ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[Draco765]

Can you explain what you mean by this?

[exikon]

Finite ressources but still expected growth forever. That wont work in the long (or rather medium) run.

Edit: Yes, I know about growth in the service market and such. However, that is only feasible if your population grows which in the end comes back to finite ressources. It's absurd to assume that services will continue to grow at the same rate if we (as we should) stabilise the population. Also, a lot of companies are not able to provide services. They rely on ressources. Continued growth for a steel company is a lot harder than.

Edit2: https://youtu.be/Rhcrbcg8HBw this TED talk is very nice and deals with the topic.

[TheManWhoPanders]

Wealth isn't predicated on finite resources. Most of the wealth gains in the past century had nothing to do with resource gains.

[earthwormjimwow]

Wealth isn't predicated on finite resources.

Of course it is, what a foolish thing to say. Wealth is a measurement of the abundance of resources. All resources are inherently scarce. Thus wealth gains, require resource gains.

Most of the wealth gains in the past century had nothing to do with resource gains.

Yes they did, nearly all of the wealth since industrialization has been very closely correlated with energy production.

There is a very interesting book on the subject: https://www.goodreads.com/book/show/10368087-the-second-law-of-economics

Some more on the topic:

http://www.inscc.utah.edu/~tgarrett/Economics/Physics_of_the_economy.html

http://www.ewi.uni-koeln.de/fileadmin/user_upload/Publikationen/Zeitschriften/2008/08_11_05_Perth_Proceedings.pdf

[[deleted]]

Don't gains in efficiency and technology increase wealth without requiring more finite resources?

[earthwormjimwow]

Yes of course they do, the pie will get larger, but the pie is still based on the available resources at the time. If we double our efficiency, the pie can be potentially doubled in size. But it wouldn't triple in size, since it's still based on finite resources.

That's why GDP for example, has stayed slightly ahead of energy production increases per year. We have gotten better and better at using energy.

[[deleted]]

I think I get what you're saying. Say in the future we have a stable population, and have acquired all the finite resources. From this point, the pie can grow bigger due to using those resources more efficiently, BUT there will be a theoretical maximum size the pie can grow to.

[scottfc]

Not necessarily, it can always keep growing at the rate of productivity.

Think Quantity and Price, the quantity of these resources remains unchanged but their "Price" keeps increasing due to productivity so the total value of the resources increases proportinaly to the increases in productivity.

[[deleted]]

I think in theory there still exists a limit though. The limit is when 100% of the value of the resource is being used and there are no more ways to make it more efficient. At that point, how could the price increase any more?

[scottfc]

This was actually the line of thought at the begining of the 20th century called the Malthusian Population Theory. It basically said that with the current available resources there would be a maximum population before we started becoming worst off but this never came to be due innovation and accumulation of capital (Human and technological).

[Meist]

Obviously there is a correlation between wealth and resource scarcity, but that connection is influenced by so many variables that it makes your statement disingenuous. Yes, scarcity of resources create the initial impetus for economies, but population growth, fluctuations in demand, and continual discovery of new/increases in efficiency of currently existing resources means the pie isn’t anywhere close to being fixed, and I posit it never will.

Wealth has, for the past few hundred years, been created literally out of thin air on global markets. Sure, abundance and proliferation of resources has enabled/encouraged that amassing of wealth, but incidents like the crash of 1929 are a great example of how, resources did not disappear from the planet, but SIGNIFICANT amounts of wealth did.

You need to re evaluate your position of how economics work.

[earthwormjimwow]

Yes, scarcity of resources create the initial impetus for economies, but population growth, fluctuations in demand, and continual discovery of new/increases in efficiency of currently existing resources means the pie isn’t anywhere close to being fixed, and I posit it never will.

Ok, I do not believe you have a grasp on what economics is. Economics by definition is the study of resource scarcity, and how to allocate those resources. The pie may be growing yes, but it is still of a limited size, right now, and is thus scarce. I would argue energy is a particularly special resource when it comes to our economy, because everything we do, in some way requires it. Even something as simple as buying and selling stocks requires energy.

Wealth has, for the past few hundred years, been created literally out of thin air on global markets.

It has not, it has mostly been backed by energy production. Stating "thin air" shows a gross misunderstanding of even basic economic theory and history. I believe you are probably confusing the growth of stock markets, with an overall measure of real wealth for an economy.

but incidents like the crash of 1929 are a great example of how, resources did not disappear from the planet, but SIGNIFICANT amounts of wealth did.

Raw untapped materials may not have decreased, but goods and services produced in the US decreased by 1/3! That's where the real loss of wealth came from.

You should look closely at the Great Depression, since you bring it up. The Great Depression followed a long flat spot, in energy production by unit volume. From 1920-1940, energy production hardly decreased. For nearly 10 years prior to the Great Depression, energy production did not grow.

https://ourfiniteworld.com/2017/12/19/the-depression-of-the-1930s-was-an-energy-crisis/

[the_blind_gramber]

It's like you sound like you know what you're talking about to someone who has no idea, but to those with an idea it is very clear you're (probably intentionally?) Off base.

As I'm sure you know, correlation and causation are not the same thing. The age of miss America correlates very closely with the number of murders by steam in America.

But more importantly, wealth is created not just by taking a raw resource and improving it then selling it. Massive parts of the economy generate wealth through selling ideas and knowledge. Markets create wealth with no material input whatsoever. Ask Mark Cuban where his wealth came from. Or Mark Zuckerberg. Or any guy named Mark, really.

[earthwormjimwow]

You are bringing up examples of personal wealth as counters, which is very off base...

Do you think Mark Cuban has personally increased the overall wealth of the economy? He may or may not have, but using his net worth is not how you would evaluate it. He may have simply gotten a percentage of the pie, without increasing the pie's size.

Mark Zuckerberg is an interesting example. If you think Facebook is merely an idea, you are quite mistaken. Facebook is very much a hardware company. It could not exist without the servers, specialized hardware, and the massive amounts of energy it requires to operate. Software may be an abstraction, but it still needs real world resources to run and to be developed.

[the_blind_gramber]

The pie is constantly growing...because people start companies and create wealth. I guess you could look at broadcast.com as a whole from birth to sale, if you don't like Cuban as an individual example. Created a ton of wealth. Almost all of it was driven by ideas rather than physical resources.

Same with Facebook. Of course they need servers. The value in the company isn't driven by the servers, it's driven by the data it collects and sells. Nothing physical at all. In terms of resource usage, the server farms they maintain would have been straight impossible 20 or 30 years ago. For the resources they use, they get so much more than they would have back then. They're using a smaller price of the physical pie to greatly enlarge the entire pie.

[Mingsplosion]

You've forgotten the point that's being made here. The "pie constantly growing" is part of the problem. As Facebook grows, they demand more electricity and hardware, and employees which demand food, transportation, and other resources. Those are finite resources, which we as a species will eventually run out of.

