General Question

LostInParadise's avatar

Why does the economy always have to grow?

Asked by LostInParadise (28458points) November 17th, 2008

My naive question for the day. U.S. is among the world’s wealthiest nations in terms of per capita income.  The economy tends to grow, meaning that people collectively have more than they did previously.  So why do people get so upset if the economy slows down or shrinks slightly?  Shouldn’t people be satisfied with what they already have?  Is it impossible under the present setup that the economy could reach a general equillibrium where people were collectively satsified with what they have and not feel compelled to have even more?Before the Industrial Revolution the world economy was fairly static, but there were no recessions.  There seems to be something perverted about this need for continual growth.

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13 Answers

jrpowell's avatar

Population growth. And keep in mind that per capita GDP isn’t just cars and flat screen tv’s. It is also food and health care.

La_chica_gomela's avatar

when the economy “shrinks” like it is right now, companies have to cut back production (and their sales force, etc) and people get laid off. And no one likes being fired. And a lot of the people who don’t get fired have to work more hours for less pay. Nobody likes that either.

For example, last night (i think), someone on fluther asked a question along the lines of “is this even legal” about the effects it’s having on his life personally, (i’m not going to repeat the details, but you should read them) and if i was in his shoes, i’d be pretty upset too.

cookieman's avatar

I sometimes feel that the constant need for growth is only to benefit those at the top.

I’m no economist, but here’s my fishbowl example:

Place I work at brought in 60 million dollars in revenue in 2006. After expenses, each of the 4 owners took home 2 million each and the company itself made a profit of 10 million.

In 2007 they were flat, made exactly the same. 2008 looks like it’ll be flat again. Expenses, of course have gone up so the owners and the business make less profit.

They NEVER have lay offs, but now they’re looking at doing just that.

Why? Because each owner might only make 1.5 million this year? Isn’t that enough?

susanc's avatar

Yes. We always used to wonder about people who were making 2 million dollars a year and negotiated raises for themselves so that they could have 4 million dollars a year. We would stare at each other in amazement.
“What are they going to do with the extra money?”

cookieman's avatar

Exactly. Maybe I’m naive, but once you’re rich – you’re rich. Unless you do something profoundly stupid, you’re gonna be set for life.

laureth's avatar

If the population were not also growing, it might be a little easier, too.

People also want raises every year, too, both to keep up with inflation, and because they think they deserve them. However, beyond a certain threshold, people do not necessarily become more valuable every year. Companies have put up with annual raises in the past, to keep good workers and because they could afford it. Now, not so much.

Imagine graduating high school (or college), getting a job, and knowing you’d make that salary every year until you retired.

There were no recessions before the Industrial Revolution? That’s an interesting assertion, too. I’m not saying you’re wrong, but I would like to see a source, if you know of one.

AlfredaPrufrock's avatar

What’s really interesting is that, in 2006, the top 36 executives at Honda shared $13 million in compensation. By contrast, in 2007, Ford paid Alan Mulally $28,000,000 for 17 days on the job. Honda’s stock this morning is at $21.65, Ford at $1.80.

cookieman's avatar

One more reason I’m glad I drive a Honda.

tinyfaery's avatar

Capitalism = Growth for growth’s sake

LostInParadise's avatar

tinyfaery, I think you may be right. There seems to be something about capitalism that requires constant growth.

For those who mention population growth as a factor, it seems to me that the growth requirement goes beyond population growth. This certainly holds for those European countries like Germany whose populations are actually declining.

susanc's avatar

Capitalism = cancer.

SquirrelEStuff's avatar

Because our economy is setup exactly like Bernard Madoffs ponzi scheme. Social security, the Federal reserve, the treasury, the imf, and the world bank are all ponzi schemes.
A ponzi scheme is a type of pyramid scheme, hence the pyramid on the back of the dollar.

JDX's avatar

To answer your question on why the economy must always grow you have to understand how money is created in our fiat monetary system. The only way money is created is by banks giving loans. They don’t really have the money that they are loaning out, they just create it by putting an entry in a book or a computer.The problem is when they create money out of thin air by giving someone a loan there is always interest attached to the loan.They only create the principal so there is no money out there to pay the interest. The economy has to grow, the population has to increase to consume all the growth, and the banks have to loan more money every year at the same rate as the interest on the loans to just to stay even, exponentially. It’s a system that has to fail sooner or later. Of all the money in this country only about 3% is actually printed and in circulation, the rest is just an entry in a book or a computer somewhere. Every dollar in existance is a debt owed to the Federal Reserve Bank. If all the loans were paid back there would be no money. That’s why our economy is shrinking now because banks aren’t loaning money but some people are still paying back the loans they already have. Like someone else said here, it’s a ponzi scheme, and it has played itself out. The only way to get out of this mess is to get rid of the main player which is the Federal Reserve Bank who has been loaning our government money that they created out of thin air and is backed by nothing that they have been charging interest on for 100 years now. The treasury department can print it’s own debt free money and the Constitution says that’s what it should do. If you really want to know what’s going on research the history of central banks and the people who started them, they are privately owned and are not part of the federal government yet have total control over our country’s monetary policy. Although they are supposed to be overseen by congress our idiot polititions know nothing about economics so they just leave it up to the Federal Reserve Bank to make all the decisions, and I’m sure they get paid pretty well to do that. Also look up “fractional reserve banking” and “presidents who opposed the central bank”, the Federal Reserve Bank is the third one we have had in this country. Like Henry Ford said “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”.

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