Can Economic Growth Go Down to Near Zero?

[DanS]

Originally posted by VetLegion
And lower rates can't be attributed entirely to growth in government spending as share of GDP.

This is entirely true. F.e., large swaths of the American economy consist of heavily regulated private enterprises.

[Ben Kenobi]

Ben, specialisation was played out a long time ago. For example, people haven't cut their own hair for a long time now, not that that really produced that much value if any at all.

How do you measure value? If people are willing to pay 20 dollars for a nice haircut, then the barber's services are worth that much money.

That's exactly how it works for the primary sector too. If people are willing to pay more for wood, or if more people are willing to buy wood, then there is more demand for wood. Therefore, the supply is going to go up to match the demand, and more people are going to be working in the lumber industry to meet the demand. The same board foot of lumber will be more valuable just because there will be higher demand.

The same is true for alternative situations.

Now you have all kinds of jobs created that didn't exist before, but in fact not much value is created from the at all. They exist to provide monopoly power to corporations, or serve some other non-productive purpose.

What's your beef with barbers?

[Ben Kenobi]

I don't think it's just advertisers and lawyers, although you could categorize this type of worker as such. I would include any job that would theoretically not exist in a perfect competition situation.

Why wouldn't barbers exist? They provide a service, and the service they provide is worth the amount of money. In a perfectly competitive environment, the only barbers that would be working are the experienced ones, because they would be the only ones drawing in customers.

That includes many more workers. For example, the cost of direct labor to produce the service that I produce is only about 10% of the price. In a situation of perfect competition it would be much much closer to the price.

Services are funny, because competition doesn't work the same way. For example, who cares about a box? You want the best box for the best price, it doesn't really matter what box you sell. Services are more about trust. People are willing to pay more, much more, for someone who can get the job done reliably. They are much less willing to price shop, even if there is a significant difference in prices, because of the greater risk associated with failure.

[Kidlicious]

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

-Arrian

Without knowing anything else, even what that 2% growth is?

[Kidlicious]

Originally posted by Ben Kenobi
How do you measure value? If people are willing to pay 20 dollars for a nice haircut, then the barber's services are worth that much money.

Sure, but if they cut their own hair before you can't call that economic growth. No value has been produced that wasn't produced before.

That's exactly how it works for the primary sector too. If people are willing to pay more for wood, or if more people are willing to buy wood, then there is more demand for wood. Therefore, the supply is going to go up to match the demand, and more people are going to be working in the lumber industry to meet the demand. The same board foot of lumber will be more valuable just because there will be higher demand.

The same is true for alternative situations.

That's different. For one, that's not a service.

What's your beef with barbers?

It's not about barbers at all. It's an observation about the economy overall. In fact, it's not really about barbers but you brought them up.

[Kidlicious]

Originally posted by Ben Kenobi
Why wouldn't barbers exist? They provide a service, and the service they provide is worth the amount of money. In a perfectly competitive environment, the only barbers that would be working are the experienced ones, because they would be the only ones drawing in customers.

Barbers exist because people have disposable income. I don't know what you are on about with teh barbers.

Services are funny, because competition doesn't work the same way. For example, who cares about a box? You want the best box for the best price, it doesn't really matter what box you sell. Services are more about trust. People are willing to pay more, much more, for someone who can get the job done reliably. They are much less willing to price shop, even if there is a significant difference in prices, because of the greater risk associated with failure.

Exacly my point. So if companies spend more on advertising you call that economic growth?

[Vanguard]

Originally posted by DanS


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

Well, this was intended merely as a general example.

However, while here was never a year in which growth was measured at -20% in the Depression, the US probably experienced -20% growth in some 12 month period between 1930 and 1933. It all depends how you measure it.

[DanS]

Originally posted by Vanguard
However, while here was never a year in which growth was measured at -20% in the Depression, the US probably experienced -20% growth in some 12 month period between 1930 and 1933.

Unlikely.

[Blake]

I really don't see why GNP can't keep increasing indefinitely.

All we need to do is keep slowing down the rotation of the earth. This will provide more hours in a day so there is more time to work and consume.

As a bonus the slow the earth astroengineering project will create lots of work and generate lots of wealth.

[Arrian]

Originally posted by Kidicious


Without knowing anything else, even what that 2% growth is?

Perhaps I should've included the "all else being equal" caveat.

-Arrian

[Ben Kenobi]

Sure, but if they cut their own hair before you can't call that economic growth. No value has been produced that wasn't produced before.

Ask a woman about hairstylists...

Yes, people have the option of cutting their own hair. Why don't they do it? Why do people prefer to pay others 20 dollars for a haircut?

That's different. For one, that's not a service.

The value of the wood is associated with the demand. So long as there is a demand for certain services, then yes they have a value associated with them, no different from primary goods.

I know what you are saying and that it should make common sense, but economics doesn't work that way. Goods have values because they have a demand associated with them, not because they have a mythical "intrinsic value".

It's not about barbers at all. It's an observation about the economy overall. In fact, it's not really about barbers but you brought them up.

There are many services provided that would certainly exist in a competitive environment, and specialisation will continue to take place, just as it always has. The division between services and primary goods is an unnecessary distinction. Do you know how many people have to work to bring in a board foot of lumber?

[Ben Kenobi]

Umm, the US GDP did drop 30 percent overall from about 820 billion to about 600 billion, from the height of the boom in 1929, to the depth of the depression in 1933.

So in 4 years you have a 30 percent total decline. The worst year was between 1931-1932, which dropped 12.8 percent in one year, after a decline of 6.5 percent the year previous.

So if we split the year most favourably to you, that would produce a 23 percent decline from may to october of 1931, and a 0.5 percent negative from November of 1931 to April of 1932. Then in the second half of the year in question, from november of 1930 to April of 1931 you have, at most an 11 percent decline. So if we add the two together you end up with a decline of 17 percent.

So even if we assume the most favourable possible conditions, we only get a maximum of 17 percent in the year from november of 1930 to october of 1931.

Interesting. In terms of GDP, the worst was over by April of 1932, when Hoover still had 8 months to go in his term. Didn't know that. Did we need Roosevelt at all?

[Blake]

Originally posted by Ben Kenobi
Yes, people have the option of cutting their own hair. Why don't they do it? Why do people prefer to pay others 20 dollars for a haircut?

Advertising and promotion?

[Geronimo]

Originally posted by Blake


Advertising and promotion?

nobody thinks it has anything to do with vanity and the difficulty of matching the results a barber is capable of?

[Krill]

Because people like their ears?