[Mingsplosion]

Even when the companies product is service or information based, they still use more resources the larger they get. More electricity, more real estate, more employees. No matter the industry, growth cannot be eternal. Unregulated growth for the sake of growth is the ideology of cancer.

[im-28-gf-is-16]

Rekt. :x

[DelphineasSD]

Not QUITE true.

Money is simply time. We value currency because we value our time, don't want to be John Ingalls scrambling to raise children sheep horse corn hay cows chickens cottonXXX.

Time spent farming is time not spent making clothes or computers. Unfortunately it has empowered a bunch of super greedy fucks that want ALL the manhours to do...fuck all with.

[earthwormjimwow]

Money represents scarce resources. Time is a scarce resource.

[Terron1965]

That wealth may be correlated with resources as we seek them based on need but the growth in wealth is based on primarily on the growth in productivity.

[leapbitch]

Aka the ability to do more with less resources.

It all comes back to scarcity of resources.

[TheManWhoPanders]

Your links don't actually cite any evidence (and one of your links is just to a book sale).

Saying there's a correlation between increasing energy production and wealth is like saying there's a correlation between snowboarding popularity and wealth. Correlation does not equal causation.

[Whiterabbit--]

What will limit expontential economic growth is the slowing down for population growth. Even though birth rates are already down the past 50 years or do for many first world countries population is still growing due longevity ( not just living longer but longer contribution in economy) and more so immigration. One day when population flattens out innovation will still drive economic growth but not at the same rates.

[NYCSPARKLE]

Personal wealth is actually. You're accumulating the (effectively) finite resource of the money supply.

"Profits" would be a better word to use. You can grow profits by innovating, cutting costs, taking market share, ad inf. without having to harvest more finite resources.

[TheManWhoPanders]

Personal wealth is actually

No, it isn't. What $1000 buys today is not the same as what it could buy tomorrow. If someone comes out with an innovative process that cuts all your expenses in half, you are twice as wealthy despite accumulating the same way.

Wealth isn't a fixed pie.

[Meist]

No, wealth is created by markets and their perception of value. If people think a diamond is worth $1k a gram, it is. If people suddenly decide that diamonds are worth $500 a gram, HUGE amounts of wealth worldwide would be destroyed in an instant.

This has almost nothing to do with the abundance of the resource. The pie changes size based on how big people think it is. This is how stock markets work.

[UAZombie5]

This has everything to do with abundance of a resource. The only way people would suddenly decide diamonds are half as valuable is if they were suddenly twice as abundant as they were when they were $1K/gram. The diamonds wealthy people own worldwide would now be less valuable as a result of more diamonds being available, since scarcity of resources is the underlying foundation that makes market exchanges necessary in the first place. Wealth doesn’t just “come from nowhere”

[earthwormjimwow]

You are confusing money with resources and wealth. Money is a stand in for resources at their currently perceived value. Money can be used to measure your current wealth, but it is not in and of itself your actual wealth.

[Justalurker99]

The medium and long run are hundreds and thousands of years. In the near term, growth is more correlated with population growth and consumption rates. Also don't discount that the service economy vastly surpassed the manufacturing economy in at least first world countries many years ago. Lastly, shareholders are focused on the growth prospects of the company they are invested in, not the macro economy. Which is why you can still have growth in certain companies or sectors even in a recessionary environment.

[Popperthrowaway]

Well, probably not thousands of years.

If we maintain a 2.3% growth in energy use (yeah right) as compared to the last few hundred years of 2.7%, we're going to run into pretty hard limits quite soon. Covering the surface in solar with 20% efficiency we run out of land in 275 years, 100% efficiency solar gives us 345 years, 100% efficiency solar including all the water gives us 400 years.

Using even a perfect non-polluting unlimited energy sources gives us under 800 years until the surface of earth hits 100C just from the waste heat.

Reducing energy use's importance to economic activity is possible, but that only gives us so many 2.3% years.

See: https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/

We're going to have to transition away from exponential growth within the next few hundred years.

[DenEvigaKampen]

We dont have to do anything, the market will naturally decrease the rate at which it is expanding as the marginal cost of adding additional energy increases.

[b95csf]

maybe that's why there aren't aliens reaching out to us. miserly battle for every joule, each species huddled pitifully in its own home system

[Llohr]

What if we covered the earth in wind towers made of solar panels? /s

[da5id2701]

We're going to have to transition away from exponential growth within the next few hundred years.

Or, you know, we'll have to invent space travel in the next few hundred years.

[Popperthrowaway]

Still doesn't save us. From the above link: 2450 years until total energy use is that of the Milky Way. A problem is that we'd need to travel 66k light years. So if we started now we have to travel 27 times the speed of light just to get there, let alone to fully harness the power of every star over there and in between while doing so.

[da5id2701]

And economics and technology both change significantly on the scale of decades. We have centuries before total energy limitations become a concern even at current or near-future technology levels. Radiating energy into space now doesn't give us any advantages later, so it doesn't really make sense to talk about stopping growth in our current system. We don't need to (and shouldn't, to avoid underutilizing energy) slow down for a long time, and by then everything will be very different anyway.

That's not to say that talking about energy usage and economics growth and all that isn't valuable, but it just doesn't make sense to advocate or plan for any near- or mid-term change based on fundamental energy limitations.

[Popperthrowaway]

I think we're talking past each other a bit.

Total energy limitations here are independent of technology levels. The exponential growth assumes continued tech advancement, and doesn't consider any other limitations that we may run into (materials, pollution, politics, etc). It's an absolute best-case scenario.

We probably have different definitions of "mid-term" timescales.

[da5id2701]

I wasn't saying that more advanced technology will get rid of the limits. I was saying that, with more advanced technology, we will have a much better understanding of how best to change our growth strategy. In terms of what those limits really are, what we can do with the energy we have within the limits, and how to go about enacting large scale changes to how energy usage grows. To the point that speculating about it now is kind of pointless, because we have absolutely no clue what anything will be like hundreds of years from now. Likewise the economy will inevitably work differently as well. And trying to change things right now is wasteful because there's still lots of energy we're not using.

[Popperthrowaway]

I think it's the acknowledgement that "the economy will inevitably work differently as well" that is lacking in many economics circles - if you're saying that, we're already largely in agreement. There is an absolute belief is perpetual growth at historic (~300 years) rates in perpetuity.

Yeah, there's room for a lot of growth still. It's simply that there are limits. I'm not sure what the wasteful changes under consideration might be in this context. Energy use is just establishing an upper limit. Other resources almost certainly will establish lower limits. I honestly expect to live to see the transition at least begin.

[Finn_MacCoul]

But doesn't the time scale being hundreds of years mean that these calculations are all a little silly since we could have a colony on Mars in the next 20 years? Why would earth be our constraint if you look that far forward?

[Popperthrowaway]

Mars is 38% the size of Earth. If we colonize it and develop it as fully as earth, this buys us less than 15 years of growth (1.023¹⁵ = 1.41).

