Thursday, April 28, 2011

A World Without Economic Growth

Here's something absent from every single thing I've ever read about predicting the future of our economy: Even if economic growth ends right now (which it most certainly will not), we still be as rich as we are right now.


  1. Anonymous10:37 AM

    Are you, saying if growth stopped today we would be perpetually as rich for eternity, all else equal? Without growth, incomes would stay constant, and due to the law of diminishing returns, prices would rise. Thus we would be poorer.
    Growth is needed to use scarce resources more efficiently and keep real incomes from falling.

  2. Yes, that's what I'm saying. I'm not sure what diminishing returns has to do with inflation. Why would one cause the other?

    Am I missing something?

  3. Anonymous11:15 AM

    Solow explains what I'm talking about pretty well. You essentially have two primary inputs into production, labor and capital. Keep in mind the world's population keeps increasing while capital continually depreciates. If you have one input growing (labor through a growing population) then the amount of the other input must necessarily stay constant or fall in order to keep output constant. Similarly, as more labor is being pumped into the system, firms will pay lower wages as labor markets become more saturated and each additional worker is less productive (thus why diminishing marginal returns leads to lower real wages). At the same time, since output is constant, we have more individuals chasing the same amount of goods, increasing demand. With rising demand and no change in supply, prices must rise.

    I like to think of it as a perpetual motion machine. Machines need fuel to run. Rising output is this fuel. Otherwise the second law of thermodynamics (law of diminishing returns in economics) causes the machine to stop.

  4. Oh I think I get our disagreement. I was trying to say that if everything stayed the same, both economic growth AND POPULATION, then life would be just as good as it is now.

    I guess I can't imagine how population (labor) would increase without economic growth. There would have to be a loss in some kind of capital.

    Something to think about. Thanks for commenting!


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