ELI5: Why does the economy require to keep growing each year in order to succeed?

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Well, the question will be addressed in the future, because some countries are already experiencing population decline. The growth of an economy should, at least notionally, reflect the growth of it’s population – the people. A non-growing economy when population (especially working population) is growing is a pretty bad thing. Just think of it this way, forget the economy at large and think about food. If food production remains steady and population doubles – that cannot, in general, be a good thing. The challenge of economic management, technology and production is to meet the needs of the people and not to “achieve” certain measures. The measures are what is used to give a broad indications to allow some time for policies and resource allocations to adjust – but the measure isn’t the end goal, it is a means to an end. The goal is the welfare of the populace.

phiwong

It’s kinda self-perpetuating. The economy grows because our whole economy is built around the idea of growth. We borrow against the future in the expectation of better returns, we invest in the future in the expectation of future gains. And within this system, individuals demand growth. Would you like to get a pay rise next year? Where’s that money/stuff/welfare going to come from? Either from growth (more money available), or from redistribution (taking from one to give to another) – with the obvious snag that redistribution means someone else has to have less money/stuff/welfare. So growth in the economy enables growth in individual wealth, welfare, and lifestyles. Lack of growth means stagnation. Recession means falling living standards. This is all putting aside the population size point, which I think is actually incidental to the point. Even with a stagnant population, you would still need growth for the above reasons. Now, it’s possible to imagine a post-growth economy but it’s pretty hard. There are big conversations around de-growthing the economy because infinite growth implies infinite consumption of resources, and we ain’t got infinite resources. It sort of shakes the very foundation of how everything works.

Genghis_Kong

I realize there is a rule against opinions, but this is an inherently political question. Every answer to this question will be an opinion tarnished by the commenter’s political ideology. The economy doesn’t require constant growth, capitalism does. The economy could refer to a whole lot of things, all generally relating to production, distribution, and consumption of goods. Capitalism isn’t the economy, it’s a type of economy, and it does require constant growth. This is because capitalists are constantly hoarding / isolating wealth from the working population. edit: correction, capitalism isn’t a type of economy, it’s a mode of production. My bad. As they take more, we need to produce more to compensate. But in doing so, we make the total amount of stuff bigger. So next time they take more, it’ll be more more than last time’s more. Capitalism makes no effort to meet people’s needs, it’s all about making profits for the capitalist. A system designed to meet people’s needs would not require such a constant and massive growth.

Tristan401

Your question is similar to why there is inflation. TLDR you need to give your citizens a reason to continue paying for goods and investing in companies. In a deflated economy, people will hold on to their money and not spend it knowing they can buy it for cheaper in the future. A steady inflation is beneficial to most world economies

cobannaboc

The reason why economies tend to grow (when allowed to) is because, in general, people want it to. People, in general, want higher living standards than they currently have and are willing to put in the work for it. We absolutely could have 0 economic growth and the world would not go under, the problem is when people generally want growth but there is no growth, there are other underlying problems causing this, that’s why 0 growth invokes the idea of economic chaos. ​ >Where does all this growth come from Essentially it comes from people figuring out more efficient ways to do something. This can be a new machine being bought that is quicker or more energy efficient, it can be a work process being automated so something that previously took 30 mins to do by hand is now done in 20 seconds by a piece of code or it can just be a completely new technology being invented (usually the real effect on economic growth comes once this technology has been tinkered with enough to make it cheap enough to actually be used by many people/companies). Edit: Because so many people seem to be saying this, let me say this again explicitly: Population growth is not the reason for economic growth, since any reasonable person will measure long-term economic growth as GDP *per capita,* not simply total GDP. Having more people in and of itself adds nothing to improve living standards.

diener1