Explain Like I'm Five | Don't Panic!
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eli5: Why is low or negative economic growth bad? If we have enough food, clothes and shelter for people wouldn't everything else that drives economic growth be excess and so should not matter? (self.explainlikeimfive)
submitted 8h ago by prOboomer
Why should I care about economic growth? Yes, jobs might be lost and people might be fire but shouldn't it be the job of the government to provide for people during these times? Also isn't economic growth bad for the environment (too much production of material goods)?
Helyos17 1 points 7h ago
People are posting a bunch of garbage answers that are hopelessly out of touch with how reality works.
The economy must grow because the population continues to grow. Imagine a pizza. The pizza can be divided all sorts of ways. Some more fair than others. We can talk endlessly about the best, most fair way to cut up the pizza but there is only ever so much pizza. And that’s totally fine until you are trying to feed more people with the same amount of pizza. Now this also goes back dividing up the pizza in a more fair manner. Two people eating half of the pizza sucks. It sucks even more when those two people aren’t sharing with the ever-growing number of people dividing up the other half of the pizza.
Now imagine that instead of even worrying about the division of the pizza you just make more pizza. That is essentially what our current Capitalist system is working towards. Making more pizza so the perverse way we divide up the slices is less important.
Let’s revisit the original analogy. You have an unfairly divided pizza and the two people with half the pizza start to get really worried when the other 5 or 10 or 20 or 200 people start noticing that there is less and less pizza to go around. This is where things get really ugly for those two people and probably a good many of the other people with unevenly sized slices.
But as long as there is more pizza being made everything can roll on as usual. Add in that because of some perplexing magic more pizza can yield even more pizza, it becomes even more important to keep an ever growing supply of pizza regardless of how much you think you might “need”.
The economy must grow because the population continues to grow. Imagine a pizza. The pizza can be divided all sorts of ways. Some more fair than others. We can talk endlessly about the best, most fair way to cut up the pizza but there is only ever so much pizza. And that’s totally fine until you are trying to feed more people with the same amount of pizza. Now this also goes back dividing up the pizza in a more fair manner. Two people eating half of the pizza sucks. It sucks even more when those two people aren’t sharing with the ever-growing number of people dividing up the other half of the pizza.
Now imagine that instead of even worrying about the division of the pizza you just make more pizza. That is essentially what our current Capitalist system is working towards. Making more pizza so the perverse way we divide up the slices is less important.
Let’s revisit the original analogy. You have an unfairly divided pizza and the two people with half the pizza start to get really worried when the other 5 or 10 or 20 or 200 people start noticing that there is less and less pizza to go around. This is where things get really ugly for those two people and probably a good many of the other people with unevenly sized slices.
But as long as there is more pizza being made everything can roll on as usual. Add in that because of some perplexing magic more pizza can yield even more pizza, it becomes even more important to keep an ever growing supply of pizza regardless of how much you think you might “need”.
Cumberbatchland 1 points 6h ago
I thought the west had a reproduction issue. We need on average 2.1 children per couple to sustain the current population number (or something like that) and a lot of countries don't have that.
The way western countries grow these days (in population) is through immigration (?)
The way western countries grow these days (in population) is through immigration (?)
Helyos17 1 points 6h ago
That is very true. Doesn’t really change the metaphor though considering that the global population will continue to grow for the next century at least and our economics are global.
Also consider that the decline in Western population will be very very gradual. An economy shrinking by even 1 percent is cause for alarm considering that an equal population reduction would be drastic.
Also consider that the decline in Western population will be very very gradual. An economy shrinking by even 1 percent is cause for alarm considering that an equal population reduction would be drastic.
Cumberbatchland 1 points 4h ago
Yeah, it is a great metaphor.
I'm excited to see how capitalism will solve the upcoming unemployment, as automation will replace labor.
If people can't earn, they can't spend, and the current system will collapse.
Either there will be a societal change, or there will be a revolution, and then a change.
I'm excited to see how capitalism will solve the upcoming unemployment, as automation will replace labor.
If people can't earn, they can't spend, and the current system will collapse.
Either there will be a societal change, or there will be a revolution, and then a change.
ghoulas 1 points 5h ago
Problem with your analogy is that 1% of people get 99% of the pizza, we don't need constant growth if we will not ovepopulate our world. Let's switch to sustained economy instead of constant growth it will be better for us and the world.
Helyos17 1 points 5h ago
I addressed that in the analogy as well. Population will continue to grow so even if you divide the wealth more evenly you will still need more of it to go around. You can only divide up something so many times before you need more something.
