Perpetual economic growth

Bozo Erectus

Master Baker
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Some very basic economics questions Ive been wanting to ask our local economists here. My knowledge of economics is pretty limited, so excuse me if these are especially dumb questions.

As far as I can tell, the global economic model is based on perpetual growth.

1. Why is that?

2. Why is it desirable?

3. Is endless economic growth even sustainable in the long term? Wouldnt it ultimately hit a wall, like finite resources, finite arable land, sustainable population, waste, pollution, and all of that?

4. Is the perpetual growth model responsible for most of the problems facing the world today?

edit:

5. Or is it the solution to most of the problems facing the world today?
 
Some very basic economics questions Ive been wanting to ask our local economists here. My knowledge of economics is pretty limited, so excuse me if these are especially dumb questions.

As far as I can tell, the global economic model is based on perpetual growth.

1. Why is that?

2. Why is it desirable?

3. Is endless economic growth even sustainable in the long term? Wouldnt it ultimately hit a wall, like finite resources, finite arable land, sustainable population, waste, pollution, and all of that?

4. Is the perpetual growth model responsible for most of the problems facing the world today?

From my understanding economic growth is necessary alongside population growth. Since GDP represents the output of an economy, if people are added to said economy without a corresponding increase in GDP there is less per person. Whether it be tools, food, housing, financial services, or plasma TV's.

Economic growth can absolutely be sustainable and is in fact necessary. It is necessary in that we need it to replace outdated or broken tools, buildings, and modes of transportation. Economic growth is creative destruction and is not necessarily bad, imagine if GDP rose because of the construction of environmentally friendly housing, energy efficient tools, recycling facilities, and the revival of commuter rail lines. That would not be bad at all and would in fact add to sustainablility.

It would be ideal if we could reach a population equilibrium where the growth rate is equal to the death rate and we could still experience moderate GDP growth. We have enough land and materials to feed and produce tools for every man woman and child on earth right now it's just a matter of how that wealth is distributed. If population rises too fast and outstrips GDP growth people are on the whole worse off.

I wouldn't say the model is responsible for the worlds problems I'd have to say the problem is us.
 
Mullholland, IYO, is it primarily about population growth? Because growth is tracked quarterly, and if there is low growth in just one quarter, its seen as a major problem.

Isnt rising population tied to economic growth? Dont we have high global population growth because of high economic growth?
 
No, economic growth is not primarily about population growth. You're thinking of an out-dated model that been passe for awhile.


For starters, an understanding of the Solow growth model would be useful for discussion in a topic. Solow doesn't account for entreprenuership though, leading to a rival model, endogenous growth theory.

Economic growth can occur via technological innovation, which may mean that we use less resources than before. Computers, for example.

Further, economic growth tends to REDUCE birthrates because , economically speaking, the return of labor decreases as an economy develops. The developed world would have a negative birth rate if it wasn't for immigration.

Therefore, economic growth doesn't increase the population, per se. It actually would reduce it, at least, that's the conclusion one draws from looking at it historically.

http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate
 
Mullholland, IYO, is it primarily about population growth? Because growth is tracked quarterly, and if there is low growth in just one quarter, its seen as a major problem.

Isnt rising population tied to economic growth? Dont we have high global population growth because of high economic growth?

I think the two are definatley interrelated. More population means a lot of things. First, it means more people demanding goods and services; let's be honest we need them to survive. It also means more people willing to work and innovate. When people want something they are willing to produce it directly or indirectly, the latter which takes place today in the global economy. This is really a chicken or the egg question, I think. More economic growth means that more people can be added to the economy without drving down wages or becoming an burden on the system, and more stomachs and brains means more demand and innovation.

At the base of it I think it depends really on how the two interplay and what we value. Maybe one day people will decide that they no longer wish to consume trashy magazines with Brittnney Spears on the cover. People who produce these magazines will lose their jobs and enter the work force because of this because it is no longer valuable to produce such a despicable rag. But perhaps this will correspond to an increase in the demand for the Economist, so in order to meet demand the economist will take these people on.

