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Can Economic Growth Go Down to Near Zero?
For most today's societies it is important not only to attain a certain amount of wealth (per capita), but also to maintain a healthy economic growth rate.
I'm wondering if there is a limit to economic progress (an end to economic growth), and if there is, where would it be. Perhaps, it is already on horizon?
The poorest countries always grow the fastest: as new technologies are introduced and unused labour tapped the economy grows rapidly.
The more developed countries grow much slower as investments in everything (infrastructure, technology, people) hit diminishing returns.
Per capita growth of 3% means that each year the same number of people produce 3% more stuff than they did the previous year. This might seem little, but it's a huge figure given that there was virtually no economic growth in the entire history of the human species prior to the 19th century, and given that it doubles the wealth in about 20 years. Your kids will be able to afford twice as much stuff at 20 years as you could when you begat them.
Or will they?
Let's take Japan.
Japan has hit the roof. We know when, even as we don't really know why. Occasionally it still shows some vigour, but from the way it has been going the past decade or so it doesn't at all seem likely that Japanese will be able to buy twice as much stuff in 20 years as they can now.
Japan is significant because it is in so many ways ahead of the rest of the world, but it is by no means the only one. Some European economies (which shall not be named) grow pretty slowly too. It is possible that this is only a temporary phenomena (in historical terms a decade or two are nothing), but it is also possible that this is it, that we're seeing an end of an era.
Why? Because they're trying and not succeeding. Today's governments are dedicated to economic growth. Economics as a discipline has advanced, we have much better tools to understand the economy and try to help it. However, it doesn't seem to work that way. France can't produce 103 Renaults this year for each 100 of last year because Sarkozy wants it to. Even less can a hairdresser do more haircuts (indeed, could a service-only based economy grow at all?)
I'm not trying to sound pessimistic, really, this is just thinking out loud. Even at growth of 1% a year it takes only about 70 years to double the economy. That's pretty good, historically. It could put a strain on social stability of some societies though. We depend on growth very much. Imagine a world without pay rises, and a world in which you get almost no return on your savings. Actually, in Japan, you almost don't, but Japan is probably the most socially stable country on Earth.
I'm getting to the end of this post. I don't really have a point. What are your thoughts on this? Is there a limit to economic growth? What's going on with growth slowdown in many developed economies? Are western countries viable at annual growth of, say 0.5%?
I'm wondering if there is a limit to economic progress (an end to economic growth), and if there is, where would it be. Perhaps, it is already on horizon?
The poorest countries always grow the fastest: as new technologies are introduced and unused labour tapped the economy grows rapidly.
The more developed countries grow much slower as investments in everything (infrastructure, technology, people) hit diminishing returns.
Per capita growth of 3% means that each year the same number of people produce 3% more stuff than they did the previous year. This might seem little, but it's a huge figure given that there was virtually no economic growth in the entire history of the human species prior to the 19th century, and given that it doubles the wealth in about 20 years. Your kids will be able to afford twice as much stuff at 20 years as you could when you begat them.
Or will they?
Let's take Japan.
For three decades, Japan's overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.
...
Real GDP in Japan grew at an average of roughly 1.5% yearly between 1991-1999, compared to growth in the 1980s of about 4% per year.
...
In 2008, however, Ota Hiroko, the Minister of State for Economic and Fiscal Policy, announced that Japan's economy can no longer be considered 1st class economy due to a number of facts including: the sixth straight annual decline in the country’s per capita gross domestic product, resulting in the fall of Japan's GDP per capita to 18th among the 30 member nations of the Organization for Economic Cooperation and Development (OECD) in 2006 and the reduction of Japan’s share of aggregate world income to below 10% for the first time in 24 years.
...
Real GDP in Japan grew at an average of roughly 1.5% yearly between 1991-1999, compared to growth in the 1980s of about 4% per year.
...
In 2008, however, Ota Hiroko, the Minister of State for Economic and Fiscal Policy, announced that Japan's economy can no longer be considered 1st class economy due to a number of facts including: the sixth straight annual decline in the country’s per capita gross domestic product, resulting in the fall of Japan's GDP per capita to 18th among the 30 member nations of the Organization for Economic Cooperation and Development (OECD) in 2006 and the reduction of Japan’s share of aggregate world income to below 10% for the first time in 24 years.
Japan has hit the roof. We know when, even as we don't really know why. Occasionally it still shows some vigour, but from the way it has been going the past decade or so it doesn't at all seem likely that Japanese will be able to buy twice as much stuff in 20 years as they can now.
Japan is significant because it is in so many ways ahead of the rest of the world, but it is by no means the only one. Some European economies (which shall not be named) grow pretty slowly too. It is possible that this is only a temporary phenomena (in historical terms a decade or two are nothing), but it is also possible that this is it, that we're seeing an end of an era.
Why? Because they're trying and not succeeding. Today's governments are dedicated to economic growth. Economics as a discipline has advanced, we have much better tools to understand the economy and try to help it. However, it doesn't seem to work that way. France can't produce 103 Renaults this year for each 100 of last year because Sarkozy wants it to. Even less can a hairdresser do more haircuts (indeed, could a service-only based economy grow at all?)
I'm not trying to sound pessimistic, really, this is just thinking out loud. Even at growth of 1% a year it takes only about 70 years to double the economy. That's pretty good, historically. It could put a strain on social stability of some societies though. We depend on growth very much. Imagine a world without pay rises, and a world in which you get almost no return on your savings. Actually, in Japan, you almost don't, but Japan is probably the most socially stable country on Earth.
I'm getting to the end of this post. I don't really have a point. What are your thoughts on this? Is there a limit to economic growth? What's going on with growth slowdown in many developed economies? Are western countries viable at annual growth of, say 0.5%?
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