LUBE__UP 1 points 4h ago
This is nonsense for the vast majority of the developed world. Governments aren't elected by the world, they are elected by the citizenry of their respective nations - a citizenry that absent of immigration would be on a long term decline in most of the developed world , and yet those governments largely continue to push for immigration not so they can work harder to drive economic growth to keep all these new citizens happy with a 'pizza slice' that stays the same size, as you put it, but precisely because it's easier to drive growth as you expand both demand and supply of goods and labor through population growth.
The root cause of growth-above-all is simple - when you have more, more stuff, income, experiences, you get used to it very quickly and your level of happiness quickly adjusts back to what it used to be. This is known as the hedonic treadmill. Once that high wears off, you start to chase it again by acquiring yet more - a job that pays more, a nicer car, a bigger house.
Once you understand this aspect of human nature, everything else becomes obvious. Citizens might have a lot of secondary concerns like values and 'does this candidate look like a good person', but ultimately who most people vote for is who they think (erroneously or not) could make their material circumstances better tomorrow. So, faced with a citizenry that wants to see their lives improved, what can they do? They could redistribute the pie - tax the 1% more and transfer wealth to the less wealthy and in doing so make 99% of the population more well off, but then they very quickly confront the reality of the global economy in that wealth has become extremely mobile. The wealthy would just move their wealth to some other country. In some countries the wealthy have also turned the spinning of redistributive taxes into an art - let them tax me more today and tomorrow it will be you, if they tax me more I will have to pay you less, etc.
It turns out its a lot easier to just grow the overall pie, even if as a result of that the average joe sees his material circumstances improve by negligible amounts (or even decrease in real terms), and most of the benefit accrues to the ultra-wealthy. This political reality is why most governments continue to focus almost exclusively on overall GDP (which ignores distribution completely) and GDP per capita (which is heavily skewed by the highest income households). This is why so many developed countries immigration policies overwhelmingly favor the wealthy - who on a per-capita basis have biggest impact on GDP (by driving up demand for luxury goods) and in the short-term at least, do not drive down absolute wages for the common man (of course by driving up prices means those salaries end up being worth less in real terms, but lets not talk about that).
This is an oversimplication of course, there are many structural issues that mean stagnation or negative growth would wreak havoc on an economy, but you can usually understand those issues through the lens of man's basic desire to have more. For instance - debt carries an interest because the lenders want their capital to make more money (not just because of the risk of default *requires it,* as economics 101 would tell you), and for it to make financial sense to take a loan, a business or a homeowner would have to grow its profits or see the value of their house appreciate by at least as much as the interest on the debt they've borrowed. Taken in totality, you have a vast swath of society who need profits and prices to rise faster than the size of their debt, and incidentally you also end up with a system that very quickly goes wrong once growth stalls.
The root cause of growth-above-all is simple - when you have more, more stuff, income, experiences, you get used to it very quickly and your level of happiness quickly adjusts back to what it used to be. This is known as the hedonic treadmill. Once that high wears off, you start to chase it again by acquiring yet more - a job that pays more, a nicer car, a bigger house.
Once you understand this aspect of human nature, everything else becomes obvious. Citizens might have a lot of secondary concerns like values and 'does this candidate look like a good person', but ultimately who most people vote for is who they think (erroneously or not) could make their material circumstances better tomorrow. So, faced with a citizenry that wants to see their lives improved, what can they do? They could redistribute the pie - tax the 1% more and transfer wealth to the less wealthy and in doing so make 99% of the population more well off, but then they very quickly confront the reality of the global economy in that wealth has become extremely mobile. The wealthy would just move their wealth to some other country. In some countries the wealthy have also turned the spinning of redistributive taxes into an art - let them tax me more today and tomorrow it will be you, if they tax me more I will have to pay you less, etc.
It turns out its a lot easier to just grow the overall pie, even if as a result of that the average joe sees his material circumstances improve by negligible amounts (or even decrease in real terms), and most of the benefit accrues to the ultra-wealthy. This political reality is why most governments continue to focus almost exclusively on overall GDP (which ignores distribution completely) and GDP per capita (which is heavily skewed by the highest income households). This is why so many developed countries immigration policies overwhelmingly favor the wealthy - who on a per-capita basis have biggest impact on GDP (by driving up demand for luxury goods) and in the short-term at least, do not drive down absolute wages for the common man (of course by driving up prices means those salaries end up being worth less in real terms, but lets not talk about that).
