Why does the economy need to continue to grow, especially in countries such as Japan where population is declining?
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Not an economist, but if this were a household, the cost of living seems to go up every year, as the people that live in the house get older, more bills get accumulated, when the young leave the house, potentially less income to help pay for projects, renos and utilities.
To me, a growing economy is the ability to keep up with the demands of the citizens by ensuring a high number of jobs, and a strong world position for trade and purchases.
I admit, I might be way off.
It doesn’t and can’t indefinitely but countries compete and if your competitors are growing then you better start to grow too or else you’ll eventually fall so far behind the growers that you will be incapable of repelling aggressive actions. A good example would be the vast amount of conquering/colonising/exploiting that happened on the back of the industrial revolution which allowed the colonial powers to significantly outgrow the rest of the world for a time.
Also everything is relative, so if you maintained your economy but everyone else is growing then from an inside perspective you are shrinking relative to everyone else.
Because that’s what all classical economics points to, but recently many economists have started questioning it like you are.
A good book on this is *Towards a Political Economy of Degrowth* by Chertkovskaya et al.
Growth in and of itself without context doesn’t necessarily translate into a higher living standard for its citizens. It needs to be addressed in the context of Japan’s economic challenges. These examples can apply to most countries, but lets take Japan as an example:
* In general, more growth = more tax revenue. More tax revenue = more money to fund social initiatives and pay down debt. These two are important because Japan is drowning in debt and is suffering from an ageing population.
* If you don’t grow at the pace of global inflation, then essentially your economy is shrinking. This matters because Japan is highly active in global trade, and if global economies are growing, their wages are growing, their exports are becoming more expensive and Japan, as a stagnant economy, is paying more for them.
* No growth means you can’t outpace your debt levels, hence your debt in relation to your GDP will start to rise, and so will the interest payments. Japan will, in turn, have less money to carry out these payments, and will have to borrow more.
* Less growth = less private investment. Why would you want to invest in an economy with no growth? You borrow and you invest it in places where you expect you will get a return. If this is not the case, investors tend to allocate their money elsewhere. Less investment = less jobs = lower wages. That is undesirable for Japanese citizens.
There is more, but I believe this covers the most important aspects.
Whereas it is not healthy to be obsessed with growth where it does not translate to a higher standard of living for citizens, i.e growth from extraction of raw commodities, in most cases growth, when accompanied by competent leadership which has its citizens best interests at heart, should be championed.
It doesn’t have to per se, it’s just not terribly pleasant if it doesn’t. Most of human history there was negligible growth economy. Your grandfather was a fisherman? Means your father is a fisherman, you are a fisherman, your son will be a fisherman etc, forget social mobility. Without change and growth, there are few opportunities and those that exist are at expense of somebody else.
It doesn’t , Japans economy has not grown much in 30 years. It is just much better if it does because there are more resources available to take care of the elderly.
Well, you first need to understand what it means when a population is declining. People are not dying earlier with modern medicine and as such, it means that they are having fewer children.
Fewer children means less people in the workforce and with less people, the government will not get as much tax as it used to.
Tax is used in many areas, one of the big cost is money to keep retired people fed, medical stuff (old people are more prone to sickness), someone to take care of them.
When you have an aging population, you have more of these cost.
So now imagine you are the government. You have less money from tax because less workforce, you have more cost to keep older people well and not dying. You can borrow money to do this which you have already done (national debt) and not a long term solution. You owe some money and you need to pay back with interest and at the same time, you have less money to work with. So it’s not a long term solution to keep borrowing. OR you need people to spend more money so you can tax more.
How do you get people to spend more money? You need to export goods that other countries are willing to spend money on and/or you need your people to buy more things, buy things they do not need so you can tax more.
The cycle then continues and so the economy must grow. Why? Because that’s how we’ve set up the economy. We’ve spend money we currently have and also some from the future. We’ve spent those aging pensioners money on other things for things like roads, school, hospital which is a good thing. Your people are living in a better place with better facilities. By spending money, you have created jobs and more money to go around.
Edit: few words and some proof reading
Whenever you hear “economy”, translate it in your mind to “production and trade”. More production and trade means more stuff is made and available for purchase, whether it be appliances, vehicles, medicine, education, art, or anything else. If production and trade is stagnant, it means that life is not getting better.
Two big reasons; GDP per capita is one of the best predictors of standard of living. It’s not perfect, obviously, many factors play into standard of living and there’s outliers, but generally if a country is producing more per person, those people are living better.
Second is the way retirement works. Working-age people need to produce enough to satisfy the standard of living for both themselves and retirees. This is easy when the population is growing; there are far more working-age people than retirees so the percentage of production going to retirees is low. But when population is stagnant or declining, the ratio of working-age to retired starts shrinking and workers need to produce more just to maintain GDP per capita where it is.
You can’t really explain in it to a 5 year old because it’s mostly adult mental gymnastics to justify something we don’t need. But basically it would be growth is good because money is good and we need to keep making money because that’s what some people said a while ago. And we do what we are told.
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