a picture frame, or a million pencils. Put those objects in a movie and suddenly they are collectors items with even more value.
And pretty much anything that is universally considered good (like reducing poverty or curing a disease or building a school) is going to add value.
Growth isn’t the be all and end all, but it’s an indirect window into many of the things that we care about.
Even if we decide that some how each lump of “resource” has some fixed value (which isn’t true), we have a ridiculously large planet. We barely scratch the surface of it to get the resources that we use and we have many processes for replenishing our supplies. If you need more wood, you can plant trees.
Be warned. Gross generalizations ahead. Each point can be ripped apart on many, many levels. The old joke is, how do you start an argument? Ask two economists how the economy is doing.
The “economy” is all the stuff and services that a country makes.
If the economy is stable, then the amount of available stuff stays the same. If the population is growing, that means less stuff for each person.
But people also make stuff. They need to in order to buy stuff. A shrinking economy means that people cannot buy as much stuff.
An economy can grow in two ways. People can work more (more output by using more hours/stuff), or people can be more efficient (more output by using the same amount or less hours/stuff).
The best option is people being more efficient. They make the same amount of stuff for fewer hours of work, or more stuff for the same amount of work.
Ideally, the person who does the extra work gets the benefit. This is not often the case. Company profit is excess value that workers create that goes to the company, not the workers. At the same time, without the company, the workers may not be in a position to do the work that makes them what they do make.
Also, there’s no guarantee that the value is equally (or even equitably) spread around the society. You could make value in the tens of millions of dollars, but not get paid for it. Or, you could be a drain on society while still making hundreds of millions of dollars a year. Both happen.
Why is growth good/contraction bad?
More goods and services are available.
In general.
You are correct that infinite growth seems like a questionable thing to base a society on.
However, huge parts of our society are dependent on this growth. People are really scared of what happens when growth stops.
Think mortgage industry, home construction, real estate agents… That whole industry basically collapses if population growth slows/stops/declines
You also need to think of government budgets. Anytime the government is in a deficit.. they are spending more than they take in. They do this on the assumption the economy will grow so the debt becomes manageable. Stop growth, governments will have a hard time paying for government services. Inflation, worker strikes, cant pay pensions, skilled workers underpaid…
Basically they fear the growth based system we live in will collapse if growth stops. This us not just wall street thing. Most government services are based on the same thing.
On a psychological level, economy is a game of trust. If I know the economy will grow, I will then trust that if I invest something today I can get more money return back tomorrow, which enables the person receiving my money to actually buy or do something to generate more business, and the economy grows, and the cycle continues.
Once the trust that the economy will grow is broken, then I won’t invest anything and the person down the chain will not have money to do any business.
Then you factor into a large sector of economy that just survives by skimming the money received by business based on that trust – government taxes (enforce fair rules to run business), banks (provide loans and capitals so businesses can exist in the first place), retirement funds (old people with disproportionate political power), etc.
So ultimately the economic growth must continue at all cost to keep the trust up, or the entire facade will collapse.
The vast majority of economic growth comes not from faster or wider-scale extraction/consumption of scarce resources like wood or coal, but from innovations that make production more efficient.
The first agricultural societies supported relatively tiny populations. Even if they farmed the entire Earth, they would not be able to support the current human population, or even a fraction of it. What changed? Innovation. Crop rotation, pesticides, combine harvesters, genetic modification, etc. We now support a population that is larger than it ever has been on *less* land (and far less labor) than we farmed 100 years ago.[Edit: I fact-checked myself too late. Cropland has increased 50% over the last century, not bad for 400% increase in population]
The tendency for economic expansion is often conceptualized as humans looking at [thing] and asking “What if we used twice as much?” when it’s really humans looking at [thing] and asking “How can we do the same with half as much?” In both cases, we end up with double the production, which registers as economic growth, but in only in the first does our appetite for [thing] actually increase.
Deflation means there is a reduction in demand which means a reduction in goods and services produced to match.
If a country experiences population growth but sees a reduction in production, scaling back up that production to match takes time especially if investors are hesitant in an instable economy. Families and immigrants will be left without those goods and services in the meantime. Which in some cases means a significant reduction in quality of life.
Steering towards slow and steady growth is a conservative strategy to keep away from recessions and instability.
There is value in stability. People can somewhat reasonably make long term plans or goals in thei lives.
We learned this lesson harshly in the great depression.
Basically two things:
1) our population is growing
2) we need more things to maintain our lifestyle as it evolves to require more energy, technology, and materials.
It’s only *really* bad assuming you have population growth.
Larger population but same amount of stuff = less stuff per person.
Most countries have growing populations so not having economic growth is generally bad.
If your population halved but your economy only decreased by 25% then everybody is actually better off.
Because growth is evidence that all the investment, labor, and resource consumption of economic activity is creating things which are of *real value*. If you spend four billion dollars on a business, and after ten years of hard work, what you’ve built is still worth four billion dollars, you’ve been working hard for no money.
Now I’ll be the first to disclaim that not all the means we use to measure growth, wealth, and productivity are accurate and good, or that other priorities, like health and human welfare, might be more important than money. But considering that most people will spend over a third of their waking life either at work, or studying to obtain work, understanding how our economy is doing at a high level has value.
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