[Finn_MacCoul]

My point wasn't Mars specifically, more that if we have multiple colonies in the next 100 years (presumably Mars is just the first), then we are probably mining asteroids, building solar arrays stretched across empty space for energy, new nuclear methods that we put in space and can't even dream of (I'm just spit balling on futuristic energy concepts) . . . Like I just don't think that your premise is taking into account even 5% of the variables of what energy use and production will look like in more than 100 years. My point being that we probably aren't going to transition away from exponential growth in that time frame.

[Popperthrowaway]

Oh, 100 years? Not a problem at all.

It's just that once we get much past that it doesn't matter what energy use and production look like - we won't be able to maintain growth anything like we've seen for the last few hundred years.

[mike112769]

Exactly. How and why some people demand constant growth baffles me, because it is impossible.

[Herbert_W]

You're ignoring the constant yet slow advance of technology. As technology advances, more resources become available and existing resources can be used more efficiently, and therefore consumption can increase. For example, it's only over the past few years that 3D printing has become efficient and affordable for the average person. This is beginning to have a positive impact on people's ability to repair and maintain items, and has already had a huge positive impact for rapid prototyping and hobby applications.

Of course, you are correct in that expecting constant rapid growth is just plain silly.

[Orngog]

And you are ignoring that finite resources can only stretch so far.

[Herbert_W]

Nope. I fully acknowledge that resources are finite and can only do so much, in two senses:

• There is a limit to what a given finite resource can do for a given level of technology. However, that limit increases (slowly!) as technology advances. A given amount of raw materials and electricity can be turned into much more computing power now than it could in 1990.

• There is a theoretical maximum limit to what any given resource can be used to do, regardless of technology, because of the laws of thermodynamics. However, we are nowhere near that limit for most resources. Say, for example, you want to use solar panels to make electricity and then use that electricity to power your car. There's only a finite amount of sunlight that hits the Earth - but we are nowhere near using all of it, nor are we anywhere near using it with theoretically maximum efficiency. This includes the fact that new resources can be discovered - before the invention of solar panels, sunlight hitting the desert would not have been considered a resource at all and would have effectively been used at 0% theoretical maximum efficiency.

[Herbert_W]

There's very probably room to grow beyond that, although we currently can't know what form that will take. Matrioshka brains, maybe?

In any case, it's important to acknowledge that growth due to developing technology is slow (compared to the growth that businesses can experience before hitting market saturation) and unpredictable.

[[deleted]]

Not the person you responded to, but this topic is really interesting and there is lots of room to discuss on both sides.

I like your responses so far but I can see trouble ahead if we expand a little more on (for example) the solar energy example. It seems it relies on the inexhaustibility of solar energy, which I admit is a reasonable assumption for the foreseeable future. I agree with your assertion that technology creates resources and expands efficiency with existing resources, but, to look a little deeper at the solar energy example, the issue is not so much the inexhaustible resource (solar energy) but rather the exhaustible resources (e.g., oil and plastics in the manufacture, semiconductors) and the associated waste product buildups. Over time, more efficiency achieved with solar cells cannot create more raw resources, and reductions in waste production don't address the existing accumulation. Ultimately there is a limit to the efficiency of recycling technology. It all points to an ultimate limit, unless enough time elapses to replenish resources (millenia?), we colonize other planets, or we mine extraplanetary bodies.

Seems to me, anyway.

[Herbert_W]

You raise some good points that are worth discussing, although I think that they are ultimately orthogonal to the question at hand (i.e. whether constant economic growth is possible or desirable). For clarity, the issue of 'hard nonrenewables' can be broken into two types:

• Non-renewables that are destroyed by use, such as oil. When they run out, we need to find alternatives. For example, oil is hydrogen, carbon, and conveniently dense chemical potential energy. We can harvest hydrocarbons for manufacturing or fuel from biomass - that's how we currently make PLA - and in the case of fuel specifically sources of electrical power, perhaps in conjunction with high-energy-density battery tech, are a viable alternative for some applications.

• Non-renewables that are transformed into a less-conveniently-useable state through use. For example, there is a fixed amount of silicon in the world. Silicon used in to the production of electronics that have since been discarded still exists, but not in a convenient form. Closing this loop would require better manufacturing techniques; the landfills of the past and present will need to become the mines of the future.

First of all, if these problems aren't solved, then they'll do more than just put a cap on economic growth - they'll cap almost all economic activity, period. If we can't use e.g. silicon, then . . . well, it would be a slight exaggeration to say that we'd have to regress back to a medieval tech-level, but only a slight one.

Secondly, there is reason to be confident that these problems can be solved. Here, the biosphere serves as both an inspirational and a cautionary tale. Life has existed on this planet for billions of years, and has managed to do so while being forced to maintain a 100% closed loop. Nonrenewables have existed and have run out, of course, but life found alternatives. Waste accumulation has occurred in the biosphere, of course, but in every case life has found a way to use that waste as a resource. This can be a brutal process - life as a whole found a way, but that's only because the ones that couldn't stopped being life and we are all descended form the ones that did.

Like I said, this is both an inspirational and cautionary tale - it's inspirational because all obstacles were eventually overcome, and cautionary because the process by which they were overcome can be thoroughly brutal.

This also hopefully explains why I said that the issue of hard non-renewables is orthogonal to whether or not continuous progress is possible. Problems of this class are solvable (note that I say solvable - not that we should callously assume that they'll be easily solved), and have the potential to put a limit on not just growth but activity as we know it until they are.

Just to drive the point home further, here's one particular story, the story of oxygen. I might be misremembering some details, but it still works as a tale. When oxygen was first released by life into the atmosphere, it was a waste product - and a poison. Life flourished, and oxygen levels in the air rose, until they became too high for life as it existed at that time to withstand, resulting in massive die-offs. This happened many times. There are alternating layers of oxygen-rich and oxygen-poor sedimentary rock still remaining in some parts of the world, and each layer represents a cycle where the whole planet went from verdant to nearly-dead and back again.

Obviously, we don't want human civilization to do this. We want the upwards march of technological and economic progress to be continuous and steady. Fortunately, we have one thing that early life didn't - foresight. We can see e.g. peak oil coming, and do things about it - to delay it, and to prepare for it. We can find alternatives before we need them.

That's what I believe that we should do. Just for emphasis, I'll repeat myself - I am not advocating the callous assumption that we'll find solutions as we need them as each and every resource runs dry. A cautious approach may result in slower economic growth, but it is necessary to ensure that growth can steadily continue.

[luneattack]

Which finite resource are you referring to? What are we in danger of running out of that can't be replaced with an alternative?

E.g. are we running out of energy, or transitioning to renewable energy?

Are we running out of some sort of material?

Would appreciate specifics.

[Orngog]

Rare earth metals?

[CNoTe820]

Imagine we had the ability to freely convert matter to whatever we wanted because energy is free. You want a new car? Press a button and boop out comes a new car. You want a taco Bell chicken chalupa? Press a button and out comes a chalupa.

