Why does economy have to grow continually?



Every year people are worried if economy only grew let’s say 2%. If we already have things good, why does it still need to grow and it’s a bad thing if it stays the same?

In: Economics

If the economy doesn’t grow, then nobody gets raises. Not the McD’s worker. Not the construction worker. Not the office worker. The only way people get raises over time, is if the supply of money gets larger. Revenue increases. Profits increase. Then employees get rewarded.

In order for that all to happen, we have to have inflation.

Realistically it should stop growing at a certain point and just circulate, but the very richest of the rich continue to earn more profit if there’s infinite growth.

Well for one, the number of people increases every year, thus the amount of work performed by a population as a whole increases. If your economy isn’t increasing at the very least with the amount of people entering the workforce then you are doing something wrong.

Overall though we at the very least expect things to get better and not worse.

Because the economy is based on investment, whether it’s investing in a house, business and a stock. The worth had to always be going up or else people would never invest money in things. You always want to get more money back than what you put in to something, so to make that happen for everyone, everything needs to continue to grow.

The growth of the economy needs to outpace inflation. If it does not wage earners making the same amount as last year will lose purchasing power. Inflation is necessary to encourage spending. If my dollar will be worth less next year, I’m more apt to spend.

because there are greater populations.

we had 6 billion people in 1999 and we project 10 billion by 2057. if the economy doesn’t grow then many of the 2057 people won’t have food or jobs or places to live.

There are two forces that we think will generally increase economic activity so long as we avoid total dysfunction. First, the population will grow. If you have more people to make stuff, you should make more stuff (if only because you now have more people who *want* stuff). Second, we will become better at making stuff. Maybe we learn a more efficient way to produce something we already like or maybe we invent something entirely new.

If the economy stayed the same size or shrank, this suggests that there was some negative force that worked against these two “natural” growth mechanisms. Most years this doesn’t happen, so economic growth is what happens when there’s nothing special going on.

Unless the future is more productive than the past, investing in that future is foolhardy.

What this means in practice is that societies that stop growing collapse catastrophically. All the smart money pulls out and, lacking investment from the past, nothing gets built or accomplished.

Another point here is that human society did not really have basic foundations for economies until some of the population was able to do things other than grow food or hunt for food. There was not enough time for other pursuits until someone figured out how to farm more productively than before. That allowed some people to dedicate their time to making things; basically tools, at first, which required more specific skills. After there were enough excess tools for immediate needs, trade between distant human populations started to grow, and hence an economy was born. For human societies to advance technologically, some people need to be moved away from their current jobs and dedicate their time/skills to develop new technologies. The rest of the people also need to increase their output to make up for the lower percentage of the workforce doing current work.
So if we never want anything to change with regard to technology or leisure time and the population does not grow, then economic growth can be zero.

This is just a small part of the reason but the stock market is a pyramid scheme. If there were not constant growth then it would not really work. A pyramid scheme can only function as long as it is growing.