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Old 05-15-2020, 11:15 AM
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Optimal economic growth?


There was a board on which one poster was constantly beating the drum Cut taxes and watch the economy soar! Setting aside the documented fallacy of that position, I have been wondering as to whether a soaring (rapidly growing/booming) economy is in fact a good thing.

We have seen repeated boom/bust cycles in the economy, and it seems like the bigger the boom the deeper the bust, more or less. There is an obvious season modeling, where the seasons are years long instead of months: if the economy is surging, we can be certain that financial winter will follow at some point.

So the question is, can we somehow temper the system in a way that evens out the peaks and troughs, to attain on economy that is more stable? (I suspect that strong growth tends to be sectorized, so perhaps the idea of a tax on instrument trading as was implemented in the 1930s would reduce excessive capital slosh.)

There are a lot of facets to this question, leading into deeper sociological and environmental issues surrounding the economy itself, but mostly I want to get at "how much is too much" within the context of the contemporary paradigm.
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Old 05-15-2020, 11:55 AM
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Not an economist, but before the pandemic I remember reading stories about China trying to slow down their economic growth rates sometimes. I don't recall the reasons, but I think stopping inflation was a motivator.
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Old 05-15-2020, 11:57 AM
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That is kind of the point of monetary and fiscal policy. That said,

1. Whether you CAN do it is different from whether you have the political will to do it. People love it when the government steps in to try to help out during a recession; they get all pissed off when the government or central bank does something to slow down the economy at its peak, even though, obviously, you need to do that. So governments and central banks often don't have the nards to slow the economy down when that's needed. Plus...

2. Economies are insanely complex, and one's ability to control it is limited even if you have the will. This isn't like driving a car to ensure it doesn't veer too far left or right; it's a billion times more complicated. You can smooth it out a little, but a pandemic hits and whaddya gonna do. Or something the government does has a huge unexpected consequence.
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Old 05-15-2020, 11:59 AM
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AIUI, the ideal is a slow, steady, stable rate of endless growth and productivity. Something like, 2-3% GDP growth year after year after year (assuming you're already a developed economy.) All other things being equal, if you can pull that off while having low debt, no real estate bubble, moderate taxes and are not too dependent on trade with outside nations, there is no reason you can't have a strong economy forever and no recessions.
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Old 05-15-2020, 12:17 PM
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The problem is the yardstick being used.

If your yardstick is nominal GDP as measured in US dollars, then printing infinite money = infinite success. Obviously, however, that's a crap plan.

Likewise when we talk about the stock market. The stock market is also measured in USD, and is just as faulty as flat GDP for the same reason (among others).

There are a lot of really friggen faulty yardsticks that get thrown around like candy. Most of them are subject to really straight-forward manipulation. In fact, almost all of the figures you might hear an economist mention are out-and-out crap: GDP, unemployment, miles-card-board-boxes-traveled-in-trains (USSR example), tax receipts, etc. All crap.

What appears to be a "boom" is really just a reflection of some distortion, and since that distortion is not actually beneficial, but sucks resources from the things that are, it leads to a "bust" where the consequences of malinvestment come back to haunt us.

The optimal growth rate is tied to productivity, but measuring productivity runs into the yardstick problem. An economy should never grow at a rate significantly higher or lower than the change in productivity - when it does, a reversion to the mean is inevitable - but productivity doesn't grow at some constant rate. It has bursts and dry spells depending on circumstances and technology. Now, what that rate is on any given day, I can't tell you. I can only guesstimate with crappy yardsticks.
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Old 05-15-2020, 05:36 PM
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We have tempered the ups and downs of the economy. Good central banking meant that for the US the 2010s were the first decade without a recession.
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Old 05-15-2020, 10:01 PM
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Quote:
Originally Posted by puddleglum View Post
We have tempered the ups and downs of the economy. Good central banking meant that for the US the 2010s were the first decade without a recession.
But for the 2010s, I was under the impression we were just trying to regain ground lost from the 2008 collapse, not grow the economy to a newer and better position than it has been before.

From an economic POV, does regaining lost ground follow different rules than being the tip of the spear of global economics.
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