This is an oversimplication of course, there are many structural issues that mean stagnation or negative growth would wreak havoc on an economy, but you can usually understand those issues through the lens of man's basic desire to have more. For instance - debt carries an interest because the lenders want their capital to make more money (not just because of the risk of default *requires it,* as economics 101 would tell you), and for it to make financial sense to take a loan, a business or a homeowner would have to grow its profits or see the value of their house appreciate by at least as much as the interest on the debt they've borrowed. Taken in totality, you have a vast swath of society who need profits and prices to rise faster than the size of their debt, and incidentally you also end up with a system that very quickly goes wrong once growth stalls.
PuzzleMeDo 1 points 3h ago
If there's negative economic growth, the government can't afford to do things like provide for the unemployed, because their income is decreasing too. If the government has borrowed money, they need growth just to be able to pay off the interest on the national debt. We need growth. (We could also try taxing the rich, but we basically need their permission to do that, because of the amount of power the rich have in our society.)
We don't just need food and clothes and shelter, we need tractors and trucks and trains and fuel - otherwise the food wouldn't make it from the farm to your house. That probably involves importing things. So what are you exporting in order to pay for the imports?
We don't just need food and clothes and shelter, we need tractors and trucks and trains and fuel - otherwise the food wouldn't make it from the farm to your house. That probably involves importing things. So what are you exporting in order to pay for the imports?
PeterHorvathPhD 1 points 3h ago
The whole capitalism is based on growth of wealth (small or large wealth: doesn't matter, it grows). Why? Because everybody expect growth of wealth. Why? Because we are told that it's normal to expect growth of wealth.
A little historical detour of the whole capitalism. The word *capital* means a sort of wealth that produces income just by its pure existence. It's like, I have this money and it makes a certain amount of new money every time. It sounds weird but the reason is that in old times the wealth was measured in herd animals, like cattle or sheep. Capital actually comes from the Latin word for heads, and it literally meant the the size (aka the "number of heads") of your cattle. So it was a natural idea that if you have wealth in form of herd animals, it will grow and produce a continuous income, just by existing.
So if you were a rich person who wanted to put his money somewhere, it was the rational choice to put it in a herd because it grows; instead of putting it into something else that doesn't. As a consequence, if someone wanted to open a business and borrow money from a rich person, they had to offer to match the wealth growth of a heard in form of interests, otherwise why would a rich man give you money instead of buying more cattle.
So the whole promise of the capitalism is that the wealth is continuously and passively producing income in order to match the growth of the cattle. We inherited that mindset even though nobody has cattle as the main form of their wealth anything.
This mindset is running the core of our economy. Everyone who expects interest rates or everyone who ever thought to buy an apartment and put it on Airbnb: they do capitalism. They expect their money to become more just by existing. And super important things like pension funds and saving accounts rely on this idea.
But if capital produces income, why does it have to grow? Because some people don't use up the whole income, and thus some income becomes capital. What does it mean?
Imagine again the cattle, that let's say produce 10% of income per year.100 animals produce 10 new animals. (It's the net gain, so 20 newborns and 10 deaths.) Then if you don't take out the excess, you start the next year with 110 animals that now produce 11. The next year's 121 animals produce 12. *Your yearly production is not stationary 10, but it grows 10, 11, 12, etc., if you leave the animals untouched.*
In other words the capital produces income, and the income becomes capital, meaning more expected income next year.
*And that's the encoded expectation of how wealth should behave.*
Now the systematic growth of everyone's wealth is only possible if the whole economy grows. If the economy stops growing, then the average wealth doesn't produce income but then it makes no sense to borrow money (i can just keep it in a vault), then there's no new business, etc.
Which leads to the last observation of capitalism. When it grows, it promotes more growth and it speeds up like a runaway train. Once it stops growing, it promotes more shrinking and collapses like an avalanche. In modern economy, the main role of the central bank and the government is to keep these two cycles in control by taxes, interest rates etc.
A little historical detour of the whole capitalism. The word *capital* means a sort of wealth that produces income just by its pure existence. It's like, I have this money and it makes a certain amount of new money every time. It sounds weird but the reason is that in old times the wealth was measured in herd animals, like cattle or sheep. Capital actually comes from the Latin word for heads, and it literally meant the the size (aka the "number of heads") of your cattle. So it was a natural idea that if you have wealth in form of herd animals, it will grow and produce a continuous income, just by existing.
So if you were a rich person who wanted to put his money somewhere, it was the rational choice to put it in a herd because it grows; instead of putting it into something else that doesn't. As a consequence, if someone wanted to open a business and borrow money from a rich person, they had to offer to match the wealth growth of a heard in form of interests, otherwise why would a rich man give you money instead of buying more cattle.
