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What’s the point of growth? I’m asking about economies, companies, social security, and all types of organizations. And should GDP growth stop at some point, what are the unintended consequences if such a thing happened?
Malthusian thinking was wrong but it was sound science for the data he had. There’s probably a max carrying capacity for the Earth, unless we find incredible inventions. Another invention like the Haber process just seems unlikely. To me that looks like a future where most countries around the world will stabilize into an economy that treads water without growing nor contracting.
I’ve always heard from big wigs that you either grow or die? But if our future looks more like the countries with low fertility, then at the end of it doesn’t it mean that our our economy needs a new way of functioning.
Well everyone hears stories about Musk or Gates or Bezos or Lebron or Jordan or Kershaw, making astronomical figures. To most Americans that type of inequality is okay because the economy is growing like an amoeba trying things out, that sometimes get unicorn status. Now, if in the future that economic pie becomes nearly constrained, the only level of power left is the communists/technocrats that will divvy up the economic pie.
Income equality is no big deal as long as there’s a rising tide with opportunities for your own lottery ticket.
Too big to fail has morphed to become one of the worst ideas this century. Doesn’t mean they should do nothing, they should’ve kept the system afloat while reforming the system and exposes/charging all the financial decisions those big banks did. Instead we are again stuck in the same system trying to put bandaids on their recklessness.
Remember the movie The Big Short explaining CDOs? Reuters in 2019:
https://www.reuters.com/article/idUSL5N22B5Q2
Why can’t we make the finance industry basic again? Without all the never ending novel financial instrument inventions—There’s almost zero productive reason that brilliant quants are needed in vast numbers on Wall Street. Unless of course you just want to make as much money as possible.
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I’m sorry for how all over the place this was. I was up all night reading and had a bunch of disparate thoughts that felt quasi-connected. In the morning I’ll clean it up.
Economic growth just means "continuous improvement". Sometimes that's by making the pie bigger, other times it's from increasing efficiency. Hearing people strawman capitalism as "it requires infinite growth", then equating it to a cancer cell, is one of those braindead arguments on par with "if you don't like gun control, why don't you just move to Somalia???"
Some financial innovations have been good like ETFs, while others have been bad. Careful regulation is better than becoming a Luddite and trying to stop all financial advancements entirely.
I understand natural growth like your population is increasing (be it by new births or immigration) so spending is going up as more people buy more things, there are more workers, there are new products and new businesses, they create new markets and expand into existing ones, and so on.
But there does seem to be an expectation for perpetual growth that seems difficult to reconcile with reality. Company F reported gains in this quarter, but they weren't as much as last quarter and not as much as the market expected, so company F's shares reduce in price even though they still made a profit and are not in danger of going bust. Is it reasonable to expect company F to grow 2% this quarter, 3% next quarter, 4% the quarter after that and so on to infinity? What happens when company F drives all its competitors out of business and is the only remaining business with 100% of the market? And after it expands globally to take over 100% of the entire market for left-handed grape peelers in every nation of the earth, what then? How can it continue to grow?
As GP said:
Company F figures out how to manufacture left-handed grape peelers more cheaply, or makes them last longer, or makes them work better, or invents a machine that peels grapes that both left- and right-handed people can use. Or someone else invents a better grape, so the value of grape peelers to people goes up, and more people buy them on the margin. Markets aren't static.
No, I understand that, but neither are they infinite. You can only sell 100% of grape peelers, even if you develop AI that builds robots so you fire all your human staff and your factories run on a cost of fresh air churning out the world's cheapest and most technologically advanced grape peelers. You can't grow from 100% to 110% next year. Well, ignoring that if the global population was 9 billion this year and will be 12 billion next year so you sell 3 billion more grape peelers, but suppose we are all now uploaded into cyberspace and no more new babies are going to be born ever again. You are selling all the grape peelers you can possibly sell, there is no market to sell more. Every single entity on planet Earth has a drawer full of your grape peelers.
I do see that there is room for company F to improve its market share while there is competition from companies G, H, I and J in the cut-throat world of grape peelers, but there surely can't be infinite room for growth forever?
Growth isn't gross production for a reason.
If the market can't support companies F, G, H, I, and J all in the cut-throat world of grape peelers, but only four of them, then company F might expand the market by executing the sub-market of grape-peeler production, and support it's growth instead via the grape-peeler advertisement market to increase the market efficiency of one of the remainers, or the grape-peeler delivery market to expand the size of the consumer market who can be sold to, or offer grape-peeler-throat-cutting-protection services to protect corporate secrets (and throats) against cut-throat competition.
In many cases, growth isn't about gross production increasing at all, but efficiency increasing or upkeep reduction. Say you do have a maximally-saturated equilibrium where everyone who could possibly want a grape peeler has one, and no more should be made. At this point, market growth can come from cutting costs- whether the application of a material science for cheaper handles, or international trade deal market access for cheaper peeling-blades, or removing the now-excess grape-peeler production-expansion parts of your business, so that the freed up capital can go into the next great thing, pear-peelers.
At which point, the market continues to grow again, as having maximized profit in the current equilibrium in one area, capital can be invested to grow in another. But as we do that, things may (will) change in the old equilibrium. Maybe the market capacity for grape peelers grows again, because we uplifted our fellow primates and now monkeys are consumers. Maybe the market capacity shrunk more, and now we need to dismantle existing market infrastructure to re-allocate capital.
Well, that deconstruction is going to require capital, which markets will compete over to offer, and re-allocate the dismantled capital, which market actors will seek to repurpose, and that will feed other markets and submarkets as the entire ecosystem of managing this transition supports expertise and industrial specialists who can do the task more efficiently than the competition, who will be consuming tools and systems developed for that purpose, which-
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And why shouldn't it be? Investors are the ultimate reality-based community, and economies have in reality grown basically forever. Where and in what form this growth happens changes, though. It can change a lot, which is why companies that fail to grow get capital removed and companies that do grow get capital applied.
This is not a moral judgment, though. Investors are not morally shunning companies that fail to grow. It's just that by all appearances, those resources would be more useful elsewhere. It's like selling a guitar you rarely play any more to finance a bicycle that you would ride often. This is not a judgment on the quality of the guitar, or its inherent moral worth, or driven by an unreasonable expectation that the guitar be more useful to you. It's purely an optimization.
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