Idiots guide please!
Why is growth in a country's economy so important? Clearly being a basket case is not great; but assuming the county's GDP (or GDP per capita) is awesome, if it was just as awesome the next year that would be a growth of zero and apparently that's bad. Why is it important that it's even more awesomer the next year?
Similarly with company profits; if a company is generating excellent sector leading profits one year and the next year they are doing just as well; I'd have thought that would be good news. But normally in that situation they could expect their share price to fall sharply and questions be asked of the board for 'only' being as awesome as the previous year.
I don't get it.
Why is growth in a country’s economy so important?
Tax revenue comes from economic activity, so if more people are employed and things are doing well you get more tax revenue to fund things like hospitals etc.
Every year inflation means that providing all those services (schools, prisons, roads) etc cost more, so if you're not increasing tax revenue every year, you can afford to pay fewer teachers etc year on year.
Specific to the UK, after decades of austerity and tax cuts, public services are in a dire state and need billions spent to get them back to where they were 15 years ago and that means we need billions more in tax revenue, which means we needs an economy billions larger than it is...
Of course, the biggest growth lever the government could pull is the one labelled "Rejoin the EU" but they are in total denial about restricting trade with our nearest trading partners having anything to do with economic activity, so it's all a bit of a farce....
Every year inflation means that providing all those services (schools, prisons, roads) etc cost more, so if you’re not increasing tax revenue every year, you can afford to pay fewer teachers etc year on year.
But we have an inflation target - we don't want too much inflation by we also don't want non. So if governments want inflation so why also need an antidote to inflation?
Tax revenue comes from economic activity, so if more people are employed and things are doing well you get more tax revenue to fund things like hospitals etc.
Well, yes. Economic activity that generates tax and company profit that generates income for investment is clearly a necessity. But...
Every year inflation means that providing all those services (schools, prisons, roads) etc cost more, so if you’re not increasing tax revenue every year, you can afford to pay fewer teachers etc year on year.
Yeah, but no but......'growth' and 'profits' are often reported in relation to inflation. So a company who had a profit increase that just matched inflation and no more would be considered to have had zero growth. Even though they might have raised bazillions and have plenty of cash to invest that would be considered to be bad.....even though it's good.
Yeah less is more by Hickel is good. As is Doughnut Economics by Kate Raworth.
In short, governments (and others) all use an increasing GDP as a metric for prosperity/wellbeing. Past a certain point, far below the GDP per capita of any western economy then there is 0 evidence to support this. Indeed Kuznets who pioneered GDP explicitly cautioned against conflating human wellbeing and GDP.
Capitalist economy or at least mainstream capitalistic economics does seemingly require growth though. It has to find new markets etc to exploit profit out of its production. People like Hickel and Raworth are exploring whether we can actually keep a capitalist economic organisation without growth (in the case of Hickel then actually degrowth/degrowing within the larger economies).
There are lots of great podcasts etc available as intros to various 'post-growth' ways of thinking etc. I'm currently writing a paper through the lens of post-growth.
Gets you elected next time 'round, proving the Tories wrong
Unless inflation is zero, every year it costs more to provide the same services, so the government has to raise more tax revenue every year, just to stand still.
The simplest way to do this is to take the same % tax revenue from an economy which is growing faster than inflation.
Add in an aging population (higher health costs), falling worker to non worker ratio and you have a falling tax revenue and a rising welfare bill, so the only way to balance the books is higher growth and / or higher tax rate.
It just seems like ludicrous bullshit to me. We need a much better model or we're ****ed. You can't have constant growth when we have finite resources. Whoever came up with this model needs a stern talking to.
The simplest way to do this is to take the same % tax revenue from an economy which is growing faster than inflation.
Only if the growth in the economy is also fairly distributed and taxed, most growth is going to a few % of the population who have nicely engineered society to avoid tax.