So the whole promise of the capitalism is that the wealth is continuously and passively producing income in order to match the growth of the cattle. We inherited that mindset even though nobody has cattle as the main form of their wealth anything.
This mindset is running the core of our economy. Everyone who expects interest rates or everyone who ever thought to buy an apartment and put it on Airbnb: they do capitalism. They expect their money to become more just by existing. And super important things like pension funds and saving accounts rely on this idea.
But if capital produces income, why does it have to grow? Because some people don't use up the whole income, and thus some income becomes capital. What does it mean?
Imagine again the cattle, that let's say produce 10% of income per year.100 animals produce 10 new animals. (It's the net gain, so 20 newborns and 10 deaths.) Then if you don't take out the excess, you start the next year with 110 animals that now produce 11. The next year's 121 animals produce 12. *Your yearly production is not stationary 10, but it grows 10, 11, 12, etc., if you leave the animals untouched.*
In other words the capital produces income, and the income becomes capital, meaning more expected income next year.
*And that's the encoded expectation of how wealth should behave.*
Now the systematic growth of everyone's wealth is only possible if the whole economy grows. If the economy stops growing, then the average wealth doesn't produce income but then it makes no sense to borrow money (i can just keep it in a vault), then there's no new business, etc.
Which leads to the last observation of capitalism. When it grows, it promotes more growth and it speeds up like a runaway train. Once it stops growing, it promotes more shrinking and collapses like an avalanche. In modern economy, the main role of the central bank and the government is to keep these two cycles in control by taxes, interest rates etc.
dukeofurl443 1 points 8h ago
Assuming this is USA focused and in the most literal terms: Because if billionaires are not only making money but making progressively more money than they were before, then people are going to be made to suffer until they are back on whatever track they imagine themselves to deserve.
In theory: You talk like economic excess can only be applied to a pointless accumulation of wealth(and that’s why I assumed this was USA focused) but that excess production could mean virtually anything else in the right context. Everyone has their needs met? Ok, excess production cycles are now spent on a cure for cancer or some other positive goal that makes the cost to ourselves and the environment worth it.
That’s a gross oversimplification and still feels convoluted, but that’s what we do here
In theory: You talk like economic excess can only be applied to a pointless accumulation of wealth(and that’s why I assumed this was USA focused) but that excess production could mean virtually anything else in the right context. Everyone has their needs met? Ok, excess production cycles are now spent on a cure for cancer or some other positive goal that makes the cost to ourselves and the environment worth it.
That’s a gross oversimplification and still feels convoluted, but that’s what we do here
NatashOverWorld 1 points 7h ago
But in practice is a reasonable portion of it spent on cancer research or something useful?
Or is most of the excess going to super yachts and its ilk?
Or is most of the excess going to super yachts and its ilk?
hh26 1 points 6h ago
Some quick googling, wasn't able to find an exact answer, but
>The U.S. spends around $200 billion per year on cancer care
Cancer care, not research specifically, but that is a very useful thing economic excess can go towards
>Annual U.S. sales of boats, marine products and services are estimated to total $42 billion in 2019
That's all boats, including transportation and fishing, and yachts. But obviously doesn't count all of the other nonsense luxuries rich people waste money on.
If I'm being less "gotcha" about it, the honest is answer is "both". In practice, lots of money goes towards very useful, important, and unambiguously good things, and lots of money goes towards stupid, wasteful, and actively harmful things. If the economy grows, then more money will go to both. It's not like we ran out of good things to spend money on and therefore the extra all gets wasted and that's why people waste money, there's plenty of good things that aren't getting funded because the people who benefit from them and the people with excess money aren't the same people. When the economy grows in general, everyone ends up with more money and the wasteful people waste more and the good people do more good things.
Everything is a tradeoff. You'll never get good things with literally no cost, and you very rarely have bad things without some good side effects. It's just a question of which trades are worth it and which ones aren't. Economic growth is typically worth it, which is why the modern world is more pleasant to live in than the ancient world, despite all its flaws.
>The U.S. spends around $200 billion per year on cancer care
Cancer care, not research specifically, but that is a very useful thing economic excess can go towards
>Annual U.S. sales of boats, marine products and services are estimated to total $42 billion in 2019
That's all boats, including transportation and fishing, and yachts. But obviously doesn't count all of the other nonsense luxuries rich people waste money on.
If I'm being less "gotcha" about it, the honest is answer is "both". In practice, lots of money goes towards very useful, important, and unambiguously good things, and lots of money goes towards stupid, wasteful, and actively harmful things. If the economy grows, then more money will go to both. It's not like we ran out of good things to spend money on and therefore the extra all gets wasted and that's why people waste money, there's plenty of good things that aren't getting funded because the people who benefit from them and the people with excess money aren't the same people. When the economy grows in general, everyone ends up with more money and the wasteful people waste more and the good people do more good things.