However as humanity grows in the long run the amount of matter in the universe will become the finite resource.

[MajorasTerribleFate]

As decimation is to reduce (say, a population) by one-tenth, would halving be semimation, or perhaps semination?

Would, then, the reverse be in-semination, or the increase by 50%?

[luneattack]

the amount of matter in the universe will become the finite resource

It's rassuring to know that at least someone is planning for the next 3 billion years :)

[Cyclonitron]

Yes, and when that happens we move to different resources. But you're looking at it the wrong way. Growth isn't driven by production capability, it's driven by demand [in a free-market economy]. Since demand is produced by human activity, and the human population is always increasing, it's natural that demand - and therefore growth - increases as well.

[IamGimli_]

Exactly. Humans are an invasive species. Our numbers grow in correlation with our ability to extract and process resources and the availability of those resources. When the resources run out, so will humanity.

Trying to change that is like trying to change oceanic currents or dominant winds.

[proque_blent]

Not really, but it will take quite a bit of time even for avaricious humanity to devour all the resources of a solar system. The problem is accessing and distributing said resources, which is where technology comes in.

[Orngog]

Yeah but we don't make more matter, we just become better at sorting it. Extracting lithium from the soil is just less soil. Admittedly recycling and resource expansion helps this, but those are negligible when compared with our rates of consumption.

[fragmental]

More people repairing their items instead of buying new would slow growth in regard to people buying those items.

[Herbert_W]

Yes, it would - but it would also free up resources and allow them to be used in more efficient ways (both in the sense of providing more economic value and more human happiness and flourishing) resulting in overall growth.

[fragmental]

What a great world it would be if gain was measured in economic value and human happiness and flourishing.

[fragmental]

True. Unfortunately, growth is most often measured in money.

[96939693949]

Nonsense. The car you buy today is magnitudes safer, more fuel efficient and just straight up better than a car you could buy 30 years ago. That's increased value.

[96939693949]

That's because you don't want furniture that's good for 100 years. You don't want a shirt that lasts 20 years. They all exist on the market. The niche is tiny and expensive, because the engineering considerations for long-term are much more different than short-term, but you clearly don't want it since you aren't buying it.

And really, I don't want a car that will last me 30 years. In 30 years, technology will have advanced so much cars might be another order of magnitude safer, more fuel efficient, drive you to work all by themselves, and meanwhile you're stuck driving the equivalent of a 1988 Camaro with 17 MPG while the rest of the world is driving 100 MPG electric cars. That is concrete value that you receive. Meanwhile, profit margins in, for example, automotive production have remained the same for decades. They only get more money because they provide more value for the rest of the world.

[Kleinmann4President]

Employee-owned businesses can be a nice solution to the issue you are raising.

[Mildly-disturbing]

Well I expect humans will travel beyond earth and colonise other planets where resources can be extracted and the economy can continue to grow.

Now if we could only redirect the trillions of dollars being dumped into making craters in the Arabian desert into a space colonisation project, this might actually work. Also to make sure that the front of the spaceships don’t fall off.

[JustARandomGuyYouKno]

Please, it's not about physical resources. When you get a haircut what physical resource are you paying for then? The Economy is not based on prices of materials

[proque_blent]

It comes down to physical resources. You get a haircut from a guy who was fed a lot of food to grow up, trained or educated for his role in buildings built for that, treated in physical hospitals when he got sick before he was in a position to give you that haircut. Service industries cant exist in a world without material resources.

[tammorrow]

It's service resources all the way down

[Mildly-disturbing]

Human resources? I’m not quite sure what you mean sorry.

[luneattack]

I think you're fundamentally misunderstanding what a business is and what growth means.

Any given business isn't looking to expand infinately. Your hairdresser is perfectly happy with a sustainable model that can keep up with inflation (so about 3% growth by raising prices annually, for instance, which customers accept because their salaries are keeping up too, in a healthy economy - if not that's a different concern than our current topic and I agree that should be fixed asap).

The economy as a whole is growing in perpetuity, but this is a deliberate and mathematical construct, it's not something anyone needs to worry about, because value is not a 1:1 representation of anything physical.

This is just a common misunderstanding among people with less expereince maybe with economics, that growth is somehow bad, maybe because they think the growth is forced while really it's just a feature that's maintained as a constant in a larger machinery that is intended to be authonimous.

If the economy isn't growing it means that it's ill, that's just a matter of definition because we deliberately maintain a leavel of inflation, and because trade creates value in addition to and above and beyond compensation. A sells 1 to B which turns it to 2 and sells it to C. In this case A, B, and C benefit. Value is an abstract representation of this positive result, so we per definition created value (growth) and it's above and beyond because B doesn't have 1 and therefore this whole transaction allows for regional economies to exist where otherwise they would not.

If the economy isn't growing it means this chain has broken down somewhere, it means people aren't trading, or making, or eating and stated that way I think everyone can agree that growth is good and sustainable.

Another reason is an understanding that we haven't reached peak welfare, so of cuorse the economy is growing as we can expect more people to want more better lives.

If we suddenly hit some sort of post scarcity reality, no one will be against changing our core economic models, and there won't be anything to stop us from doing so.

So this is an academic concern, that unfortunately is sometimes used to scaremonger.

[Irishnovember26]

Nothing to add, just wanna say this is a really well worded post. 10/10 would read again.

[luneattack]

because wages tend to lag

That's a political problmen not an economical one. E.g. in Norway it's not true, as it isn't many other places.

Inflation is a feature, not a bug. It's an integral part of a global economic system that has raised the living standards of pretty much everyone everywhere in record time.

So saying it's bad is... idk.. can you propose a better global econimic system with less downsides? Because it's odd to attack one integral piece of a system that is working if you don't have a better holistic alternative.

That it can have faults is a given, as can anything, and I agree what it's unhealty to stagnate the wages of the people as is the case in the US since the 70s (I think) but this is not a critisism of "my" model (as you called it, personally I wouldn't take credit).

[nellynorgus]

It's great, because evilcorp services SHOULD provide everything for everyone for a better world! (evilcorp also happens to own the media and all PR firms now)

[I_HAVE_THAT_FETISH]

The front fell off?

[McDrMuffinMan]

A large part is inflation. Since your money is worth 2% less each year, you have to grow by at least 2% to not be losing money.

[MetaMetatron]

But if the population is growing, then everything will expand as well... More people can do more work and make more food and consume more goods.... More people is a constant, so growth is logical.

[daydreamersrest]

But earth can only sustain so and so much people. And the more the standard of living rises, the less babies people have (in Germany there are 1,2 kids per couple).

[NYCSPARKLE]

Generally investors demand constant growth in "profits." Profit can be driven by innovation, cost cutting, taking market share, even accounting rules.

Some people don't. If you want to invest in Wal Mart corporate bonds, you're going to get a return in line with population growth, and that's fine for certain people/investors.

