Everybody says that economic growth is a good thing. I have no disagreement with that, in fact, it is an essential element for a happy society. But let’s examine why, and what the real benefits are, so when we look at various elements that could contribute to it, we can estimate their effects.
First, we are fortunate to still have a growing population. Only an economy that is growing will provide increasing numbers of jobs to be filled, to provide salaries or wages to support that population growth. Only the goods and services the new workers provide will enable the fulfillment of the material needs of the growing population.
Next, a growing economy has the ability to provide a higher level of wages. It would be impossible to create an exactly zero growth/zero decline economy, so if it’s not growing, it’s shrinking. And when it does, businesses tighten their belts by freezing wages, freezing hiring, or letting people go. Only when businesses are expanding to fill growing demand do they (net) hire, raise wages, and open promotional paths.
In a growing economy people can sense opportunity, which makes them more optimistic, happier, more likely to increase demand, more willing to take risk. These attitudes and behaviors are likely to increase demand in what becomes a virtuous circle. The converse is true in a shrinking economy.
New business formation rises in a growing economy. This results in more competitive pricing, better services and in more jobs. Young and small businesses, in the aggregate, hire more than large, established firms. New businesses are also a source of innovation, an important growth engine that will be discussed at some length in a a subsequent posting.
A growing economy will encourage investment, often in construction or in the purchase of capital goods. Either will create jobs in those providing companies, and the investment will increase the productivity of the investing company.
A growing economy results in higher incomes, higher profits, and fewer government expenditures for support programs (like unemployment compensation, food stamps, etc.). Tax revenues rise without complaint, government outlays are smaller, helping to reduce the enormous national debt we have incurred. The debt reduction will lower government interest payments, and thus produce greater deficit reduction or spending flexibility in the future.
Obviously, how widely the benefits of this growth are spread through the population is also an important subject. But without growth, the economy becomes at best a zero sum game, where how the economic rewards are spread takes front row seating, causing animosity, class separation and enmity, and feeding partisanship.
Future postings on the economy will include such sub-topics as job creation and the government, measurement and standards of living, productivity, innovation, and many others.