> The economy as a basic premise is expected to grow at least 3% a year or bad stuff starts happening.
That isn't really a thing. The 3% growth aligns closely with population growth (including immigration), and that's where it really comes from. If the average company makes widgets and the population grows by 3% then they hire 3% more people and sell 3% more widgets to 3% more customers, and the company is worth 3% more.
The unsustainable thing is really unlimited population growth, but steady state populations don't require some kind of cataclysm. They work a little differently, in particular people have to on average work longer before they retire because there are fewer working people to support them in retirement, but it's hardly mass starvation and nuclear war. And even the drawbacks are offset by things like automation -- not as good as both automation and population growth, but still probably not worse than your grandfather had it.
The real problem is that there is no iron law that says people have to spend their working hours on pie-growing activities like automation and honest medical research instead of pie-stealing activities like adtech and patent trolling, so if we have rules and institutions that make the latter more profitable, that's what we get.
Is it really unthinkable that a fixed population could each year turn a finite set of resources into a set of resources that is 3% more valuable?
If a tree falls in a forest, and someone turns it into some chairs, while planting at least one tree in its place, then that has made the economy more valuable (assuming there are people who want the chairs, and that leaving the fallen tree in place would be less valuable than having newly planted ones).
Zero percent growth means that every time someone creates something valuable out of less valuable materials, there has to be an equivalent amount of value destroyed somewhere. I suppose that entropy takes care of the destruction, to some extent, but it seems arbitrary to try to limit value creation to precisely match that level.
> Is it really unthinkable that a fixed population could each year turn a finite set of resources into a set of resources that is 3% more valuable?
No, of course not. The bulk of that 3% has always been population growth, but economic growth outside of population growth is possible -- it's even beneficial -- it's just not mandatory. There is nothing forcing it to happen, and the bad thing that happens if you don't have it is that you don't have it.
But that's still not great. Humans have had periods of stagnation that have lasted hundreds of years, and nobody really wants to live the lifestyle of the middle ages anymore.
Which is the point. If people spend their time optimizing click through rates and suing each other then humans don't immediately go extinct, but we also don't get any further toward curing cancer or colonizing other planets. And that's bad, directly, on its own, not because of some nebulous impact on economic indicators.
It's an even less insignificant part of "3%" given that real GDP growth during that period was less than 3%, in part due to declining birthrates and a population growth rate below historical norms.
But it's also kind of cherry picking numbers because that bracket starts just after the housing crisis and is measuring the recovery. The 2000-2010 bracket was 0.71%, compared to historical numbers around 2% (but also historical real GDP growth of more like 4%).
You also have to discount some amount of real GDP growth for the general category of "banks doing bank stuff" which increases GDP a lot on paper even though it's somewhere between net neutral and actually destructive of underlying value, e.g. credit availability and low interest rates causing higher housing prices and higher total interest paid which both get booked as GDP "growth" even though they don't imply any actual productivity increase and negatively impact quality of life for working people.
The result is that population growth is the majority -- but by no means the entirety -- of "real" real GDP growth. (There is also an interesting effect where population growth has non-linear effects, because more people results in both more minds working on productivity improvements and more people who can benefit from each of those improvements, resulting in a quadratic productivity increase with population.)
But it's concerning that real GDP growth per capita has declined from its historical norms since 2000, even though we now have even more "banks doing bank stuff" than we used to. And it's probably not a coincidence that this has coincided with increasing amounts of regulatory capture and business consolidation.
Zero percent growth means that each person made the same contribution as the previous year, not that there was no value added to the world. We shouldn't conflate income and wealth.
Completely agree with the last paragraph. The economy is tilted way too far towards incentivizing value extraction instead of incentivizing value creation.
Don't know that I agree with some of the previous stuff though. Even if we assume a steady state population, if the economy doesn't grow every year, we're playing a zero or negative sum game literally by definition.
