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Why are economies always expected to grow?

 
 
Reply Sun 13 Oct, 2019 04:43 pm
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?
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Type: Question • Score: 3 • Views: 861 • Replies: 21
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Jewels Vern
 
  -3  
Reply Sun 13 Oct, 2019 05:57 pm
@ThomasTheApe,
Economics is intimately associated with politics. Politicians need to make people to THINK things are improving, whether they are or not. That's why they use Keynesian theories instead of traditional theories, even though Keynesian theories have been discredited several times and several different ways.
roger
 
  2  
Reply Sun 13 Oct, 2019 06:03 pm
@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?


Add inflation to population growth and I might agree.
ThomasTheApe
 
  1  
Reply Sun 13 Oct, 2019 07:08 pm
@roger,
Wouldn't Real GDP account for inflation?
ThomasTheApe
 
  1  
Reply Sun 13 Oct, 2019 07:09 pm
@Jewels Vern,
So then would you say things are expanding when people are able to take out enough loans to make things expand? And things contract when this system of leveraging collapses on itself? Human psychology being the "problem?"

I mean... I could see why India would expect to increase at a fast rate. But for advanced economies? Why should they expand at all?
roger
 
  1  
Reply Sun 13 Oct, 2019 07:09 pm
@ThomasTheApe,
I don't think so. Maybe if governments never spent more than their revenues.
0 Replies
 
fobvius
 
  1  
Reply Sun 13 Oct, 2019 07:29 pm
https://www.economicshelp.org/macroeconomics/economic-growth/benefits-growth/
0 Replies
 
Jewels Vern
 
  0  
Reply Wed 16 Oct, 2019 02:33 am
@ThomasTheApe,
Now you are getting complicated. In the world today all countries use unbacked paper currency. The central bank creates money and lends it into circulation. That means businesses have to grow or they can't repay their loans. So some businesses go bankrupt and the rest report growth, but the growth is not real. It is only inflation.

Doesn't entirely make sense, does it?
beantownmike
 
  1  
Reply Wed 16 Oct, 2019 03:32 am
@ThomasTheApe,
Have you ever heard of inflation?
0 Replies
 
ThomasTheApe
 
  1  
Reply Wed 16 Oct, 2019 03:40 am
@Jewels Vern,
The profits of the successful businesses (after loan repayments) are greater than the combined losses of the failed business and bank losses on failed loan repayment? Greater by the inflation rate?
0 Replies
 
livinglava
 
  0  
Reply Wed 16 Oct, 2019 06:09 am
@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?
hightor
 
  1  
Reply Wed 16 Oct, 2019 06:59 am
@ThomasTheApe,
Quote:
Why does an economy need to continuously grow to be seen as healthy?

Because late-stage capitalism is basically a Ponzi scheme.
Jewels Vern
 
  1  
Reply Thu 17 Oct, 2019 02:31 am
@ThomasTheApe,
In the west businesses are run on borrowed money. So a business has to make enough to pay the interest or go bankrupt. A bank does not have to have money to make a loan, but the business has to repay with money. So the economy has to grow just to stay even.
0 Replies
 
ThomasTheApe
 
  1  
Reply Thu 17 Oct, 2019 11:51 am
@livinglava,
This was a very eye opening post. I meant to reply to others, but I can only figure out how to reply to 1 person at a time. Here are some follow-up questions:

1. Is "Corporate Debt to GDP" the best indicator of where we are in this Ponzi scheme cycle? If not, what are your favorite leading indicators?

2. Am I correct that loan payments to banks are not on the GDP report?

3. What are the main types of loans by dollar amount? I looked but could not find this data on Google? Because this could be another indicator of where we are in the cycle?
livinglava
 
  0  
Reply Thu 17 Oct, 2019 08:40 pm
@ThomasTheApe,
ThomasTheApe wrote:

This was a very eye opening post. I meant to reply to others, but I can only figure out how to reply to 1 person at a time. Here are some follow-up questions:

1. Is "Corporate Debt to GDP" the best indicator of where we are in this Ponzi scheme cycle? If not, what are your favorite leading indicators?

2. Am I correct that loan payments to banks are not on the GDP report?

3. What are the main types of loans by dollar amount? I looked but could not find this data on Google? Because this could be another indicator of where we are in the cycle?
No indicator is reliable. They are all subject to manipulation to stimulate various market behaviors. E.g. if the belief is widespread that trade-war recovery will induce growth, then politicians and market analysts will attempt to influence markets by speaking to that belief among investors in various ways and otherwise influencing them.

