Why does the economy need to continue to grow, especially in countries such as Japan where population is declining?
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It only needs to grow if you are in a debt growth pattern, borrowing from the future to pay for now if that makes sense. It’s inevitable that these will crash eventually, but that can will be kicked down the road for a long long time.
That’s how capitalism works. Share holders need growth in order for their stocks to be a worthwhile investment. It doesn’t matter how much you’re making, you need to make more next quarter or next year.
Only one reason a country’s economy needs to grow: because they made a promise that growth would continue.
This promise is made every time a country goes into debt. Just like someone who takes out a loan from a bank, they are promising to pay it back through all of the money they are going to make as a result of the loan. This is exactly how and why countries are able to finance national debt: they promise that their economy will grow in the future.
A country that does not show economic growth will not be able to finance their debt and then they are completely screwed.
There are many, many reasons. The fundamental principle is that if your economy is not growing, it is shrinking because it is not keeping up with inflation and the fact that people are using more resources from living longer.
Now think of everything the government (federal & local) puts money into maintaining. A weaker economy means you has less of that.
– Healthcare: Less coverage
– Pension: Less money and/or retirement ages get pushed up
– Welfare: Less funding
– Military: Less funding
etc.
On a more abstract level, it also means you will be a weaker nation when it comes to exerting geopolitical and economic influence because you have less money to spend and a weaker military. Imagine you a poor “3rd world nation” trying to negotiate a deal with the US or China… the more powerful nation will always have favorable terms for themselves. As your nation declines economically, you will have less negotiating power.
There are also more abstract concepts when it comes to the economy and capitalism, but essentially there is an element of self-perpetuation, where wealth/investment/skilled immigrant labor is attracted to larger economies. This leads to more job opportunities, generally an improvement in the citizenry’s quality of life, etc.
The most obvious answer I can give is looking at [GDP per capita](https://www.worldometers.info/gdp/gdp-per-capita/).
The global average is $17,100 per year (normalized by purchasing power in the respective country. That is, if a banana costs $10 in the US and $1 in Botswana, then you’d divide US income by 10 to get the respective purchasing power.)
Consider what $17k buys you in the US (because that’s the country that number is pegged to). It’s *well* below the poverty line. More than half the countries in the world have an average GDP under $17k. That includes the 2 most populous countries of India and China. The majority of people in the world are still very poor. We need to grow the economy so that those people can have a standard of living just approaching what we are used to in the Global West. Safe, well insulated houses, electricity, safe water, predictable safe food, reliable transportation.
Just growing the economy doesn’t guarantee that of course. There is a lot of social, economic, and political progress to be made to allow more equitability. But we can’t really make that progress without having the goods and services to provide to everyone first.
Because economists have somehow convinced people that infinite growth, in a closed system, with limited resources is somehow possible and idiots believed them
How else do rich people add to their savings?
Everyone is kind of giving you shitty, overexplained answers.
The answer, is that it doesn’t. There is an emerging point of view that we can achieve, and should strive for an economic equilibrium.
People have unlimited wants and needs, but the Earth has limited resources. Economics is ultimately the study of how living organisms deal with this fact of life.
Most organisms can’t directly affect the world. If there is more food in the summer, the deer population grows. If there is less food in the winter, some of them starve. They have no ability to affect things in the short term. Over the long term, they evolve through natural selection.
But humans are different. We have evolved the ability to use tools. Instead of hunting and gathering for food where we have to scavenge 10 units of land to find 1 unit of food, we invented farming. Now we can grow 1 unit of food per 1 unit of land. Then we invented more tools. These include shovels, wheels, fire, animal husbandry, irrigation systems, fertilizer, pesticides, tractors, GMOs, etc. Now we can grow 100 units of food per unit of land.
The total amount of land, water, sunlight, etc. didn’t change. We just innovative ways to increase economic efficiency. The technology/tools I mentioned above allowed humans to grow more food per unit of land using the same number of resources as before. The reason is that we waste fewer of the resources. The Sun has limitless energy. But only 0.1% of the sunlight that hits plants is converted to edible plant matter. Most sunlight just heats the Earth or bounces back into space. All the tech I mentioned above is ultimately about converting ever so slightly more of that sunlight into food. If you can convert 0.2% of the sunlight into plant matter, you just doubled the wealth of the planet.
Technological innovation is the true source of human economic growth. Population growth is a byproduct of that economic growth. The economy doesn’t *need* to grow. Living organisms don’t *need* to exist at all. But if there is new technological innovation, then there is potential growth available. The limiting factor is how fast the technology filters out to the rest of society.
Say there are 100 farmers on Earth that grow 10 units of food per unit of land each. There’s 1000 units of food on Earth. Then I invent the tractor which allows them to grow 20 units of food per unit of land. When all the farmers start using tractors, we’ll get 2000 units of food total. But if only 50% of them have tractors and 50% don’t have tractors yet, then we only have 1500 units of food.
Right now humanity is expecting 2000 units of food. This is completely achievable. Now we need the economy to grow from 1500 units of food to 2000 to match our expectations. It’s a problem when there are unexpected events like a global pandemic that shut down tractor factories though. This slows down the adoption of tractors by farmers, and delays this growth. This is a problem, but a fixable problem.
As a last point, in Japan the population is declining, but people are living longer. This means fewer young people need to do more productive work to support more elderly Japanese people. This is fine if you get the new tractor that doubles your productivity. But it’s bad if the tractor delivery is delayed.
Debt is a large driver behind the endless quest for growth. If I am a country, and my economy has grown by 3% every year I might leverage that to get loan.
At first, I would only pay the interest on the loan. So if I got a loan for $100 dollars and it had $3 in interest, I would pay $3 and still have $100 in loan left. This means that next year, I would have to pay $3 again.
But my economy grew! So now, I’ll pay a little more than $3 dollars, and next year I’ll hopefully be able to pay even more and start reducing the principal by greater and greater margins. It will start going down, $99, $98, at an ever faster rate.
But what happens if my economy shrinks? The opposite happens. The loan gets bigger every year, and I have less ability to pay.
Modern countries are leveraged like this, and it typically isn’t a bad thing. Because they can pay off their loans with future growth, they can afford to use them to inject cash where it is needed. This can protect citizens in a crash, or fund new investment that drives growth.
But that debt requires those countries to grow, and countries took that debt expecting future growth.
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