@ThomasTheApe,
ThomasTheApe wrote:
Why does an economy need to continuously grow to be seen as healthy? If you measure by GDP, then as long as the GDP kept pace with population growth (GDP per capita remained the same), wouldn't that be okay? Now you might say that you are always looking to increase living standards, but the truth is that people can only demand so much food, housing, healthcare, etc.
Aside from advances in production efficiency (such as industrialization), why would this GDP/capita be expected to grow?
Economics is not really about money; people are just fixated on money because it is the means of easily acquiring things produced by others.
Economics is actually just about managing resources and converting them into usable goods and services.
GDP, however, is a measure of money changing hands and not actually a measure of real productivity. If real productivity was measured instead of transactions, then everything people do for free or for less money than the market value would raise GDP, and if that happened then investors would expect to make that much more money because they would see everything that is done for free or below market value as commodities to be controlled and exploited for profit.
So, in reality, whenever someone avoids buying something by doing/making it themselves, or saving/reusing something they already have, etc. that is actually highly economically valuable. E.g. if you treat your furniture very well and it lasts a long time, you don't need to buy new furniture and the furniture you have is very durable. That is an ideal economic state for you, because it means you never have to waste money on furniture - and also for the forests/trees, because they get to grow bigger and older with less harvesting of wood for new furniture - but for everyone who makes money in the furniture business, it means less revenue.
So if you extend this logic to the macro-economic level, GDP could fall drastically or even go to zero if everyone did everything for themselves or for free, and took care of everything they had, etc. That would be an ideal economic state, i.e. the 'finish line,' where we no longer have to engage in monetary trade/commerce to achieve well-being/prosperity.
However, because that ideal can't be achieved in practice, we always need at least some money to acquire things we need/want but can't produce on our own or receive as gifts for free from others who love us enough to share freely. As such, people are always looking for ways to make money and to avoid running out of money.
It is because of this dependency on money that GDP growth is regarded as good. The logic is that the more GDP grows, the more money there is to go around for everyone. What this POV misses, however, is that the more interdependency evolves to replace independent/non-monetary economic activities with those that involve monetary transactions, the more dependent we become on money to get things we could otherwise do or get for free.
Inflation is favored in Keynesianism because it allows people to go into debt and then gradually reduce the real cost of their debt by paying it off over time. E.g. if you borrow $50,000 and pay it off later without interest, the $50,000 you repay will actually be worth less because of inflation, i.e. because your income has gone up along with the price of everything else in the cost of living, while your debt has stayed the same (not counting interest).
So, now imagine if a slow gradual deflation could be achieved instead of slow gradual inflation: In that case, borrowing money would be less attractive because debts would increase in cost over time instead of decreasing. Likewise, any money you saved, even just small amounts, would retain their value and even grow in value over time.
So a deflationary economy would reward those who spend conservatively, avoid borrowing, and save money; while an inflationary economy rewards those who continuously borrow, invest, and spend money in ways that push up prices/wages and thus accelerate inflation to a rate that waters down the cost of their debts as fast as possible.
The inflationary model stimulates waste, while the deflationary model would stimulate conservation and progress in efficiency. The only problem with the deflationary model would be that some people would run out of money and/or get trapped in a cycle of debt they can't repay completely because prices/wages are steadily decreasing. But would that be worse than the inflationary model where there is lots of resource waste (detrimental on various levels) and people who save money always have to continue working to make more money because the value of their saved money dwindles over decades due to prices going up?