Why does the economy need to continue to grow, especially in countries such as Japan where population is declining?
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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.
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