[happytoexplain]

>a lot of our economics presumes growth and, if we don’t get it, a lot of terrible stuff happens

What does this actually mean? Every time I try to wrap my head around why it's bad e.g. for a business to make a constant profit, rather than an increasing profit; or for the population to dip to some number and settle there, rather than increase; the explanations seem to become circular very quickly. I know it's partially my fault for not having a very strong economic education, but it also feels like something is fundamentally wrong with the theories - like they are making some underlying assumption about what is "good" that I don't share. But I can never seem to get down to it.

The only thing I understand is that as the ratio of old to young grows, more taxes are needed, of course. But that would only be painful during a significant rate of change, not after the number is stable, no? Is that really somehow apocalyptic?

[quickthrowman]

> What does this actually mean? Every time I try to wrap my head around why it's bad e.g. for a business to make a constant profit, rather than an increasing profit;

It’s very simple.

If you make $1M in profit in a year and the following year you also make $1M but inflation was 3%, you earned 3% less money than you did the year before. The nominal profit was the same but the real profit was lower.

To earn the same real return with 3% inflation you would need to earn $1.03M the year after you earn $1M. If your profits grew less than inflation, you made less money and your company is worth less as a result.

Monetary policy people figures out that a small amount of controlled inflation that incentivizes investing is better than deflation which encourages people to hoard cash. Some people disagree with that.

https://en.wikipedia.org/wiki/Real_and_nominal_value

[trumpdong]

That's not actual growth though, that's just measuring the same business in a different unit worth 0.97 of the old unit. The business can be the same size.

[quickthrowman]

The question asked was “Why is it bad to earn a constant (in nominal terms) profit rather than an increasing profit.” The size of the business is irrelevant to this question. I answered the question, the short answer is ‘inflation’.

When responding to a question, I choose to answer the question the person asked instead of another question they didn’t ask.

[trumpdong]

They didn't say "(in nominal terms)" and businesses are expected to grow in real terms.

[boelboel]

There's no reason to think things would stabilize but even if things roughly stabilize in terms of population there's problems.

When a certain region in a country gets a cluster of great companies or really any productive advantage you would want more buildings and people there. In a country with a growing population that would make most sense as you need to build houses regardless as there's more people entering the job market who need a home. In a country with a stagnant population for every home you build another needs to be abandoned. This is more expensive especially when this happens enough where a school in the 'abandoned town' closes and a new school should be made in the better town. You can see how the first is more efficient, you don't waste your fine buildings.

[btilly]

Here is what it actually means.

When the economy is growing, investment makes sense. Why put your money under the mattress when it could be out there, working for you?

When the reverse happens, investment stops making sense. Why risk your money when it becomes worth more while it is sitting under your mattress?

But stopping investment does not just mean stopping speculative investment. It means stopping investment in other things as well. Like maintenance. This guarantees that things are going to become worse over time. Which is a feedback loop that makes investment even less worthwhile.

This has happened in the USA before. The last time is called the Great Depression. Read through accounts of what it was like. Would you like to go through that now?

History also teaches that the longer it is between economic setbacks, the worse the next one tends to be. We've gone far longer since a depression than at any point in history. Our next one is likely to be correspondingly more terrible.

[tzs]

> When the economy is growing, investment makes sense. Why put your money under the mattress when it could be out there, working for you?

> When the reverse happens, investment stops making sense. Why risk your money when it becomes worth more while it is sitting under your mattress?

Is it necessary to have a growing population in order to have a growing economy?

For much of human history I'd guess the answer was yes, because the size of the economy was based almost entirely on how much physical work people did, but the modern economy is very different from historical economies.

[Qem]

> Is it necessary to have a growing population in order to have a growing economy?

Soon we will discover. I suspect the answer will be no, at least not for long. Markets are made of people. Can the economy grow despite a shrinking market losing economies of scale everywhere? I hope, but I don't count on it.

[NoGravitas]

You've given a good explanation of how it works -- under a mode of production concerned primarily with the exchange value of goods, not their use value. If what you want to do is to provide adequate/growing use value, you can do that instead and allocate resources based on need rather than on investment value.

[bpt3]

Use value and exchange value are highly correlated for basically all goods other than collectibles and luxury items, and even then their "use" often is providing an emotional boost to their owner.

It seems like you're recommending socialism without coming out and saying it?

[trumpdong]

I think I read several economic metrics are now worse than in the Great Depression, but I can't remember which ones. Probably something to do with energy prices.

[imtringued]

There is this thing called a zero lower bound. Then there is this thing called liquidity preference, which is basically the minimum fee someone accepts to part with liquidity.