Borrowing is also a factor. If you owe a gazzillion pounds but can grow relative to your debt (whether business or country) you get a financially healthier position. If you keep borrowing more but are only standing still then people start getting anxious which at the very least means that debt costs more.
Of course, the biggest growth lever the government could pull is the one labelled “Rejoin the EU” but they are in total denial about restricting trade with our nearest trading partners having anything to do with economic activity, so it’s all a bit of a farce….
I don't think they are in denial, they are in abject fear what the personalities who ripped us out the EU would do to them politically for seeming to go against the "will of the people". They need some prominent, articulate, well regarded, sensible people, to think up some solutions and start talking about them. The rabid umpa lumpa across the pond might just be about to do us a favour by showing how totally crazy politics doesn't actually work - something the majority of brits seem to be able to see why it comes from him.
Greed and the control of society
FWIW my ex-employer was fastidious with the old Excel spreadsheets and would work out every item of cost, down to the penny, including wages, equipment renewal, consumables and so on, then set hire rates to cover these costs. His objective was basically to break even each year. There will be other small businesses doing much the same. I think it's only once you get investors involved that it all goes tits up.
Modern capitalism is just a global, legal(ish) pyramid scheme as far as I can see. It's all going to come crashing down at some point, just a question of how long we can keep it up for this time. And don't get me started on crypto.
A quick question
How do pensions and savings work in a zero growth economy?
Right now we're all busy saving away, knowing that compound interest and long term growth will mean that, come retirement, we've got a nice nest egg waiting for us.
If none of those companies we're invested in grow, what then?
My head starts to hurt.
Confidence.
And don’t get me started on crypto.
The Private Eye Podcast came up with the best description of cryptocurrency: Basically it's just gambling.
The opportunity for gains and, sadly, enormous losses fits very well with naked capitalism. With nothing physically backing it, you could buy a house or lose one overnight.
Profits? Not always a factor in growth. You might want to listen to a couple of episodes of Ed Zitron’s ‘better offline’ podcast on the ‘rot economy’.
‘talking to my daughter about the economy’ is a good, easy read on economics and politics. It came ‘vulture capitalism’ and has the advantage of being readable and coherent. The latter though pulls apart the notion of current capitalism being ‘free market’ based. TLDR - it’s a fix, designed and maintained to keep those with capital in place.
I’m perhaps being hyperbolic, but be aware that economics is less of a ‘science’ than sociology and some of the ‘equations’ and ‘models’ would make a physicist blush with their approximations.
also, see ‘Chicago school’ for a selection of world-breaking nonsense.
If none of those companies we’re invested in grow, what then?
‘Grow’? What about when they tank?
compound interest must be balanced against inflation - which also compounds. The latter being regularly misunderstood when politicians and news outlets equate a drop in the rate of inflation with a drop in prices. Not the way it works. As we see, lower inflation means prices rise more slowly.
news outlets equate a drop in the rate of inflation with a drop in prices. Not the way it works. As we see, lower inflation means prices rise more slowly.
To be fair they don’t - certainly what I see and read (the “right wing” BBC and the Guardian) they generally try to point out this is the case. Other outlets may vary. But politicians of course have a very loose relationship with telling people what’s really going on.
Cos it's the standard metric by which big economies are judged on.
It's horseshit in terms of real outcomes but that's the way we have played capitalism.
We're so deep into this idea that we're terrified of looking at the big picture of how poorly we are solving big issues - which is met with derision to protect the status quo.
Long time frames we will look back and regret.
Everyone wants a bit more all the time. So people ask for more money, which means companies need to sell more stuff to provide more money to pay their staff and themselves. This causes inflation, which you need a bit of (in the current system) because it reduces debts over time.
Of course, it doesn't have to be this way, technically, but no-one has any idea how to change the economy of the entire world. Despite what people say the system we have now wasn't planned to oppress the masses - it just sort of evolved that way naturally, with oppression built in, and although the rich are quite happy with it there's not a lot anyone can do about it right now. The last time it was tried didn't go very well.
