The weird logic of economic growth

by Philip Brewer on 31 March 2008 7 comments
Photo: alykat

Ever notice that we have names for a period when the economy isn't growing (recession or depression), but there's no name for when it is growing?  If they call it anything, economists and politicians call it a "period of normal growth."

People care about growth because it gives us a way to solve our most uncomfortable economic problem--poverty:  growth lets everyone get rich.  As a bonus, we can also solve our most uncomfortable political problem--inequality:  as long as the poor can get rich, they don't mind if the really rich get super rich and the super rich get hyper rich.

So, how do you get more growth?  There are two ways:  You can have more workers or you can have workers produce more stuff.  (At the extreme, perhaps you can produce stuff without workers at all.)

More workers

This is the easiest way.  I'll talk about population growth and immigration in a minute, but let's start with the quickest way to get more workers:  moving unemployed people into jobs.

Now, a few unemployed people may actually be sitting idle, but most of them aren't.  Most of them are already doing something, such as raising children, gardening, keeping house, doing home repairs, knitting sweaters, and running errands for family members who are too busy at work to run their own.

So many of these people are working, I think it's more accurate to refer to people as being paid versus unpaid workers, rather than employed versus unemployed.

When someone moves from unpaid work to paid work, it counts as "growth." They used to earn $0 a year and now they earn $x, therefore the economy has grown.  In fact, it almost grows double, because now the newly employed person needs to hire someone to do the formerly unpaid work.  When a housewife raises her own kids, the value to the economy is zero.  But when she gets a job and hires someone else to raise her kids, the value to the economy is two jobs:  hers and her nanny's.

I promised I'd come back to population growth and immigration.  These activities don't have much impact on growth.  Even as you grow the economy by adding workers, you're also dividing the pie up among more people.  The upshot tends to be that per capita income stays about the same.  As you add low-paid workers, you can kick up corporate profits a bit, but it doesn't amount to enough to increase the average person's share of the growth, even as it makes the total size of the economy bigger.

More productivity

Besides growing the workforce, the other way to increase growth is to increase productivity.  If each worker can do more work, everybody can come out ahead.  The main way make workers more productive is through investment in things like tools and equipment.  You can also make workers more productive through education, although we've not had much success with that, except where workers choose to make themselves more productive by investing in their own education.  (A third obvious possibility--greater productivity by making job conditions more like sweatshops--doesn't get much praise, except in industry-specific trade journals.)

You can increase productivity by just investing in more tools and facilities:  More tractors, more combines, more backhoes, more printing presses, more salon-style hair-washing sinks.  When people talk about increasing productivity, though, nowadays, they're usually talking about doing it through technology.  More printing presses can make a printer more productive, but better printing presses can make him a lot more productive.  (And if you can make a printing press that eliminates the need for the printer, you're really on to something--see the self-serve copying and photo printing equipment at any Kinko's or Walgreens.)

Predictive dialers made telemarketers much more productive until the No-call List destroyed the industry.  Bigger tractors and bigger combines make farmers (although not necessarily farms) more productive.  The internet makes all kinds of publishing and information distribution more productive.

Technology gets all the sexy attention, but the real way that productive has been increased, has been through the use of energy.  Since the industrial revolution, people have been applying more and more energy, both raw energy, and energy fixed in tangible forms (fertilizer, plastic, concrete) to every kind of production.

It's the ever-increasing use of energy that has given us the idea that we can stick the word "normal" on the front of the phrase "periods of growth."

Periods of normal growth

Because perpetual growth solves the ticklish economic and political problems of poverty and inequality, economists and policy makers like it.  And, because we've had so much of it these past few hundred years, we're able to think of it as normal.  It really isn't, though.  Perpetual growth is a weird notion--obviously impossible in the long run, and only attractive to people who look at things like standard of living with blinders on, ignoring the value of unpaid work.

If perpetual growth is weird and unsustainable (and unattractive, when looked at in context), and if economic contractions are bad for almost everybody, what else is there?  Nothing but the almost unnoticed possibility of stability.

Nobody talks much about stability.  Both economists and politicians treat it as an unnatural state--like a teeter-totter in a precarious and momentarily balance, sure to tip one way or the other after only the briefest of pauses.  Never mind that you can find examples of dynamic stability throughout the natural world--look at any forest or prairie.  In economics, stability is an unmentionable freak.

The thing about stability is that it isn't so wretched as to demand a fix (the way recessions do) but it also doesn't give us a way to solve the problem of poverty, except by solving the problem of inequality.  That's not a very attractive option for poor people (and you don't even want to mention it to rich people).

