What is economic growth?

[Mangosteen]

@spazurek

I’ll admit to serious naivete here but I’m willing to dive in nonetheless.

Unconstrained free trade is not optimal in the long run because of the positive-feedback effect that wealth accumulation facilitates wealth creation, with the net result that wealth continually concentrates more and more densely at the top, thereby limiting the wealth generation capacity of the entire system. This is what motivated Henry Ford to pay his workers more than the market minmum so that they could afford to buy his cars.

Please be gentle in cutting me to pieces.

“wealth continually concentrates more and more densely at the top” In other words, the rich get richer. While this may be true much of the time, what many people don’t realise is that there is tremendous turnover among “The Rich”. Grandpa made lots of money, but a few generations (or less) later, much of his wealth is gone.

Another thing about The Rich is that they can basically only do four things with all their money.

One, spend it. Even if they buy something that you or I might consider frivolous like a second home, a fifth car or even a cruise around the world, these items create jobs for you and I in the construction, automobile and travel industries.

Two, save it in some kind of banking establishment. This money goes in the pool of funds that people can use for loans to buy homes, cars, new businesses, etc.

Three, invest it in stocks, bonds, etc. This money is used by the companies in a variety of ways to help the business grow.

Four, give it away to charity. As long as they a careful about which organization they are giving to, this money obviously does a lot of good.

As you can see, there is just no way that the rich can somehow hoard their wealth and keep it only to themselves. Their money is continuously being recycled back into the economy, They can’t help but do good with it. (Unless it is taxed away by the government. If this happens, much of it is wasted.)

[Opus1]

I’m not sure if OP really wants micro or macro economics, but I’ll give my take on it. I have no formal training in economics, but have recently begun to study it independently.

Here’s the key breakthrough concept for me: wealth is the ability to satisfy our wants. Ignore money for the moment. Money is simply a medium of exchange. What people are really exchanging is labor. I perform a service that aids another (i.e., satisfies one of his wants), and in exchange he does the same for me. Money smooths the transaction costs out of the process. If every bricklayer who wanted to buy a car had to find a seller who needed bricks laid, we’d be in a world of trouble. So the bricklayer gets money for his services instead, which he then exchanges for the car.

What allows wealth to increase is largely improvements in technology that permit more wealth to be squeezed from each hour of labor. As Sam Stone explained, comparative advantage and specialization helps with this as well. It takes far less labor to produce a loaf of bread today than it did 500 or 5000 years ago. All that spare labor can then be redirected elsewhere, satisfying other wants, and increasing overall wealth.

This definition has also helped me understand things like “waste.” What does it mean to waste money? I always used to think–well, the amount of money is fixed, it’s just being spent differently. How was this bad? Now it clicks: waste is money spent on things that don’t satisfy any actual wants, and may in fact do the opposite. Hence Bastiat’s famous “broken window” fallacy.

[FRDE]

Your question was ‘What is economic growth ?’

The zero sum bit does not come into it.

Imagine that you, on your own, are sitting on a desert island, and you decide to engage in some economic activity.

You can produce ‘food’ and ‘machinery’ - ‘food’ is something that you consume, and ‘machinery’ is something like a spade, a hut or a bow and arrow.

The more ‘machinery’ you have, the more of everything you can produce. Spades make cultivation easier and the bow and arrow makes hunting easier.

Over a period of time, you’ll land up with a stock of ‘machinery’ eg: piped running water, an impressive tool kit, fish hooks, a dugout canoe and a bridge over that irritating canyon that you need to cross when hunting pigs.

All that went into producing this impressive wealth of machinery and infrastructure (which is also machinery) is your labour. And you ‘grew’ it all yourself.

At that point a bunch of cannibals will turn up, eat you and nick all your possessions

[Sage_Rat]

@spazurek

There was a nifty little thread a few months back that I can’t find in which someone invented a primitive economy between two people that demonstrated a simple sort of economic growth

That was probably my thread: Everything you should know about Economics

Though admittedly mine is based on speculation, while as there are probably real economists on the board. (Not sure what the lack of replies means in terms of probable accuracy.)

[Sage_Rat]

You might also want to check out this thread about the rich, which is principally what spawned the other thread.

[Rusalka]

What about the costs of growing the economy? Y’all are ignoring those, and we live on a finite world. Classic economics pretends those costs (which are usually borne by everyone) don’t exist. Some of those costs are pollution and resourced destruction.

And how are all those Bart Simpson dolls produced in Asia contributing to anyone’s “infrastructure” - for that matter how is any “stuff” produced contributing to scientific and technological knowledge or infrastructure or improving the human condition? Yet all that “stuff” is counted towards economic growth, so something doesn’t make sense here in some of your explanations. Most of the junk produced by our economy ends up in landfills in very short order, so I find it hard to understand the “anything that improves our lives is counted” explanation.

[FRDE]

@Sage Rat

You might also want to check out this thread about the rich, which is principally what spawned the other thread.

Yes, well, I am not sure how to handle this one.

Essentially it is a thread diversion.

First, I have a degree in Economics, from one of the better places in the UK, and I can honestly say that while I understand and believe in some principles, ultimately it degenerates into psychology.

I disagree with you about tax. At a certain stage tax is optional, but you need to have enough income (or assets) to justify spending the money on accountants and/or lawyers. Seriously rich people don’t worry about tax.

Personally I reckon that if you have a chance to deal in cash or spoof the system, then go for it. It is how people at the bottom of the pile survive, those at the top pay parasites to do the ‘spoofing’ for them.

I suggest that you watch a few ‘Prince and Pauper’ films, perhaps also scruff up and conduct an experiment. Until recently I was doing fine, I live in a high rent area and have watched friends need to sell up and move on. In the UK property sales take a long time, and I’ve written 10k cheques to tide people over. I never understood their gratitude.

Now it is my turn, the banks to whom I’ve lent vast sums have become call centres, things are taking longer than I budgeted for. Fortunately I swallowed my pride and borrowed from a guy whose company is based on my work ( I could have begged from a guy worth $120m who owes me big time).

Feeling poor is shitty - primarily because people shit on you.

Moving from the top/middle of the food chain to the bottom is an interesting experience - in future I shall keep liquid.

Your parents must have known what would happen to their company, possibly they are deluding themselves.