RE your second paragraph, I both agree and disagree. As far as I can see (at least the US system) is predicated on ~4-7% economic growth being the way that people systematically grow relatively small savings into a large nest egg for retirement (not that this appears to be working particularly well, see your comments on pie stealing.) If we assumed a steady state for the population and economy, I don't see how people working for average salaries can set enough aside for retirement (without pushing themselves to a pretty low standard of living) without the benefit of ~4-7% compounding.
I have a developer's salary, so I could probably put away a couple million cash before my retirement even without the benefit of compound interest paid by economic growth. That's not the norm, or even the average though. Participating in society/the economy has to be an attractive enough proposition to incentivize people to do it, or bad social problems start popping up. In a steady state system, I don't see how we can make an offer more attractive than "Enjoy your subsistence lifestyle up to retirement, so you can have barely enough to have a subsistence level lifestyle in retirement."
> Even if we assume a steady state population, if the economy doesn't grow every year, we're playing a zero or negative sum game literally by definition.
It's really two independent games that just happen to have the same prize for winning. The people stealing the pie are the bums regardless of whether any other people are growing it.
And zero sum games aren't always the end of the world. If everybody is fine in year zero and then nothing changes, everybody is still fine. Not as good as things getting better, but stable. The problem is if things are getting worse -- increasing levels of consolidation over time. But you can have that even in the presence of growth. It's an independent problem.
> If we assumed a steady state for the population and economy, I don't see how people working for average salaries can set enough aside for retirement (without pushing themselves to a pretty low standard of living) without the benefit of ~4-7% compounding.
Interest rates and ROI are related to GDP growth, but they're not the same thing. Time value of money is a thing even in the absence of economic growth.
Suppose every year Farmer Joe has to borrow money to buy seeds and pay workers to plant, grow and harvest the crops. Then after harvest he sells the crops and uses the money to pay back the loan. Every year it's the same, every year he starts and ends the year with the same amount of money, there is no economic growth, but the lender is still earning interest on the loan every year.
Meanwhile the lender is your 401K, so it makes money over time which you then spend down in your retirement and die with the same amount of money in real terms as your parents did, and so on indefinitely.
And the interest rate has to do with supply and demand for currency, for which economic growth is a factor (affecting demand), but not the only one. The other obvious big one is that the Fed sets interest rates (supply) by fiat, as well as other things like bank reserve ratios.
I agree that in a vacuum, zero sum games aren't necessarily a bad thing. However, in our hypothetical economy, the actors obviously aren't at parity for their level of skill at playing the game. In a zero-sum economy, consolidation is inevitable. At least in the presence of growth, the avoidance of consolidation is a possibility.
> Suppose every year Farmer Joe has to borrow money to buy seeds and pay workers to plant, grow and harvest the crops. Then after harvest he sells the crops and uses the money to pay back the loan. Every year it's the same, every year he starts and ends the year with the same amount of money, there is no economic growth, but the lender is still earning interest on the loan every year.
> Meanwhile the lender is your 401K, so it makes money over time which you then spend down in your retirement and die with the same amount of money in real terms as your parents did, and so on indefinitely.
I feel like you're making the assumption that the agents in this system don't make an attempt to consolidate (and obviously if and when they do, they will have varying levels of skill at doing so.)
That isn't really a thing. The 3% growth aligns closely with population growth (including immigration), and that's where it really comes from. If the average company makes widgets and the population grows by 3% then they hire 3% more people and sell 3% more widgets to 3% more customers, and the company is worth 3% more.
The unsustainable thing is really unlimited population growth, but steady state populations don't require some kind of cataclysm. They work a little differently, in particular people have to on average work longer before they retire because there are fewer working people to support them in retirement, but it's hardly mass starvation and nuclear war. And even the drawbacks are offset by things like automation -- not as good as both automation and population growth, but still probably not worse than your grandfather had it.
The real problem is that there is no iron law that says people have to spend their working hours on pie-growing activities like automation and honest medical research instead of pie-stealing activities like adtech and patent trolling, so if we have rules and institutions that make the latter more profitable, that's what we get.