Why do economists say it’s bad when an economy doesn’t grow?

Question

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

Answer 1

> In my eyes infinite growth is simply impossible when we have finite resources, or is that a misconception from my part?

That’s a common misconception that seems intuitive to many people. You can’t make an infinite number of steel beams and roads and automobiles and tons of corn all at once. Eventually you hit some hard constraints (like the size of the Earth). You can’t have infinite growth of material goods.

However you can have indefinite growth of *value*. And that’s what GDP measures – total value generated in a year.

There are enormous sectors of the economy where huge value is created by a combination of specialized tools (technology) and skilled labor: creative arts, media (books, movies, video games), healthcare, engineering, marketing, legal, education, finance, data and computing. Manufacturing and construction are a tiny part of the overall picture.

Take healthcare, which is notoriously expensive (high value). The main input is lots and lots and **lots** of skilled labor – doctors, nurses, med school professors, lab technicians, research scientists, chemists, designers of medical equipment, etc. And it creates enormous value, at least in quality life years.

How about expensive new weapons for the military? Physical steel and aluminum and chemicals are a tiny fraction. Most of the cost (and therefore value-added) comes from engineers who design and calculate and test and document. Construction costs are mostly the skilled tradesmen and machinists. Sustainment costs again come from labor – skilled technicians performing maintenance.

Or how about movies? It’s silly to ask how much iron ore it takes to make a billion-dollor blockbuster. The value is created by the skilled labor of writers and actors and artists and technicians, again with minimal physical input (besides high-tech tools).

Then there’s the role of technology in GDP growth. Technology allows us to do the same job with less material input, or turn the same material input into something more useful. That lets the economy grow (more value created per year) despite limited physical inputs.