Add those two together and you will get a minimum positive return constraint on capital.

Capital can only pay a return if it is fully utilized. This means there needs to be enough demand to saturate the machine.

You can never have any form of excess capacity, because excess physical capital does not generate any returns. It actually loses you money, which is incompatible with the positive return constraint.

Since the expected return is positive, the lender has to pay back more than he borrowed, meaning that he has to have more revenue and more revenue is earned by selling more products.

Now, this alone doesn't explain the reason why you have to keep going though.

The question is, when someone demands positive returns and those returns are artificially anchored against zero thanks to the ZLB, why is this bad.

Well, think about what happens if nobody borrows the money. That means the money is still waiting for a borrower and it is not turning into demand. Now there is money missing in the economy. The rest of the money has to circulate faster to compensate the loss of money but it doesn't, because everyone is thinking the same thing.

The problem here isn't on the business side. The problem is that someone decided to use an unsigned integer for something that can be negative.

You need money for daily transactions. You don't care about the nominal value of the money as a "store of value", you care about it as a way to turn your illiquid work output into a liquid voucher you can redeem at any store.

Since modern society depends on money, having the money system degrade is similar to an internet or electricity outage.

So what happens instead is that the government takes on more debt because that is the logic of a zero lower bound.

It also forces the central banks to do QE, because there is nothing you can do at zero.

In both cases, the system is being flooded with the same defective money. Someone will hold onto it, due to their liquidity preference and the lack of negative interest rates.

[trumpdong]

Is the zero lower bound still true? You have effectively negative returns on cash due to inflation (and infinitely negative returns if the economy breaks so hard we have to switch to a new currency) and physical capital depreciates too. There may be a zero nominal lower bound on cash but that doesn't mean anything due to inflation.

[saintvlad]

> more taxes are needed

Don't forget it's not just taxes, but the allocation of labor and resources. If the entire population magically turned 90 tomorrow, no amount of taxes would be able to provide for them.

[sethammons]

Jetson style, we should all be complaining about our 3hr workdays. We produce enough. Distribution is the problem.

[trumpdong]

I think it means, for example, the stock market collapses if there's no more growth, that means everyone loses their pension fund, and may try to save more to compensate, that means no more consumption and no more economy (paradox of thrift). It's a tall house of cards society rests upon.

[calepayson]

Honestly great question. I think of it as:

I invest my wages to take advantage of compound interest. It’s kind of my only hope of having a family / owning a home / retiring. If stuff stops compounding, I’m fucked. Multiply by however many millions of people are on the same position.

I don’t necessarily think the theories are making any assumption about what is good (except for the “greed is good dicks”)but more acknowledging that this is how our system currently works and the first generation to step off this ride will have a horrible time.

[tavavex]

But isn't this just a more abstract example of the 'circular explanations' thing that OP mentioned? The reason why we need compound interest on our savings accounts instead of just being able to put away some money every year is a product of having to counteract inflation, which is the result of policies trying to induce growth by making saving less appealing than putting the money into more companies making more things for more profit. We need infinite growth because everything around us is designed to expect infinite growth. But what happens as we start running out of headroom? Is there really no other way at all?

[bobson381]

We are going to find out. See Limits to Growth.

[bombcar]

There existed ways to build a family/home/retire before the financialization of everything - those ways still exist and still work, even if disadvantaged.

[trumpdong]

Do they? Is there a way to get land without buying it from someone who currently owns it? I'm totally fine with building supplies costing money since you can scale that from a tiny shack to a mansion (or a sleeping bag in the dirt) based on your wealth, but the price of the smallest parcel of land seems to be a lower bound on how much you can spend.

[bombcar]

Yes, depending on what you consider "buying" and perhaps what you consider "owns", and it varies by country.

The practicalities are that the places you can use the "tricks" (like homesteading still being valid, or mining claims, etc) are places where the land is so cheap as to be free (or nearly so, eBay has "land" available for a few dollars, because you pay lawyers $500 for the transfer and the land is somewhere in the Nevada desert).

Practical usable land (for some value of "you could grow things on it, and it's not a desert") seems to put a lower bound in the USA of about $1,000 an acre.

The problem is most people want said land to be within commuting distance of a job, where it jumps to $5-15,000 an acre.

[trumpdong]

Right, and you can't get any $ at all if there are no jobs. So maybe only land within commuting distance of a job should count. And the cost of commuting to that job should also be included in the effective price. If the government wants to not be responsible for people's wellbeing, the government can't gate existence behind $ and then gate $ behind whatever.