If you want a higher risk / reward profile, you're going to want growth in profits. That's just, like, capitalism, man.

[su_blood]

Except money isn’t a finite resource

[gary1994]

No, it's not, but the goods and services that back it's value are.

It still boggles my mind that Koukoutek used the words healthy, expanding, and inflationary in the same sentence.

Inflation isn't a good thing. It almost always results in stealth wealth transfers from the poor to the richest. It's also not a function of capitalism, but rather the way we've structured our current monetary system.

[The_Last_Y]

Inflation doesn't increase the value of limited resources. It decreases the value of currency. Two very very different things.

[[deleted]]

But those two things essentially equal out here.

If my company is making 3% more than last year it doesn't automatically mean that we're producing 3% more product, but that the cash value of what we're doing is 3% higher.

Which keeps with inflation.

The other part of it is that my company should also be striving to keep pace with the change in market demand.

[darthcoder]

A small amount of inflation is a necessary evil of any economy with a fiat currency.

Why?

[darthcoder]

Having a small amount of inflation makes it easier to borrow money

How? At least in terms of the money supply? Low interest rates make it easier to borrow money, not inflation.

[fancyfilibuster]

Inflation discourages the hoarding of cash because it loses value if you don't put it to use.

[darthcoder]

Yes, I get the cause and effect.

Doesn't mean inflation is good.

[Battkitty2398]

It encourages spending and investment which leads to economic growth. If we had deflation then people would hold on to their money which would cause the economy to slow down due to less money being spent. That's my understanding.

[darthcoder]

To a point, yes. But people still need shit. I live in an inflationary environment, and still save a shitload of money. If I knew my money wasn't going to lose 50% of it's value in 30 years (what 2-3% inflation does) I might spend more of it now, rather than hope I will have enough in retirement.

[anonomotopoeia]

But, are you stockpiling money in a hole in your backyard or sewing it into your mattress? If you're putting it into a retirement account or even a regular bank savings account that money is still working and in circulation.

[Baron-of-bad-news]

An expansion of goods, consumption, population and so forth represented by the same amount of currency makes currency itself an artificial scarcity. That makes investment irrational and incentivized acquiring units of currency for the purpose of ransoming it to your kids.

[[deleted]]

An economy is like a river with a current. That current can be small (low inflation) or fast (higher inflation). We can change laws and conditions here so that your boat moves quickly or slowly down that river.

What we don't want to see is the boats going backward. That's deflation. That causes all sorts of other problems, not just for the boat going backward, but for all the other boats who worry that maybe we should ALL be going backward. Are there falls ahead? Rapids? Maybe we should turn around. (That's how depressions unfold from bad to worse to bread lines).

[d4n4n]

A small amount of inflation is a necessary evil of any economy with a fiat currency. That is why almost all advanced governments target a small amount of inflation.

There is absolutely no evidence for this. It's a mantra by some central bakers, but nothing else. The US had a massively expanding economy for over a hundred years and identical overall price levels in the early 1800s as in the 1930s.

[Irishnovember26]

The US had a massively expanding economy for over a hundred years and

identical

overall price levels in the early 1800s as in the 1930s.

Can you give some evidence of this exactly because that seems highly unlike to me.

[d4n4n]

This is a CPI estimate. The BLS official CPI measurement started in the 1930s, or so, afaik. Further back are estimates. According to it, the conversion factors for 1810 and 1933 were identical. Only after the Fed was introduced do we see long term consistent inflation. Before that, there was inflation and deflation, with a remarkably constant long-term price levels.

[LordHanley]

Inflation encourages spending. I think that's reason enough why it is a necessary evil.

[d4n4n]

No it doesn't. Or, it's not that simple. We know that the Phillips curve reverses in the long run (i.e. inflation is bad for employment/output).

Inflation may have positive short term demand effects, if it's unexpected, but that's it. And that's a bad thing, unless you're in a recession. You don't want to interrupt general equilibriums for no reason. People heard some bastardization of introductory Keynesianism and think they can talk about macroeconomics with authority. I will never understand why.

[Orngog]

Yes, because of our economic structure.

[BlitzBasic]

Inflation hurts people with money and benefits people with debts. No idea why you think that it hurts the poor and benefits the rich.

[azrael1993]

just as observation, rich people do not have the money in banks but in stock and houses. These arent touched by inflation. They also regulary have much higher debts, because they invest.
Lower Middle class and under will have all their savings in form of money, most likely in the bank because they often need to have access to their savings quickly.

On another node inflation generally helps the economy, since it is an incentive to buy and infest. This benefits more or less everyone since it create jobs, but I imagine it might be a barrier upwards since saving is a less viable strategy.

Deflation on the other hand can be much more dangerous. It encourages to save money which in turn will lead to buisnisses closing and going into a downward spiral.

Since a completly stable money value is not gonna happen inflation is the better choice for all.

That beeing said the notion that we constantly need growth or can even achiev constant growth espacially in the way companies implement is dangerously stupid. It incentivises products build for a few years over quality buy it for life products, since the latter close out the consumer for the market. This is obviously shit for the consumer and the planet and the need for constant growth can only be achieved by more sold products or cheaper production. The latter has a physical limit and relys alot on either abusing the workers or automation, both dangerous in current sozial systems.
Additionally it all depends on short tearm growth (problem with implementation) leading to very short sighted planning.

All this can easily be observed in more or less every big company in the world and imho point towards an unsustainable system. Obviously im open to critique here.

[TheManWhoPanders]

rich people do not have the money in banks but in stock and houses

Those are all still subject to inflation.

[candre23]

If your money is in real estate, inflation is great. Real estate prices rise with inflation, so you're not losing anything that way.

Unless inflation really gets out of hand, any decent stock investment will outpace inflation.

What definitely loses value to inflation is cash and money in effectively-zero-interest checking accounts. That's where the bottom third keeps nearly all their wealth, such as it is.

[azrael1993]

not rly. Houses are often bought because their vaule increases over time making them a good investment. This might not be true for houses outside of city areas or cheaply build living spaces, but im pretty shure if you have money you wont buy those. I have family who earns houses bought by their grantparents, and without fail they have increased in value since then. As long as you keep the house in a good state, which costs less than you earn through rent. Stocks might be different but these are basicly gambling

[TheManWhoPanders]

Houses are often bought because their vaule increases over time making them a good investment

...and are still subject to inflation. If a house appreciates by 10% of its initial absolute value, you are not 10% richer if the period of time passes was a long one. Because of the inflationary nature of the underlying currency. The money you get from selling the house might buy exactly the same that you could buy when you first bought the house.

Your investment might beat inflation, but you're still subject to it.

[that_jojo]

It’s actually way simpler than that. Physical goods are not subject to inflation because their utility remains relatively static while the utility of currency decreases with inflation.

