Growth (an Economic Issue)

Introduction

When our government and business leaders talk about improving our economy and creating jobs, they will often concentrate their efforts on economic growth. For instance, they may talk about how to achieve some percent increase in Gross Domestic Product (GDP). In other words, they want to find ways to produce more goods and services each year. They assume that an increase in GDP will mean reducing unemployment and making our lives better, but that may or may not happen.

The push for economic growth lies in the idea that producing more goods and services will result in us being wealthier and having better lifestyles. In many cases, increasing GDP has made some of us wealthier and given many of us better lives. However, when the GDP increases simply because there are more of us around, then this can put a strain on our environment and on our resources, which could reduce our standard of living.

Having more individuals who would need to consume goods and services would naturally increase the need to produce more, which could increase the GDP. However, these additional individuals may need jobs, so the unemployment rate may not go down and could still go up. It also may not make our lives better, and could even make them worse, since the increase in goods and services is being spread over more individuals. This increase in demand from these additional individuals could also lead to an increase in inflation.

An increase in GDP may also come from productivity gains, where the average worker is producing more. Productivity gains are good in that they reduce costs for businesses and for consumers, so we want productivity gains. However, this also means that fewer workers are needed to produce the same amount of goods and services, and the unemployment rate could then go up.

An alternative to businesses laying workers off would be for them to reduce each worker's hours. If they do that, they should also pay the more productive workers a higher hourly rate so that the workers could potentially earn about the same as they did before, but not need to work as many hours. The result should be that the workers could then earn about the same as they did before for producing about the same as they did before.

There can be other problems with concentrating too heavily on increasing the GDP without considering how it affects us and our environment. For instance, even when some of us benefit from an increasing GDP, many others of us could easily end up being worse off. We also could run into problems caused by limits on the currently available resources, and by the complex dynamics of what we need and want, and the amount of time we have available to use and to enjoy more goods and services.

Increasing GDP has often come at the expense of our environment. This includes things like our factories, power plants, cars and trucks polluting our air and water, and all our buildings, roads and bridges destroying our open spaces and the habitats of plants and animals. This is all a detriment to the health and happiness of most of us and is responsible for the extinction of many plants and animals.

We also have the problem that all our resources are limited. Some resources are renewable or recyclable, but only so much is available at any given time. Other resources are neither renewable nor recyclable, so once they are gone, that's it. Even when we can obtain more resources to increase our current GDP, we may not have enough of these resources to increase or even to maintain our current GDP in the future. In addition, when the demand for our limited resources increases, so does its cost, and the only individuals to benefit from this increased demand and cost are the individuals that currently control those resources.

Productivity gains may make it possible for us to produce far more goods and services, but there is a limit to how much we could use. There is only so much time in each day. Once we have filled it with sleeping, working, eating, learning, playing, etc., there may not be much time for anything more. The best we can do is to find ways to reduce the time we do the things we do not like doing, so we will have more time to do more of the things we like doing. Eventually, we will not need to increase our consumption of goods and services, since we would already be consuming everything that we needed. Although, we might be able to switch to better quality goods and services.

For instance, at any given time, we would only wear one set of clothes. That set of clothes should last for a certain amount of time, whether worn by us or later worn by someone else. Some of us may wear our clothes longer, either because we have taken better care of them, or wear them after they have frayed a bit more. Bottom line, if we do not throw away good clothing, then we are only going to need a given amount of clothing. Therefore, once we can produce that amount of clothing, we do not need to produce more, so there should no longer be any per person increase in GDP from clothing.

Before we allow our government and business leaders to continue concentrating on increasing our GDP, we should ask ourselves a few questions. The following are some of those questions.

1. Who will receive the benefits and enjoy the better lifestyles of any additional wealth?
2. What are the costs to our environment and to our health?
3. If we end up needing to work just as long and hard as we did in the past, and we can only afford to enjoy the same, or even less, of the available goods or services than we did before, then is that economic growth good?
4. How would the local mix of businesses manage during an economic downturn?

Early Growth

First, let’s look at an example of how economic growth has often been done and what the outcome might have been. We will start with some community, which could be a town, city, county or state, where they would like their citizens to have a better life. To do that, they decide that they need more and better paying jobs, so their citizens can afford better homes, clothes, schools and leisure opportunities. Therefore, they have decided to promote their area as a good place to do business and to offer various incentives for companies to move in and to open offices and factories there.

As a result of their efforts, let’s say that this community does attract several new businesses that offer more and better paying jobs. The first thing that happens is a boost for the construction industry, which must build those new offices and factories. With the new construction jobs and the jobs offered by the new businesses, the individuals living in the area now have more and better employment opportunities so they can move up to better paying jobs or find employment. Many individuals in the community now get jobs with the new businesses or fill positions that opened in the existing businesses, which will allow them to make more money and to improve their family’s lifestyles.

With more job opportunities, the area also attracts many new individuals looking for work. With all the new individuals moving into the area, there is an increased demand for places to live. At first, home values and rents rise, but soon the construction industry receives a further boost from a need to build new homes and apartments. In addition, all the new individuals and all the individuals with more money give the local area an economic boost. With the increase in demand for goods and services and with businesses seeing an increase in profits, more businesses open to serve the community, and in turn, this provides a further boost to the economy.

Along with all the benefits that the economic growth has brought to the community, there are some growing pains that must be endured. First, the increase in population has caused crowding in various places, like in the schools, on the roads, in the government service offices, and in the parks. Luckily, the boost in the local economy is providing more tax revenue, which can now be used to hire new government workers, and to start building the new schools, roads, offices and parks that are now needed.

