why the economy must grow

There are three main reasons why our economy grows:

 

• because it is easier to make money in an economy that is growing
• because we all, individuals, companies and governments, borrow money
• because we pay interest on the money we borrow.

  

Because it is easier to make money in a growing economy

Many people, particularly business people and people in governments, want the economy to grow continually because it’s easier for people to make money in an economy that is growing in size, because a growing economy means an ever-increasing supply of money and an ever-increasing opportunity to get some of that money and the products and resources that it represents.  

 

 

Those products and resources may provide mere survival, acceptable comfort and security, or the maximum possible excess of luxury.  The individual's drive towards survival, material gain, comfort and security, or luxury, drives the economic system.  Of itself, that drive doesn't mean that the economy has to grow, or even that it will grow, but it is a strong supporting force for economic growth: it supports a positive attitude towards economic growth and a resistance to anything that limits economic growth.

Because we borrow money

Most people in developed countries borrow money for the things they want to own.  This money usually comes to us through our home loans, car loans, credit card loans and other forms of credit.


We are able to borrow that money because of our promise to work in the future and to repay it; we spend it now, promising that we will earn and repay it later.  This money is available to us as a result of our assumed and promised economic activity (jobs, or other income) in the future.


How much money we are able to borrow mostly depends on how much the lender expects we will be able to earn in the future to repay it.  Even though we don't think about it, when we borrow that money we and the lender are making an assumption that the economy will be big enough in the future for us all to have the jobs that will enable us to earn the money to pay back what we have borrowed.  


As the amount of money that we can borrow is only limited by how big we assume that the economy will  be in the future, we tend to assume, usually unknowingly, that the future economy will be very big.  Assuming that the future economy will be very big means that we can borrow more money to give us more of what we want now.

 


For the economy of the future to get to be as big as we commit it to being when we borrow money now, we must have economic growth.

Because we pay interest

When we borrow money we have to pay back more than the amount that we have borrowed, because we also have to pay back the interest on the loan.  At a currently typical Australian interest rate of 8%, on a loan with regular repayments over 35 years, the total interest to be repaid will be equal to the amount borrowed, so double the amount originally borrowed must be repaid.


When we borrow money we promise to repay the total of the amount we borrow and the interest.   When we promise this, we absolutely commit the economy to being big enough in the future for each of us to hold a job that will enable us to pay back not just the money we have borrowed, but also the interest on the loan.  


For the economy of the future to get as big as we commit it to being when we borrow money with interest now, we must have economic growth.

 
The money we borrow and the interest that we pay mean that we all, individuals, companies and governments, are committing ourselves to ensuring that the economy grows to be big enough that we can pay the loans back, including the interest.  If the economy doesn't grow enough we will not be able to earn the money to pay the loans back and the interest, and we will default. 

 


If enough people default the economy may collapse, leading to an economic depression or even social collapse.  This is a powerful incentive for the government and all of us to do whatever is necessary to ensure that the future economy grows to be big enough, regardless of the consequences to ourselves, our society, and the environment of these actions.

 

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