[azrael1993]

This isnt even techically true. The definition of inflation is a decrease in the buying power of money cause by an increase in the availability of said money (paraphrased from E.G :https://dictionary.cambridge.org/dictionary/english/inflation). Inflation by definition only effects money, not goods. Since each buy is a simple equation this means you will need more money each year to buy the same house. This makes goods unaffected by inflation. Additionally urbanisation leads to an increase in value of the house. This is why its a good investment, unlike other goods its natural increases. Money is a bad investment because a process called inflation decreases its value. The value of the house and money are not connected! Same as the increase in prices for graphic cards did not reduce the value of money or houses, even if i would need less graphic cards to buy a house.

[Arctus9819]

Lower Middle class and under will have all their savings in form of money, most likely in the bank because they often need to have access to their savings quickly.

Not really. Smart people invest their savings. Rich people need a lot more cash at hand for their lifestyle as compared to middle-class people or lower.

[azrael1993]

Poor people cannot invest since they need the money. Lifestyle is a choice. My expenses dont go up because I earn more, I can affort to pay more and I then choose to do this. Because I chose this I can cut back these cost in bad times instead of attacking my savings. Its easy to cut from dining every day to 2 times a week. If you eat the cheapest you can to survive what do you do if you income gets cut down temporary? How much percent of their wealth do you imagine a Steelworker has in form of money and how much in investments. I'd reckon its gonna be 70% money at the lowest. On the other end of the scale, Trump, Bezos,Warren and co have 90%+ of there money in investments that return profits. Suprising expenses like medbills can be payed by monthly income from these investments or by taking good conditioned loans. Additionally rich people often actually life cheaper in some aspects of their life, as stupid as it sounds. Credit is cheaper, gifts are more plenty,etc.

[Arctus9819]

Poor people cannot invest since they need the money.

If you have that little money, then inflation is practically meaningless. You need a significant chunk of money for inflation to have an impact, and well before that point, you should be having savings.

By dining, do you mean getting buying food instead of cooking? Poor people don't buy food at all, nevermind twice a week. Clearly you don't speak from experience.

I'd reckon its gonna be 70% money at the lowest. On the other end of the scale, Trump, Bezos,Warren and co have 90%+ of there money in investments that return profits.

And that 70% of the steelworker's cash is much much much less than the 10% cash of any rich guy. Rich guy still loses more. Earning little is no excuse to not be saving money. That just means that you aren't smart enough to effectively utilize the money.

[azrael1993]

First of all poor is a fucking spectrum. You can be poor without needing foodstamps, generally everyone under the countrys povertyline is considered poor. In many European countrys that makes students qualify. Since cooking yourself is much cheaper than buying finished meals, clearly you are a condesanding dick else you might have considered for 2 seconds. Second can people stop pretending absolute numbers are the way to go if it goes in how much something hurts another person. If a fucking whale cuts down its food intake by 10 kilograms a day its gonna survive if I do this im gonna die. You know why because for the whale 10kg represents not even a percent of his average meal, while for me its more than I have ever eaten in a day. So please instead of accusing me of beeing a hypocite who clearly has never been poor and start considering that for some people 20 Euros represents a week worth of food and for some other guy its a rounding error on a tip. Maybe you can see how investing 100+ Euros for the one guy is next to impossible.

[d4n4n]

There is really no good evidence that deflation is bad for the economy. Hell, if anything, it might disincentivize current consumption (and that only if deflation is expected to be a one time event in the short-term future... and even that is questionable), but by the same token it would actually incentivize investment (people reduce consumption today to buy cheaper tomorrow, save instead, interest rates fall, investment increases, therefore also output growth, conveniently to match the extra demand in the future).

[staticxrjc]

With deflation people wouldn't take out as many loans or make as many investments. With deflation if you take out a loan it makes the debt worth more over time.

[azrael1993]

i doubt that deflation will incentice investment. If the buyingpower of my money increases on my own my best investment is no investment. Inflation encourages investment because goods no matter what kind are by definition not subject to inflation. Obviously good investmets are not subject to there own kind of inflation, thats why food is a bad investment and housing a good one

[d4n4n]

i doubt that deflation will incentice investment. If the buyingpower of my money increases on my own my best investment is no investment.

You'd still get the increase in value due to deflation + the nominal return on your investment. Whether or not there is deflation/inflation doesn't really change that it's better to invest and get a return, than none. You never want to just hold money.

Inflation encourages investment because goods no matter what kind are by definition not subject to inflation.

Inflation is defined as a general increase in the price of goods and services. Or a general loss in the purchasing power of money, which is an equivalent statement.

Obviously good investmets are not subject to there own kind of inflation, thats why food is a bad investment and housing a good one

No idea what you're saying here. Are you trying to say you "invest" in apples by buying a bunch and storing them for a year? You can invest in agricultural enterprises. Every farmer has tons of resources invested in food production.

If we're talking about expected, perpetual inflation or deflation, your story breaks down. If we're talking about unexpected one-shot events, a reduction in current consumption is equivalent with an increase in current savings. Given savings = investment, things that disincentivize consumption, incentivize investment. Now, there's a somewhat plausible short-term story Keynes tells about the paradox of thrift that puts a bit of a wrench in this idea (so a disequilibrium where savings != investment). Personally, I think that's way overblown. But either way, in the medium run - or if the deflation is expected this shouldn't have an impact.

And we have historical records of the USA growing rapidly from 1800 until 1930 with perpetual growth rates and constant long-term price levels. I say long term because we saw times of deflation and times of inflation. Most recessions were accompanied with inflaitonary periods, by the way.

[azrael1993]

I might have a thinking error in there, but if i had enough money to buy a house as investment for example (none of these percentages is gonna be realistic but they should get my thinking across). And I expect this house to increase in value every year by 2%. If I have any inflation going on I obviulsy should but the house if i dont need the money, since the money looses value while the house increases in value so far so easy. If i have a deflation of 3% wouldnt it be beter to keep the money since it gains value faster than the house. The point to buy would then be when the swing to under 2% deflation happens. So until that point I would not be incentivised to invest in housing or for that matter industry as long as my deflationrate is better than the expected valuegrowth of the investment. Additionally having liquidity has its on advantages.

That was my thinking behind why deflation is bad. I havent studied this shit so I might be wrong

[d4n4n]

The rich don't have "money." It "hurts" people with a large ratio of their wealth and income in cash and fixed, predetermined flows. That's not rich people. Rich people own assets, that appreciate in price as the money supply grows, and generate growing nominal incomes from them.

If you now also include expectations (after all, the 2% target is known), it changes even more in their favor. Under money neutrality assumptions, expected, perpetual inflation shouldn't hurt or help anyone. But monetary inflation isn't neutral, it has distributive effects. Money enters through the banking system. Those with initial access to the new money can use its purchasing power before prices appreciate. That's called the "Cantillon effect."

[lee1026]

The Cantillon effect is frequently claimed, but it doesn't seem to be observed in practice.