Because governments need the tax revenue to keep going up so that they can spend more on the country. In simple terms think back to the beginning of the 20th century, kids stayed in school until 12 years old, those schools had nothing more technical than a blackboard an maybe a few Bunsen burners, there were no motorways, no nuclear weapons equipped submarines, no satellites in space, all the stuff that we have now and take for granted costs £billions and the government pays for a lot of it, economic growth often equals technological growth.
And expectations for people increase. We have two cars and I just bought a coffee scale so I can accurately weigh my coffee grounds and resultant espresso to optimise the taste. Someone has to make that tat and those cars. You will surely scorn these things and perhaps justifiably, but where do you draw the line? What decade would you like to stop at? 1980s? 1950s? 1850s?
Tax revenue comes from economic activity, so if more people are employed and things are doing well you get more tax revenue to fund things like hospitals etc.
Nope. Tax revenue comes from money held in the economy. GDP is a measure of money being 'spent'- moving it around in exchange for goods and services. A lot of money is sat in bank accounts and other investments but doesn't contribute to GDP, but it could still be taxed. Tax doesn't pay for anything, all it does is remove money from the economy to control inflation. It's an arbitrary choice not to tax asset holders and instead place the burden on incomes, consumer spending and capital gains. Govt services wouldn't collapse because the govt controls the money supply. What we need to do is balance money supply against money taxed to achieve stable prices. Endless GDP growth is only required if a lot of the money in the economy disappears into bank accounts never to be seen again.
Basically the way we manage our economy is a result of ideological groupthink. We could manage it very differently if we wanted which wouldn't require endless GDP growth. The reason we don't do that is because rich people would lose out. More imagination is required.
Tax revenue comes from economic activity, so if more people are employed and things are doing well you get more tax revenue to fund things like hospitals etc.
Money has to enter (be created) the economy before tax can be collected (destroyed) otherwise you're suggesting the private sector is counterfeiting to create pounds to give to us.
It's staggering the results for GDP have been technically so bad for so long and few recognise the lack of government investment in this process. Instead we carry on banging our heads.
It would be pragmatic to notice this but faulty idealogues rule the roost.
Economic growth is measurable and so that's become the thing we measure
Bhutan for example uses 'Gross National Happiness' but I have no idea how they measure that, even if it sounds better.
Also, remember that things like state pensions are a pyramid scheme, as soon as we get a drop in the size of the economy, or a fall in the population (which we so desperately need, at least a global if not national level, for the sake of the planet) then the whole thing collapses.
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As for companies rather than countries, they are mostly by people who want to make money, and it is human nature to want to make more. People like me who are happy with what we have tend not to be the kind of people who are happy to take the risks put in the effort running a company involves.
where do you draw the line?
Just before coffee scales 😉
USA massive stimulus = big growth.
Trouble is the micro economy hasn't been managed in that instance. Giving Trump a good inroad.
Mexico's Claudia Sheinbaum has got some great interventionist ideas being put on the table. Reeves could learn a lot by directing things towards public purpose rather than growth per se.
i guess if youre a builder, building a house.
You charge the customer for mateirals, and you change them for your time, and you include a bit for the van, wear and tear on your hammer, etc.
All is fair, youve been paid, theyve got what they bought?
economic growth is that "little bit extra" that means in a few weeks you can employ a labourer, or buy a new nail gun, to "grow" the business?
I agree though, the markup some components of the chain make "just because", can be huge, while the markup others make (generally who are actually doing the digging, or milking the cows) is the thin end of F all. I guess its like footballers salaries. What i do isnt "hard", but it has not insignificant value to someone somewhere, apparently
and it is human nature to want to make more.
Is it? Again this is just ideological groupthink. Humans (or at least our species) have existed for around 200,000 years, and the concept of money has only been around for approximately 10,000 years. Modern money systems have only existed for a few hundred years. There's nothing natural about it.