You should learn to analyze every piece of information from the perspective of, "what market behavior(s)/trends might be stimulated by this information?" and "whose interest(s) would it be in to propagate this information and why?"

You can never know when others are trying to trick you into buying in so they can short-sell the stock after you helped push it up with your purchase; OR when they are trying to trick you into selling so that the stock price will go down do they can buy low and sell high later.
ThomasTheApe
 
  1  
Reply Thu 17 Oct, 2019 09:05 pm
@livinglava,
But I'm not talking about news stories. I'm talking about hard data.
livinglava
 
  0  
Reply Fri 18 Oct, 2019 11:01 am
@ThomasTheApe,
ThomasTheApe wrote:

But I'm not talking about news stories. I'm talking about hard data.

Regardless of how 'hard' or 'soft' you may consider a certain piece or pattern of data to be, they all have the same effects. People review them and make decisions about investment, financial planning, and other economic activities.

When some analyst, investment banker, etc. makes a case for certain investments, etc. based on 'hard data,' that is just another way of marketing a product to people who have money to spend on that product. It's the same as a tractor salesman telling a farmer that a certain tractor make and model is going to perform best and is thus worth the price.

Tractor salespeople want to sell tractors to farmers and investment bankers, CEOs, etc. want to sell investment products to investors.
ThomasTheApe
 
  1  
Reply Fri 18 Oct, 2019 12:01 pm
@livinglava,
Ok but what if I'm not relying on a third party (investment banker, CEO, etc.) to interpret the data for me?

Most of this data comes from government institutions (BEA, Census Bureau, Bureau of Labor Statistics, FOMC, etc.) or from nonprofits such as The Conference Board.
livinglava
 
  1  
Reply Sat 19 Oct, 2019 08:33 am
@ThomasTheApe,
ThomasTheApe wrote:

Ok but what if I'm not relying on a third party (investment banker, CEO, etc.) to interpret the data for me?

Most of this data comes from government institutions (BEA, Census Bureau, Bureau of Labor Statistics, FOMC, etc.) or from nonprofits such as The Conference Board.

You asked about "where we are in the cycle." What I'm trying to tell you is that everyone is trying to manipulate markets in various ways, including governments, central banks, investment banks, etc.

It is possible that markets are segmenting into different sub-markets with relatively independent cycles, which function somewhat independently of one another and act as stabilizers for each other.

For example, let's say you have certain stocks that lure investments away from others so that those stocks rise and fall more dramatically and provide more of a risk-casino environment so that other stocks can rise and fall more gradually, with less pressure to generate big gains and losses due to volatility.

In that sense, you could have fast/volatile cycling stocks/markets occurring simultaneously with other, more stable stocks; and would it then still be the case that markets as a whole would rise and fall through an overall cycle?

When recession occurs, investors across the board undergo losses, leading to budget cuts, decreasing investment, pressures to layoff workers and/or cut salaries, etc.

If such recessionary accommodations are done pro-actively, no recession necessarily would occur, but if investors assume no recession and continue to invest without caution, that would push up stocks and stimulate recessionary pressures. The more money stays out of markets, the less pressure there is for growth, but it's difficult to achieve deflation because there is fear of uncontrolled decline (i.e. crash) and so central banks lower interest rates, governments enact various stimulus/trade measures, etc.

Think about your own interest in finding a reliable indicator of whether markets will be rising or falling. You are, presumably, like everyone else trying to invest in either growth or decline in order to make money. The very fact that so many people are doing this same thing, however, is what is driving markets; so it is basically like a war to trick other investors into buying in when you want to short-sell, or trick them into selling so you can buy at a low price.

If there was a way to analyze the cycle outside of this speculator war of deception, then markets would just stabilize and it would be much more difficult to make quick, easy money, which is what the volatility facilitates. If that would occur, there might be something more predictable in terms of business cycles, but then people would still be looking for little niches where they could invest in faster returns, and the question is what would prevent lots of money from migrating into those niches and thus affecting overall growth/recessionary movements in the more stable parts of markets.
ThomasTheApe
 
  1  
Reply Sat 19 Oct, 2019 09:35 am
@livinglava,
So you're saying that you think that all markets (not just stocks) are perfectly efficient, and there is no point trying to analyze data?

But also, since you say that "everyone" is looking at the same data, I would say that...

1. Not everyone looks at this stuff in the first place.
2. There are people who control a lot of money (think BlackRock, Vanguard, etc.) that actually move markets. But the average individual investor will have no affect on the market.
 

 
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