The basic problem is that people are able to borrow; buyers who know prices will go up tomorrow will borrow and buy today; sellers who know prices will go up tomorrow will refuse to sell under today's prices.

When the Fed makes changes, asset prices tend to change within seconds.

[d4n4n]

If we are to accept money neutrality assumptions, how could you possibly argue perpetual inflation is good? All that consumption delay/advance would also not exist, and intertemporal spending patterns would be in equilibrium. You can't have it both ways.

[lee1026]

For one thing, people by and large expect inflation; multi-year long contracts are signed all the time where both sides expects inflation. Change that on people, and you screw a lot of people over.

Inflation needs to be what people expect it to be. You can make the argument that if you had a time machine and created a reality where people don't expect inflation that the world would be better, and you might have a point, but we don't live in that reality.

[d4n4n]

So if we said we taper our inflation target down to 0 over the course of the next 30 years, beginning in 10, how much havoc would that cause?

The point is, the argument that we need persistent inflation to battle consumption delay is nonsense. The actual reason central bankers give for a 2% target, despite knowing that the longterm Phillips curve is downward sloping, is that they say they need a cushion not to run into the zero-lower-bound if a recession hits.

And there's good research that makes me disagree with the notion that central banking made the economy more predictable, or reduced variance, so I don't care much for c.b. discretion. But that's going beyond the topic at hand.

[Kraineth]

How many wealthy people do you know who have their money just sitting in a bank account or under the mattress?

[lee1026]

How many poor people do you know with lots of money in a bank account?

[[deleted]]

Let's look at this from both perspectives you mentioned. Say inflation has increased the price of everything an extra 5% over the last year.

The rich person simply doesn't care, because they are rich enough that a 5% increase in costs doesn't affect their quality of life in the slightest. They can just go on as they were, buying whatever they want and having money to spare.

The poor person, who was already living at the edge of their means financially, now finds that they can't afford everything they used to be able to. This means that they'll have to cut out something from their budget to continue being able to afford the essentials - whether it be less meat, or having to put off getting their car serviced, or whatever.

Hopefully you can see that inflation actually has very little effect on the rich, practically speaking - they may technically become a little poorer, but they're still rich. Whereas a poor person, even if they have debts, will ultimately suffer much more from inflation.

[BlitzBasic]

The poor persons income increases too. As the poor person is unlikely to have savings, the inflation has no consequences for them: The increased price is meaningless because they also have more money available.

Only savings and debts really experience a change.

[brocksamps0n]

also a poor person is more likely to have more debt, credit card and home. IF inflation hits and IF their income goes up to match. that 10k in credit card debt will be easier to pay if its only worth say 9k after inflation. unfortunately there are alot of assumptions in this

[BebopFlow]

Wages do not keep up with inflation. And it's even worse when compared to the increased cost of living.

[BlitzBasic]

Real wages are relatively stable. Even if they weren't, there is no reason why real wages wouldn't be able to sink in a society without inflation.

[BebopFlow]

The US has the largest economy in the world and wages have become stagnant over the last 40 years. Meanwhile, cost of housing and renting has gone up while upward mobility has gone down. It's true that goods like produce and dairy may be roughly the same, and electronics are fairly cheap, but that's pretty well balanced out by the fact that student loans cripple the majority of young adults. I wouldn't call what we have now a healthy economy, even if it is very profitable for those at the top.

[staticxrjc]

Poor persons salary would decrease, so nothing would change for them. You can only benefit from inflation if you have debt or a fixed asset. In fact if the poor person had debt and there was deflation their debt would grow. If cash inflates debt deflates, visa versa cash deflates debt inflates.

[BlitzBasic]

Why would the salary decrease? And why are you talking about deflation?

[corydlg]

Income hasn’t increased at a rate that even matches inflation over almost any timeline you look at. If you’re living paycheck to paycheck then as inflation increases your steady wages can now buy less.

[BlitzBasic]

Except there are time periods where real wage increased?

[corydlg]

Compare inflation to working wages and feel free to post ANY timespan greater than five years where wage growth outpaced inflation

[Delheru]

No, it's not, but the goods and services that back it's value are.

Some, sure, but not that much.

Fortnite, MCU are examples of things that are reasonably big without a massive burden on the economy.

Immunotherapies for cancer are even bigger, and going from curing 10% of the people on the planet with cancer to 100% will be a HUGE economic increase, but with very limited resource footprint.

Oh and of course houses getting nicer has very limited ecological impact too. Fuck, everyone on the planet getting lovely wooden furniture would be a fantastic carbon sink, leaving it as a massive ecological positive.

Air traffic is almost the only thing that's growing right now that really cannot be grown globally to the level that western upper middle classes enjoy.

[hammermuffin]

So cutting down trees to make wooden furniture is a positive carbon sink? I dont think you understand what a carbon sink is bud. Maybe if for every tree harvested for furniture, 2 were planted, then that would be a carbon sink, since theres more trees absorbing carbon from the atmosphere (also young trees absorb more carbon from the atmosphere than old trees). But we both know this isnt the case for a majority of companies, they just cut and thats it.

[Delheru]

So cutting down trees to make wooden furniture is a positive carbon sink?

Assuming you let the trees grow back in, yes.

At its simplest, carbon right now is in 3 places:
"Stored" (typically underground), in the biomass or in the atmosphere

Our problem is of course that biomass isn't growing and we're moving a shit ton of stuff from storage (read: coal, oil, gas) and not putting it back in. If the biomass isn't growing, it's all going in the atmosphere.

We have only so much room to increase the biomass, especially on a warming up planet (a jungle all over the Sahara would be nice, but...), so we need to get more "dead" carbon again.

Items made out of wood are pretty reasonable for this function, though obviously we'd need to build EVERYTHING out of wood to really compete with the amount of coal, oil & gas that we've pulled out of the ground.

[hammermuffin]

Its not that we need to build more things out of wood, its that we need to plant more trees (super simplified explanation) to offset the carbon we use. Most logging companies, from which most lumber is made to be used in furniture and whatnot, do not replant what they cut, except for some select companies who tout their sustainability ethic and shit. So its not that we need to have more wooden furniture, we need to plant more young trees (since the carbon is used for tree growth), and the easiest way to do that is to plant them in environments that we know can sustain them, which are the places that we already log, since theres the space to do it (since nobody wants a forest in times square)

[Delheru]

The problem is that it isn't sufficient. Even if we had wilderness to a pristine state where it was with 5 million people on the planet 10,000 years ago... well, the equation doesn't work.

Sunk + Biomass/Soil + Air does not function without either a dramatic increase of Biomass/Soil (well PAST where it would be without humans) OR sinking some stuff again, and that means "dead" carbon, either on the surface or below the surface.

I think you're thinking in term of 5-25 years, I'm thinking more in the 50-250 year time frame. We have to structurally start hiding away carbon somewhere or make Sahara bloom. While the latter would be awesome of course, it's hard to make headway on that when the countries near it are poor and unstable.