Everything is a tradeoff. You'll never get good things with literally no cost, and you very rarely have bad things without some good side effects. It's just a question of which trades are worth it and which ones aren't. Economic growth is typically worth it, which is why the modern world is more pleasant to live in than the ancient world, despite all its flaws.
dukeofurl443 1 points 9m ago
Reasonable is kind of subjective, but a little research paints a picture of excess being hoarded unlike any other time in history so I’d say it’s more of the second option.
phiwong 1 points 6h ago
The world's population is still growing. So if the economy doesn't grow, each person has to do with less. While the wealthier economies could withstand this for several years with not much pain, that is not going to be true for populations in poorer countries with high population growth.
The "government" doesn't create stuff out of thin air. So "provide for people" sounds noble but simply wishes the problems away. Economies are about what society produces and consumes. And if you produce less (ie economies shrink) then there is less to go around.
Yeah, you could make a comment like "bad for the environment" but have no solution. Why not simply kill off all the poor people. Then we'd have 4 billion less mouths to feed and no need to have them burn wood and pollute the environment? I mean - surely less intelligent and unproductive people shouldn't be allowed to pollute the environment for the wealthier, more educated, more developed people? This seems to be a logical conclusion to your statement.
The "government" doesn't create stuff out of thin air. So "provide for people" sounds noble but simply wishes the problems away. Economies are about what society produces and consumes. And if you produce less (ie economies shrink) then there is less to go around.
Yeah, you could make a comment like "bad for the environment" but have no solution. Why not simply kill off all the poor people. Then we'd have 4 billion less mouths to feed and no need to have them burn wood and pollute the environment? I mean - surely less intelligent and unproductive people shouldn't be allowed to pollute the environment for the wealthier, more educated, more developed people? This seems to be a logical conclusion to your statement.
namitynamenamey 1 points 2h ago
The economy directly translates to the amount of things that you can do or can be done for you. Air conditioning? Consequence of the economy. Computers? Consequence of the economy. Food on the table? Consequence of the economy. Health? Economy.
So if you want the same people to be able to do more or have more in the future (like more expensive treatments and more confortable homes), or more people to have the same standards in the future, but specially if you want more people to have better standards of living, you need the economy growing.
TL: DR: The size of the economy is the productivity of mankind. The more we can do, the bigger it is. The bigger it is, the less people suffer.
So if you want the same people to be able to do more or have more in the future (like more expensive treatments and more confortable homes), or more people to have the same standards in the future, but specially if you want more people to have better standards of living, you need the economy growing.
TL: DR: The size of the economy is the productivity of mankind. The more we can do, the bigger it is. The bigger it is, the less people suffer.
mangoriot 1 points 2h ago
Look how money is created. It is created by banks, they lend it out but want more back in return. This is the root of the rat race.
ManicMakerStudios 1 points 5m ago
***You*** might have enough food, shelter, and clothing, but someone working in an industry that is seeing negative 'growth' is not so fortunate. He's deeply concerned that he's going to lose his income and with it, his food, shelter, and clothing.
The economy is an ecosystem, and you're part of it. When someone else in the ecosystem is struggling, it reaches you in the form of higher prices or less certainty somewhere else. There's no such thing as, "I'm fine, so I'll always be fine."
> shouldn't it be the job of the government to provide for people during these times?
What is "the government"? How does the government get its money? Taxes. Government gets its money from taxes. There's no self-replenishing fountain of government money to dip from every time someone is having a hard time.
So when the economy is working in the wrong direction, less taxes are being paid to government. And when less taxes are being paid to government, less money is available to distribute in times of hardship.
All of the money that gets passed around in the world has to come from somewhere. The government doesn't have bottomless pockets to solve all of our problems.
The economy is an ecosystem, and you're part of it. When someone else in the ecosystem is struggling, it reaches you in the form of higher prices or less certainty somewhere else. There's no such thing as, "I'm fine, so I'll always be fine."
> shouldn't it be the job of the government to provide for people during these times?
What is "the government"? How does the government get its money? Taxes. Government gets its money from taxes. There's no self-replenishing fountain of government money to dip from every time someone is having a hard time.
So when the economy is working in the wrong direction, less taxes are being paid to government. And when less taxes are being paid to government, less money is available to distribute in times of hardship.
All of the money that gets passed around in the world has to come from somewhere. The government doesn't have bottomless pockets to solve all of our problems.
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