It's human nature to want to be happy and secure and to live a life free from fear, stress and discomfort. That doesn't require endless GDP growth.
An interesting sideways take of this is from Paul Gilbert's book, The Compassionate Mind, which is about compassion-focussed therapy rather than economics, but begins by suggesting that a huge amount of personal stress is a direct result of an economic model which demands constant 'growth' to satisfy corporate shareholders / investors, so that work pressure cascades downwards from managers to staff at all level.
It's obviously something of a generalisation, but I don't think it's entirely divorced from reality.
As above, there's plenty of research - along with lived experience - that makes it very obvious that ' economic growth' and financial prosperity are quite different from well being and that having vast amounts of money doesn't guarantee happiness.
I'm always slightly bemused that we're told we're living in some sort of endless poverty, when quite evidently, compared to developing countries - or this country, say, in the 1960s or 70s - a lot of people are actually existing in cosseted luxury. It's a weird capitalist gaslighting thing.
Anyway, basically capitalism --> endless growth --> use up all the resources on the planet --> go to Mars and hollow it out / cease to exist in our current form / have a rethink before that point.
It just seems like ludicrous bullshit to me. We need a much better model or we’re ****. You can’t have constant growth when we have finite resources. Whoever came up with this model needs a stern talking to.
Two alternative ways of spinning that.
Your human capital is not a fixed finite resource. You could be employed one year, then get a extra qualification and onto a a more economically productive job. And the economy grows. No extra resources needed.
Do you need physical resources? Fossil fuels? Raw materials? A Software developer, Vet, Dr, Estate Agent, etc, consume almost nothing for example. It's not 1850, not everything is heavy industry and agriculture anymore.
Growth partially compensates for shit productivity.
However "turn the handle faster" requires more of everything from humans to raw materials. You don't need to be a economist to work out how that ends.
New technology is always aimed at doing more not less.
Again this is just ideological groupthink. Humans (or at least our species) have existed for around 200,000 years, and the concept of money has only been around for approximately 10,000 years. Modern money systems have only existed for a few hundred years. There’s nothing natural about it.
Honestly, you are just as guilty of ideological groupthink, just a different ideology. Let me make it absolutely clear I do not like the current system in principle and also personally because it keeps me shut up in a room doing boring stuff my whole life. But don't pretend there's a simple solution.
Humans have always sought more - or at least enough of them have. Money doesn't cause conflict. It also performs a very useful function. Sure, the desire for more money may be the cause of a lot of problems, but if it weren't for money those same people would be after something else.
It is true that it causes problems, but it also creates solutions. We do absolutely need a new way to run our lives, one much better than what we have now, but I'm buggered if I know how to fix that universally, and I'm pretty sure no-one else knows either.
Do you need physical resources? Fossil fuels? Raw materials? A Software developer, Vet, Dr, Estate Agent, etc, consume almost nothing for example. It’s not 1850, not everything is heavy industry and agriculture anymore.
All those things you mention are very resource intensive, most things are. Most emissions are within value chains. Vets and Drs need drugs, software engineers need data centres etc. The carbon and equivalents involved in an asthma inhaler for example are pretty substantial.
Your human capital is not a fixed finite resource. You could be employed one year, then get a extra qualification and onto a a more economically productive job. And the economy grows. No extra resources needed.
Doesn't my now ex employer take on somebody else to fulfill my role?
Money doesn’t cause conflict. It also performs a very useful function.
I’m not against money, I’m against individuals and corporations being able to hoard more of it than they need.
This is an excellent book on economics. Well worth at least one read. It explains why a 2% inflationary target is a good compromise.
https://www.amazon.co.uk/Shortest-History-Economics-Andrew-Leigh/dp/1913083497
Everyone wants a bit more all the time
Nope. I'm quite content with what I have. Capitalism conditions folk to want more
I believe in a zero growth economy. We have enough stuff. It needs to be more fairly distributed.
The constant drive for more is what has fubared the planet