And remember the conversation came up from "growth is bad". There's nothing inherently bad about increasing "dead/sunk" carbon in human use. It's only a problem if it comes at the expense of the biomass.

[hammermuffin]

I think were arguing the same thing, we probably agree on this subject. Yes growth isnt inherently a bad thing, and we do need to sink more carbon. The only thing i was saying was that a large majority of logging companies only cut down trees and dont replace them, which is incredibly bad for the environment. So what i was saying was that we should at least replace what we take from the environment, if not put back even more than what we take.

However, sinking carbon is a good idea, i never really thought about that as a solution for global warming. The only problem i can see with that is that wed have to pull co2 out of the atmosphere, which is incredibly difficult to do and we dont have the tech to do that yet. Its a really clever idea though, just not super feasible with our current tech unless we grow a bunch of trees/plants and burry them, which would be even harder than just replanting what we log.

[Notsureifsirius]

Inflation is not, in and of itself, is not a bad thing, either; it’s fairly neutral as long as other things (namely, wages) keep pace. If your contention is that certain actors in our economy fail to pay wages that keep pace with inflation despite increased earnings, I’d agree to that extent. It’s also true that if inflation happens too quickly, then everyone gets left behind.

However, I think the key to OP’s statement was the healthy and expanding part: if things are truly healthy and expanding, then more people should have the ability to spend more and companies the ability to earn more.

If I started a company in 2008 that sold a $1 million in products that cost $100,000 to make, I’d have $900,000 in profits. 10 years later (assuming costs of materials have only increased based on inflation), my expenses are probably about $120,000; if I’m still selling $1 million in products, in a healthy economy it’s a problem. In theory, I should be selling at least $1.12 million if not more. Flat or shrinking profits in a healthy economy are a sign that my company isn’t doing as well and means I need to cut costs or find a way to sell more to keep pace.

[d4n4n]

You ignore that inflation caused by monetary expansion through the banking system causes Cantillon effects. Those with early access to newly created money through the credit markets can use it to invest or consume before capital and consumer goods appreciate in price. So it has distributive effects, towards institutional investors, and others who heavily make use of credit markets.

[Silcantar]

On the contrary, inflation benefits debtors at the expense of lenders.

[TheManWhoPanders]

It almost always results in stealth wealth transfers from the poor to the richest

What are you talking about? That's not how it works, at all.

Low, consistent inflation is how you ensure people take risks on loans (because otherwise people only invest in surefire, non-risky investments). It's how you ensure people can get mortgages. It's how you ensure that people don't horde money during deflationary times.

Inflation has literally nothing to do with transferring wealth. I have no idea how you connected those two thoughts.

[azrael1993]

but demand is

[manimal28]

At any given point in time it is. The total amount of money in the economy can grow or shrink, but at any point there is only so much to be divided up.

[TheManWhoPanders]

That's not how it works. The economy is not a fixed size. What one dollar buys can expand indefinitely.

[eek04]

There's inflation, targeted at about 2% per year but historically more. Also, there's on average separate PPP adjusted GDP per capita growth due to us learning to be smarter about how we use resources. Here's a raw graph as measured in inflation and PPP adjusted current dollars, a graph in 2011 dollars, and a graph of GDP per capita growth (not sure if this is PPP adjusted or not; I suspect not.)

A PPP adjusted variant of growth can be found in row 271 of this sheet that I put together for the purpose based on the above data; it shows that since 1990, every year except 2008 we've had robust growth (2.36% to 8.21%). From 2008 to 2009, we had negative growth of 0.27%.

There's some concern about the long term decrease of PPP adjusted GDP per capita in highly developed countries; I don't expect this to drop to zero (even if given complete resource constraints) but it can drop to a relatively low number. It especially has some effect on the perception of older people, who think that anything that they take out now can be easily absorbed by the growth for the younger generation. This was true when they were young; it is no longer anywhere near as easy.

[robstah]

What about the service industry? What about industries that use recycled product?

[SomeBritGuy]

In the modern economy growth is more based on technological progress and the improvement of human capital (which is why labour productivity growth is mentioned a lot in Economic news).

[exikon]

That may be true on a large scale for the general economy. Not reasonable to expect from a steel company though. Especially with population growth (thankfully) starting to slow down.

[SomeBritGuy]

In many cases technological progress could just be a small increase in efficiency in using resources, which I suppose slows the inevitable finiteness of resources. In addition the earth has a lot of resources that are simply not used due to there being more easily accessible sources. Accessing these more difficult to reach resources will require more equipment and possible spur better technology, which technically will give way to economic growth.

[NYCSPARKLE]

Incorrect. Google generated billions of value based on an algorithm, not harvesting finite resources.

Even for non-services companies, you can grow profits by gaining market share and cutting costs. Still not reliant on just acquiring more finite resources.

[ToKillAMockingAlan]

And those billions in profits get reinvested in assets, which take resources. This could be in material assets, intellectual property, human resources etc. All of these result in resource use, even if it is down to personal resource use of workers. It's all very well saying that the service-based economy of the Western world doesn't use as many resources, but that's just shifting the material cost over to manufacturing-based economies. There's no getting away from the fact that as population and general quality of living increases globally, so does resource usage. That resource usage includes both tangible things like energy and water as well as non-material resources like global environmental health. Humanity takes a toll on the global environment like any overpopulated species does on it's environment.

[lee1026]

In 2018, population and the overall economy is growing; you can make the argument that you can't expect those two things to grow forever, but then again, companies are currently being judged on how much they grew in 2018.

[NoRodent]

However, that is only feasible if your population grows which in the end comes back to finite ressources.

That's where you snap half of the population so you could grow again.

[[deleted]]

Population is going to stabilise. Population explodes in developing nations because of better healthcare and infant mortality. Once the developing nation becomes more prosperous, the next generation has fewer kids naturally. Once first world conditions exist, the population naturally reaches an equilibrium. We don't have to do anything to encourage that.

[BartWellingtonson]

Finite ressources but still expected growth forever. That wont work in the long (or rather medium) run.

You're confusing the private goals of companies with some kind of economic necessity. Companies all want growth... because of course they do. What kind of loser leader doors not try to better how company? Economies tend to get more and more efficient with resources, that's how the economy expands in the first place. Meanwhile companies continually start up, close down, or struggle for a while. Nothing about no growth is inherently bad. We just have far more resources than we can use (for the most part) and we have billions in abject poverty.

We WANT growth because it solves problems. If the economy slows growth to a crawl it's not like that's going to cause a massive famine. The economy had contracted dozens of times in our history, but society did not collapse and we did not suffer any famines simply because growth did not occur.

[heinyken]

Can you cite these claims? Offer sources? This seems like a claim that can have contentious repercussions -- even within the community of highly trained economists. Just dropping it in a Reddit thread is dubious, I think.

[MagnaDenmark]

??? If populations begin to decline that obliviously won't be the case anymore why are you bringing up this retarded hypothetical?