Why does the economy need to continue to grow, especially in countries such as Japan where population is declining?
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Japan is a player in the global economy. Other countries don’t have population decline, and need to have their economies grow every year to meet population demands. Because of this, banks set a “healthy” inflation level around 2-3%. Things get more expensive every year, on purpose, so companies need to make and sell more and grow. That also drives up employee revenue. So they use inflation as an incentive for economic growth.
Because Japan needs to buy and compete with the global economy, they need to grow as well.
That’s just one reason. Another is investment expectations. People with stake in the company want the company to continue growing every year so their wealth increases
Economist here who despises at least half of the econ stuff that is taught in schools and universities and is transitioning into environmental sciences: We need a paradigm shift.
Because a Ponzi scheme collapses once it stops growing. That is all our modern monetary system is.
It’s because the social safety net in almost all countries is run like a ponzi scheme. Instead of taking social security (i.e. pension) payments and putting them in the bank for when you retire, most governments immediately take it and spend it and write an IOU for the amount. The idea was that populations would continue to grow and future pension payments would be made from future tax revenue, which would of course be larger than today’s tax revenue because the population and the economy had grown. Unfortunately this is no longer the case and the very fabric of the social security safety nets is now unravelling. It’s why Spain is doing a massive 250% hike on social security payments, and countries are pushing retirement age to 67-70. In the USA these items are called ‘unfunded liabilities’, and they amount to 45 trillion dollars in money that was paid but never actually saved (i.e. and IOU was written for them). It’s why most of us won’t have a pension to draw from when we retire, because there simply isn’t enough money for it, and people aren’t having as many babies to help pay for it in the future.
Because growth is how we judge our entire economy and without growth large parts of it start to fall apart. Not because growth is good, but because we’re stupid and organized things with the assumption that every day will be bigger and better than the last.
So we do everything we can to make it grow, and when it doesn’t we find ways to force it to grow
Well, Johnny, since industrialization the world’s economies work under a concept called capitalism. Capitalism essentially turns the government into a business. Business 101 in a capitalistic society implies that if the company is not growing, it’s dying. This is because no matter what happens, the cost of existing as a business always rises with inflation. As the world around you slowly becomes more expensive, it also requires that the business grows with it.
As far as Japan goes, less people being born means less workers and tax payers. Old people getting older means less workers and tax payers. Without population increases you get much less core government funding.
TL;DR you asked for an explanation that cannot be said like you’re five. The concepts are too complex.
Generally, it isn’t the economy that needs to grow, but the tax base to pay for the aging population.
Every social safety net scheme generally depends on a pyramid of young workers supporting the older and retiring workers when they cease being productive and able to support themselves.
In the US, the social security system was set up so you don’t collect benefits until you’re just about to die(actuarily), and we had an “ever growing” workforce paying into the scheme so it sustained itself. It was cashflow positive for a long time, but the population growth slowed and we were less a pyramid and more a column or obelisk. The same thing is happening in Japan, but worse because they limit immigration. Japan is starting to become an inverted pyramid.
If the workers aren’t growing in numbers, then some other part of the tax collection scheme must grow to make up for the shortfall. That means efficiency in the economy or higher taxes. At some point, the scheme falls apart.
Also note we kept these social security funds in the general budget to balance the books, which means we basically spent the money collected on other things (in addition to the outflows of the SS system). Now that SS fund is cashflow negative and general revenue/taxation isn’t keeping up, we’re showing huge deficits. The only way to fix that is raise taxes AND raise the retirement age to try to make the SS fund closer to self sustaining. But if you raise taxes, you’ll slow the economy, raise it too much and you’ll damage the economy badly.
in short: the government (not capitalism!) has been banking on future growth of the population/economy to pay for the services of today. When it stops growing, the un-sustainability of the policies becomes apparent.
It’s kinda of 2 problems.
-A lemonade stand can’t grow in size if it only breaks even, you can’t afford to hire another employee or build a new stand. So you end up standing still till you eventually run out of money, as supplies keep going up every year.
-The population is getting older. If 10 people retire every year, and only 9 people are available to be hired, how long before you run out of employees?
In order for capitalism to work, you must have new markets. If the population is declining, you do not have new markets.
It doesn’t need to continue to grow. Infinite growth is a misguided capitalist myth.
It’s the philosophy of a cancer cell.
Both the individual and the country need only to grow enough to live well. Any more is senseless
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