At the base of it modern economies started by providing for peoples immediate needs through the barter system. Surpluses increased the carrying capacity and population and people were mostly willing to put in the work and innovation to better their lot. Introduction of fiat currencies allowed these barter economies to grow and specialize and develop financial industries. Today's system is immensely complex and sometimes shocks to the system throw things a little out of whack.

But at the base of it there is the human desire to provide for his needs, get a few luxuries in life, and grow and innovate. On a large scale negative GDP growth might make someone lose their job for a while, or drive down wages, but in the end I think human nature will overcome any great trial.
 
I would say it is not primarily about population growth. Certainly the economic growth difference between the US and Europe can partially be explained by greater American population growth, but BOTH places are growing WAY beyond population growth. Population growth of 2-3 percent per year? Forget about it.

I think Mulholland's comments about investing in efficient infrastructure miss the point a bit. Yes, that would lead to a shorter term period of growth, but in the long-term (100 years?), would there be a wall after most of retro-fitting is complete?

To achieve growth for a very long time (500 years, say), two things would need to happen: people would have to stop liquidating their resources faster than they are replaced (which isn't really a "profit"), and there would have to be continued technological growth and breakthroughs. At a constant technology state, economic growth should eventually converge with population growth.
 
Jericho, population growth rates have slowed in recent decades, is that because of economic growth?

So why is perpetual economic growth so important? I dont get it.
 
I think Mulholland's comments about investing in efficient infrastructure miss the point a bit. Yes, that would lead to a shorter term period of growth, but in the long-term (100 years?), would there be a wall after most of retro-fitting is complete?

What actually lasts 100 years though? Retrofitting and economic activity is an ongoing process. Hell, we have bridges that barley last 50.
 
What actually lasts 100 years though? Retrofitting and economic activity is an ongoing process. Hell, we have bridges that barley last 50.

True, but you could continually retrofit at a zero or negative GROWTH rate. So it is not that I am saying you are wrong, just incomplete. This process of change would have to be effective enough to curb resource depletion while maintaining technology growth. It is possible that all this re-investment may still not be enough and we don't grow in the long-term.
 
No, economic growth is not primarily about population growth. You're thinking of an out-dated model that been passe for awhile.


For starters, an understanding of the Solow growth model would be useful for discussion in a topic. Solow doesn't account for entreprenuership though, leading to a rival model, endogenous growth theory.

Economic growth can occur via technological innovation, which may mean that we use less resources than before. Computers, for example.

Further, economic growth tends to REDUCE birthrates because , economically speaking, the return of labor decreases as an economy develops. The developed world would have a negative birth rate if it wasn't for immigration.

Therefore, economic growth doesn't increase the population, per se. It actually would reduce it, at least, that's the conclusion one draws from looking at it historically.

http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate

I completely agree with you on the point that economic development reduces birthrates Jericho. But at the base of the global economy is the ability to provide for basic needs such as Food and shelter. All else comes after.

Can you say that population has no effect on economic growth? I for one don't think the US would be nearly as innovative as it is today without it's relatively large well educated population.
 
What actually lasts 100 years though? Retrofitting and economic activity is an ongoing process. Hell, we have bridges that barley last 50.

Mul, respond to my post, did you get what I said. Sorry Sobieski.

Oh, and homes last hundreds of years.
 
@@Mulholland

I think the two are definatley interrelated.
No, they are not directly related. They are inversely related. Read my post. Economic growth reduces birthrates. Period.
 
True, but you could continually retrofit at a zero or negative GROWTH rate. So it is not that I am saying you are wrong, just incomplete. This process of change would have to be effective enough to curb resource depletion while maintaining technology growth. It is possible that all this re-investment may still not be enough and we don't grow in the long-term.

I'm not sure if it would be at a zero negative rate though. Let's take the hypothetical example of transport.