The thing is, as energy gets more and more expensive, it's going to get harder and harder to go on increasing productivity simply by applying more energy to all of our problems.  Boosting growth by putting more and more people into the money economy hasn't played itself out yet, but it's getting close.  Technology is great for helping us apply energy to solve problems, but only so-so at making people more productive with less energy.

Individual strategies

What can individuals do, to make themselves less vulnerable if these trends turn against us?

Our whole economic system is based on perpetual growth, driven by the twin engines of moving every worker into the paid economy and by applying more and more energy to production.  The strategies for individuals, then, are to move in a contrary direction:

Instead of moving every adult in your household into paid jobs, have as many adults as you can spare doing unpaid work (both work that you'd otherwise have to pay to have done and work that raises your standard of living).

Instead of applying more and more energy to solve every problem, look for low-energy solutions.  Also, while energy is still cheap, fix it in tangible form--there's no better way to store energy than to use it to manufacture a durable object.

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Guest's picture
Jason

This is something that I have been thinking about for a while now. I was even thinking about going to an economics professor at my university to see how it would actually be possible to have perpetual growth. I think you've brought up excellent questions, but I don't exactly see how your solutions will help in the matter.

Guest's picture

Actually, economists call the period when the economy is growing the growth period or expansionary period. It's also sometimes referred to as the recovery period immediately after a recessionary period by business cycle theorists.

And there's no economic reason why growth can't continue for the next thousand years, as long as innovation continues. A 200+ year trend isn't something I'd bet against.

Xin Lu's picture
Xin Lu

I think that innovation and technology actually takes away jobs.  For example, my mom is an accountant and in the past it took 50 accountants to manage a couple billion dollars, but now with better software it takes about 5.  Sure, perhaps there will be more high tech jobs, but not everyone has the money to get the training for these jobs.  So I don't think infinite economic growth is possible unless there is adequate training for workers that is easy to come by.

Guest's picture

Thanks for this thoughtful post. It and the comments raise some important issues. One of the reasons we focus so much on job creation is that technology has been making us more efficient but we keep on working as many hours or more than we used to. So our solution has been to try to increase consumption, to put all these extra people to work (people no longer needed to provide our basic necessities and people created through unabated population growth).

Contrary to one comment, innovation and technology cannot enable perpetual economic growth. We have a finite supply of natural capital (resources) and we are in the process of liquidating them right now, because of our obsession with economic growth and our ignorance of population growth. Economic growth unfortunately consumes these resources.

I also think that economic growth is an inefficient means of bringing people out of poverty. Look at how much poverty remains in the world and how many uber-rich we have. If we keep growing until everyone is out of poverty, we'll have consumed several Earths in the process. The growth profiteers do love to trot out the notion of ending poverty as a defense of their excess, but I don't think we should buy it. They spend very little of their time and money trying to eradicate poverty (in fact, they spend most of their time exploiting the impoverished, who interest them only as a source of cheap natural resources and as a potential market to buy their products).

Your notion of stability is on the money. There are economists (a few) and even organizations promoting a steady state economy. Rather than list them here, I'll suggest you visit my documentary website and look in the economic growth section for some excellent books and organizations.

I applaud the excellent use of logic here! We need more of that.

Dave Gardner
Producer/Director
Hooked on Growth: Our Misguided Quest for Prosperity
www.growthbusters.com

Guest's picture
Miranda

Expansion is the word often used to describe growth. In a healthy economic cycle, there are periods of slow down as well as growth. It actually makes the economy more unstable to try and perpetuate growth without a natural fallback.

Philip Brewer's picture

@Dave:

Look's like a fascinating movie, and I'll poke around on your site some more.  Thanks for the link

@Miranda:

You're right, that efforts to force permanent growth are part of the problem.  My own vision is to move beyond cycles of growth and recession.  Rather, we can embed the growing and shrinking of sectors within a stable economy. 

There will always be parts of the economy that need to shrink--due to changes in tastes, changes in technology, overexpansion caused by errors of judgement, and simple bad luck.  But that doesn't mean that the whole economy needs to shrink.  If we didn't try so hard to prevent any shrinkage, there'd be more sectors ready to grow, able to take up the slack.

Guest's picture
jk

Another way to get unpaid work into the economy is to invade a country, topple or influence the government, and induce poverty among peasants (who were miraculously managing to exist with nominal incomes far less than that required to purchase necessities.) You can do this by economically "growing" one part of the country, so prices rise. The peasants and nomads adjust to suruvive, whether it's growing more profitable global crops like opium poppies, or moving to a city to work in a factory.