Constant growth vs. steady state economics. What’s the difference in the long run?

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(Bonus question: how does an economy stops growing? If it’s possible)

EDIT: Thank you all for your help. This is def more helpful and fun than good ol’ lessons.

In: Economics

5 Answers

Anonymous 0 Comments

These are pretty straightforward terms.

An economy experiences constant growth when the value of the stuff produced in a given amount of time continuously increases.

An economy in a steady state does not see the overall value of stuff produced change very much.

Economies grow principally due to two factors:

* An increase in people – More people can make more things out of more raw materials

* Innovation – People can think of new ways to use existing materials that are more valuable and productive than the old ways of doing them

An economy can stop growing for a lot of reasons. If I were going to boil them down to two very broad ideas they would be:

* Existing resources can be used inefficiently or be underutilized.

* The stock of resources used to produce things can decrease.

Anonymous 0 Comments

Economists talk about two main causes for economic growth:

-Population growth: If an economy has more people, it will generally make more stuff. These people will also want to consume more stuff, so from a quality-of-life standpoint, it mostly washes out. Populations have historically tended to grow rather than stay steady or shrink, but that doesn’t have to be the case. Some technologically-advanced countries actually have shrinking (native) populations for complicated and somewhat mysterious reasons.

-Technological growth: People can make more if they have better tools/techniques. Technological advancement generally allows people to consume more because you’re adding to the pile of things to consume but not to the line of people who want to consume them. With the exception of things like the Dark Ages, technology’s contribution to the economy should never shrink. Once we make a breakthrough, we keep it forever.

Thus an economy will only be in steady state if the population is falling at precisely the right rate to counteract technological progress. Even in that world, modes of production and consumer living standards will be constantly improving.

Anonymous 0 Comments

Imagine you live in a world where the future is no better than the present. Now, ask yourself this: why would you invest in the future?

The short answer is “you wouldn’t”. You’d live entirely for the now.

When that attitude is taken across an entire population, civilization essentially disappears. There’s no reason to build, discover or do much of anything else beyond make it through the day.

So the short answer is that a ‘steady state’ economy is effectively impossible. Without the potential for growth, societies crumble.

What actually happens – and has happened repeatedly throughout history – is that you have a cycle of growth and catastrophe.

The difficulty is that your society has certain finite bounds on what it can support, depending on technology, access to resources, etc. When you start to near that bound, you almost inevitably face a catastrophe of one sort or another that sets you back enough so that you can continue growing.

Over human history, this cycle of growth-and-catastrophe has generally trended upwards. There is inarguably some limit to how far it can trend upwards on a single planet. However, predictions of when this limit will be hit have been so atrociously wrong throughout history that it’s reasonably safe to say that if someone is talking about the problems of constant growth they’re likely incorrect as well.

Anonymous 0 Comments

For most of recent history, the “natural” state of an economy tended towards growth. This is mainly because a) populations have been rising meaning more consumers and producers and b) technology improves productivity/efficiency.

If by “steady state” you mean the level of activity (rather than the monetary measure of activity) then this is not really likely until population stops growing and/or most people start demanding “less” in their lives.

The difference is the quality of life for the population, in the most general term. If an economy stops growing (as measured by goods produced/consumed) while population continues to rise, then the average person has to consume less.

It might be that in the next 50-60 years most of the wealthier populations/countries will have undergone shrinkage in numbers. It is also possible that automation redefines what it means to be productive.

Can an economy stop growing? Yes. Wars, famine, natural disasters, disease can and have shrunk economies before. Is a “steady state” a likely outcome? Again, probably unlikely – most economies either grow or shrink and there is no “natural” tendency to be at a steady state.

Economists also study things that cause economies to go in recession – these could be systemic (monetary, fiscal mismanagement, corruption, breakdown of society etc) There are also things like “bubbles” because some actions, while rational for the individual, is irrational for the aggregate. (very much a tragedy of the commons)

Anonymous 0 Comments

> how does an economy stops growing?

People take up space, and they don’t take less space as they age. As they age, they start requiring work to be kept alive, so instead of working and inventing new things, they’re just being taken care of, and the people taking care of them can’t invent and produce new things.

It’s a lot like livestock. You can only make money off livestock as long as it’s beind sold off to be killed and consumed, closing the cycle of life.

Economies stop growing either when the people in it are too old, or when the product they supply isn’t in need anymore. Brazil is an example of that because whenever countries like China need a lot of raw materials we grow, but when they already have everything they need for a run we don’t sell anything anymore. Currently we’re selling them soy and meat, some iron ore, so we’re starting to grow again. As soon as they stop buying, into the gutter we go.

A steady state would imply that everything that is produced is quickly consumed, that everyone has a chance to live and is quickly removed so that the young can have a go too. Think of Logan’s Run.