Can Economic Growth Go Down to Near Zero?

[Vanguard]

Originally posted by Adalbertus


Could some economically educated person explain this, please?

I've heard this before, but I wonder to which extent it is a strange sort of "materialism" in the sense "if I can't lay hands on it, it is worthless". To me, the service sector (probably) can be divided in three parts:
- Services which are desired by someone, like those provided by nurses, cleaning personnel, artists, haircutters, entertainers, etc. . Of course, there is nothing to put hands on, except you sell the hairs or the dust, but the services are requested nontheless.
- Services which are not directly desired but help the rest of the world to work more smoothly: Banks, lawyers (partly), administration (partly), advertisement (partly), ...
- The only part I see as really worthless: "Services" nobody really needs or wants, but which are enforced by those who have the power to install them: Administration (the rest), advertisement (the rest), lawyers (the rest), ...
The problem here is that administration tends to create new and mostly useless rules which to enforce you need more administrators, or that lawyers/advertisers mostly negate the effect of other lawyers/advertisers, thus creating work for more lawyers/advertisers (Which is why the cigarette industry usually doesn't complain about advertisement restrictions - it saves them money without being a threat to their sales.)
I see this as an annoyingly big portion but not as a very big portion of the service sector.

So, what is the economist's point of view and more importantly: why?

Well, what about competition? Two retails stores, right next to each other, each selling exactly the same products---- let's call them Best Buy and Circut City. One store could serve the needs of everybody who wants to buy stuff.

Isn't the second store a complete waste of manpower? Those clerks could be off inventing the cure for conservatism, but instead they are standing idle next to a register.

So what is that? Is the store with slightly higher prices, the one you don't buy from, a "requested" service or one "enforced" by Capital's irrational desire to compete instead of innovate?

Really, when it comes down to basics, couldn't Amazon pretty much provide retail service for 90% of all US purchases? So why do we have the rest of these worthless, lazy, parasitical retailers?

I was in CompUSA the other day for nearly an hour trying to find something worth buying at their closing sale. (lol. they can't compete against Best Buy even in their Going out of Business sale). During that time the register clerk did not sell a single item. Nada. Zip.

Is that a service? If so, it isn't a very efficient one. And if that is an inefficient service, then surely the same is true of most competition. Which would seem to indicate that (let's say) half of all retail employment is simply wasted time.

[OneFootInTheGrave]

well for someone else to be better, the other has to be worse, if there was no "worse" competitor, the only one left would be even more useless, and you get USSR style economic performance.

This is not the problem, the problem is that in the west a good portion of a "reason to live" is to consume crap... and than in effect without extra stuff to consume leads to anxiety, social problems etc... Japanese live pretty well with their record high 4% unemployment (over here it's almost considered record low despite of "record growth" in last 15 years) and 20 year old poor growth. I can see most of them still have the gadgets, cameras, computers, mobiles,you name it, have less poverty, best in the world health service, and better protection from the state if they are out of work AFAIK... all that with minimal growth from 1990... add to the fact that they actually have savings too... not sure how will we in the west cope with such economic conditions that they have had there for last 20 years, but I am sure no matter how bad it is, it will not be as bad as during the IMF led "transitions" from state run economy to market capitalism, wherever it happened during last 20 years or so...

[Saras]

Our IMF led transition went super smooth thank you very much. OUr GDP/Capita will be ~17500 EUR (PPP), or 2/3 of Spain's this year, up from $1500 in 1992.

IMF

[VetLegion]

Didn't your stock market tank recently?

[Saras]

Didn't it everywhere?

Our median PE is now 13.8 (used to be 35) and EV/EBITDA about 7.7, so buying time is here

[DanS]

With regard to the OP, even in advanced economies, we once enjoyed high growth and high profits. Government spending consisted of about 10% of GDP and regulations weren't onerous. However, we had depressions now and then.

It is interesting to hear some of FDR's speeches. F.e., listen to FDR's first inaugural address for a real eye-opener. My grandfather (part of the Democratic party faithful) was always said to dislike FDR intensely and I've come to realize why. Chavez has nothing on FDR.

Post-Depression, mostly we have market socialist economies. Government spending is 30%+ of GDP. Growth has slowed. Profits have decreased. Ideologically speaking, this is a disheartening time for capitalists. However, we have not yet had any depressions. Whether Japan's malaise indicates that we will have rolling depressions under market socialism is an open question for me.

[Kidlicious]

Originally posted by OneFootInTheGrave
well for someone else to be better, the other has to be worse, if there was no "worse" competitor, the only one left would be even more useless, and you get USSR style economic performance.

I think there's a difference between having no competition and planning not to produce all of the things that you can buy at Best Buy. Having no competition would simply eliminate a lot of your costs and make things much more efficient.

[Kidlicious]

Originally posted by DanS
Post-Depression, mostly we have market socialist economies. Government spending is 30%+ of GDP. Growth has slowed. Profits have decreased. Ideologically speaking, this is a disheartening time for capitalists. However, we have not yet had any depressions. Whether Japan's malaise indicates that we will have rolling depressions under market socialism is an open question for me.

A lot of that govt spending is the result of economic failure in the private sector. I'm not sure what kind of economic policy you are proposing but it sounds like it would be a colosal failure. We should be carefull not to place too much importance on profits and economic growth, and concentrate on what counts.

[DanS]

I think it makes sense to ask the question of whether going from 5% annual growth to 3% annual growth was a good decision.

[Sandman]

It would also make sense to question whether moving to 'market socialism' was the cause of that fall.

You're just doing the semantic bailing out that the commies do. Not real capitalism!

[Kidlicious]

Originally posted by DanS
I think it makes sense to ask the question of whether going from 5% annual growth to 3% annual growth was a good decision.

I think it makes more sense to look at what is going on with the parts in this case instead of the whole, especially when "5% growth rate" doesn't really mean anything.

[Arrian]

I'll trade 5% w/cyclical depressions/panics for 3% with cyclical recessions, personally.

-Arrian

[VetLegion]

Actually, I think most world's economists would sign on if someone could guarantee 3% annual GDP growth indefinitely. After all it's the historical average for USA.

Sustained lower rate is imaginable. And lower rates can't be attributed entirely to growth in government spending as share of GDP. For Japan this is typically a low figure. It is more likely that lower rates are a result of slower technological advance, as odd as it seems.

[Vanguard]

Originally posted by DanS
With regard to the OP, even in advanced economies, we once enjoyed high growth and high profits. Government spending consisted of about 10% of GDP and regulations weren't onerous. However, we had depressions now and then.

Post-Depression, mostly we have market socialist economies. Government spending is 30%+ of GDP. Growth has slowed. Profits have decreased. Ideologically speaking, this is a disheartening time for capitalists. However, we have not yet had any depressions. Whether Japan's malaise indicates that we will have rolling depressions under market socialism is an open question for me.

Growth has not slowed in modern economies. The long term average is about the same for economies with the same level of development.

Laissez-faire economies only experience a 5% growth rate during the boom periods. During the depressions they experience -20% growth rates. Which tends to bring down the average a little.

You can't ignore the depressions that laissez-faire economies experience and only count the high growth rates during the booms. The depressions are the inevitable result of the misallocation of resources that occur during booms.

[DanS]

Originally posted by Vanguard
During the depressions they experience -20% growth rates. Which tends to bring down the average a little.

Even in the darkest times of the Great Depression, the US never experienced a single year of -20% annual growth.