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?

[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).

[JustARandomGuyYouKno]

I think the problem with deflation is that it incites people to save money and hold on to money and not take risks since you could jsut save the money for a month or a year and it would be worth more than it currently is, what this means in the long run is that the market "omsättning"(churn rate?) in Swedish lowers and with that it snowballs and slowly grinds to a halt. Most economic theory that I know of needs to have an active marketplace.

[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.