Eventually, everyone settles into their new jobs and new homes. The new schools and roads have been built. The new stores and entertainment facilities have opened. At this point, the economic growth has slowed down or even reversed. Without a lot of new construction, builders and related businesses see reduced profits and the need to start laying workers off. With unemployment on the rise, more businesses lose revenue and need to reduce pay or lay off employees, and some individuals need to move away to find work. In addition, the local government sees less tax revenue and needs to either raise taxes or reduce services.

With the threat of an economic contraction or even in the throes of one, the local community needs to do something. Since it worked before, they may decide that it is again time to attract some new businesses to the area so that they can get their economic growth rate moving up again. So, the whole cycle repeats itself, almost.

Later Growth

We now have a community that has been growing for a long time. Each growth spurt has brought more businesses, jobs and individuals into the area, and added more office buildings, homes, schools, and roads. In general, everyone now has more money and more places to spend their money, although prices and taxes would have also gone up. In an ideal world, this economic growth could go on forever and everyone would continue to make their lives better. Unfortunately, we do not live in an ideal world; we live in a real world where there are limits to almost everything.

First, there is only a limited amount of land on which to build. As each new office, factory or home is built, there is less land for the next one. The result is land prices rise, new buildings must be built farther out or get jammed closer together, and smaller buildings need to be torn down to make way for bigger or taller buildings. This all leads to higher construction costs and rents, which are passed on as higher costs to the consumers.

With more buildings jammed closer together and further out, more individuals will need to drive on roads that are getting more congested and to drive further distances to get to where they need to go. This leads to a need for more roads and more parking, which, with land at a premium, are harder and more costly to build. Without the new roads and parking, commuters would spend more time in traffic, but even with them, individuals will still need to drive further and to deal with more traffic and higher transportation costs.

Then, there is the issue of resources. For instance, with more individuals there is a greater demand for water. What once was an ample supply for a small community is not enough for the growing population, so more and more water must be piped in from further away. Not only is this more costly, but it is also more vulnerable to reduced or interrupted supply. Food is also a problem. Where there were once farms, there are now homes and offices. Fresh produce and dairy must now be shipped in from further away and at a higher cost. There is also a need for more electricity, which means building more power plants. In addition, there is more trash, sewage and pollution to deal with.

Another important issue is one of the extreme demands for a limited supply of the best places to live. I believe that most of us would prefer to live near work, shopping, entertainment and recreation. In a small community, there may not have been the variety or diversity of things to buy or to do, but we could live close to everything. In a larger community, everything is bigger and spread out over a larger area, where it can be very difficult to find a place to live that is close to everything. Places to live that are near things can be very expensive. This forces most of us to live further away, where our commutes are longer, or to live in less desirable places where it is not as nice or as safe.

Analysis

In the beginning, economic growth brings in a lot of wealth at a low cost that is divided by a small population. Later, economic growth only brings in a moderate amount of additional wealth at a moderate cost with little that can be divided by a larger population. Eventually, economic growth only brings in small amounts of additional wealth at a high cost that reduces the wealth of most citizens. As we should clearly be able to see, carrying economic growth too far will result in higher costs and lower standards of living.

Unfortunately, some individuals will always want this type of growth to continue and will tout its benefits while ignoring its problems. Generally, these are the individuals who are already wealthy or who currently control most of the resources. They believe that to get richer they must keep growth going. In fact, it can make them richer, because economic growth will make the resources that they control more valuable due to higher demand. The problem is that carrying economic growth too far will turn it into something that resembles a pyramid scheme. Those individuals who got control of resources early enough will get richer while most other individuals will get poorer.

We must realize that carrying anything to an extreme is not a good idea and firmly put the brakes on before we let things go too far. To do this we need to make a comparison of the costs and the benefits to the community for any proposed economic growth. We also want to make sure that it fits in with the overall economic framework of the community and that its overall impact on our lives is positive.

Community Planning

There is only one real solution. Each community must stop its growth before things get too congested and overcrowded, and before the local resources begin to be stretched too thin. Each community must have a plan that puts limits on its size. Instead of growing bigger, the community needs to focus on creating a balanced economy. An economy that is the right size and has the right mix of businesses that can make life better for more of its citizens. The plan also needs to be flexible enough to handle changing economic conditions to keep the community’s economy healthy. The community needs to have a Moderated Economy.

A good community plan, or balanced economic framework, would allow the community to guide development so that it does not get out of hand, but would also actually create a good mix of businesses while protecting the environment. With the right mix of businesses, a community can provide everyone with a good job and create an economy that would be resistant to most causes of an economic downturn. This would also mean that the community would be able to provide and to maintain adequate services for all its citizens.

The result would be a balanced community economy where everyone would have the opportunity to get a good job that provides a livable wage. It would also mean that everyone could live in a good clean safe home and neighborhood that is near to work, school, shopping and entertainment. In addition, it would provide the best environment for more individuals to accumulate the most wealth without the need to take anything away from others.

So, what is a good community plan? First off, a good plan needs to entail a lot more than simply changing a few tax laws or modifying a few regulations. There will be many things that we will need to change, including our own mindset. The plan will need to be comprehensive and to encompass all aspects of the community’s economy. In addition, it is not a single plan. Every community is a little different, with different resources and different goals. Therefore, each community may need to customize its own plan. Even so, the fundamentals of each community plan would remain the same. I will discuss these fundamentals in the following sections.

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Resources - Conserving and managing our Resources.