Imagine fuel costs rising to the point where people need to find alternatives to save their pennies. Combustion engines would not disappear overnight and the subsequent increase in the production of hybrids, electrics, and use of commuter rail lines who enter the market to take advantage of the increased price in transport would grow astoundingly. Private investors would see the promise and invest. So I think the growth in other areas, in this scenario would be more than enough to offset the decline in production of the old combustion engine.
 
I completely agree with you on the point that economic development reduces birthrates Jericho.

Can you say that population has no effect on economic growth? I for one don't think the US would be nearly as innovative as it is today without it's relatively large well educated population.

The size of the population doesn't matter for developed economies! Growth isn't just pop based in a modern economy. Look at the difference between third-world, developing world, and developed world economies!
One relies on returns to labor to improve their economy, the other two don't.

You've just accepted a point that goes contrary to what you've stated. Over time, as an economy grows, its birth rates decline, because returns to labor begin to be overshadowed by returns to capital, education, technology, and endogenous factors.
 
Jericho, why is perpetual economic growth so important?

Because its a good thing to improve the well being of humanity? Because we're an ever curious, innovative species? Because eventually economic growth will solve the problems it created (global warming) and lead us to leave this planet?
 
The funny part is that all else equal, the industrial nations' populations will grow more based on cultural/religious/social values. "Economic" population growth is reduced (having kids to help out on the farm), but Mormon/Orthodox Jew/Evangelical population growth doesn't fall as much. Hence, the US and Israel will likely have higher population growth rates than other industrialized countries.

Of course this isn't completely true. Liberal countries with strong social safety nets (Norway, France, Sweden) have been showing strong population growth compared to conservative, yet less religious (compared to the US), countries with weaker pro-natal social policies (Italy).

I'm not sure if it would be at a zero negative rate though. Let's take the hypothetical example of transport.

Imagine fuel costs rising to the point where people need to find alternatives to save their pennies. Combustion engines would not disappear overnight and the subsequent increase in the production of hybrids, electrics, and use of commuter rail lines who enter the market to take advantage of the increased price in transport would grow astoundingly. Private investors would see the promise and invest. So I think the growth in other areas, in this scenario would be more than enough to offset the decline in production of the old combustion engine.

I understand, and I am not saying you are necessarily wrong. I was just saying that it is possible that this investment will fail, and we continue to overconsume resources beyond our ability to solve the problem with technology.
 
Imagine fuel costs rising to the point where people need to find alternatives to save their pennies. Combustion engines would not disappear overnight and the subsequent increase in the production of hybrids, electrics, and use of commuter rail lines who enter the market to take advantage of the increased price in transport would grow astoundingly. Private investors would see the promise and invest. So I think the growth in other areas, in this scenario would be more than enough to offset the decline in production of the old combustion engine.

Fuel costs wouldn't do this because as prices rise, alternatives will be developed, and eventually prices will fall. Every industry goes through this process.

Infrastructure investment was the way to improve a developing economy into a developed one. Developed economies are going to improve their growth not through infrastructure creation (they have that), but infrastructure maintenance and technological (knowledge) innovation.
 
No, economic growth is not primarily about population growth. You're thinking of an out-dated model that been passe for awhile.


For starters, an understanding of the Solow growth model would be useful for discussion in a topic. Solow doesn't account for entreprenuership though, leading to a rival model, endogenous growth theory.

Economic growth can occur via technological innovation, which may mean that we use less resources than before. Computers, for example.

Further, economic growth tends to REDUCE birthrates because , economically speaking, the return of labor decreases as an economy develops. The developed world would have a negative birth rate if it wasn't for immigration.

Therefore, economic growth doesn't increase the population, per se. It actually would reduce it, at least, that's the conclusion one draws from looking at it historically.

http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate


Therefor, we can jump straight to the following conclusion.

Economic growth and development by a particular group of people becomes a method of self-elimination, since that group's population growth turns into a decline. That would jive very well with fears that the US will turn into Mexico and Europe will turn into Arabia, meaning that white people will eventually become extinct or extremely rare.
 
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