Why is economic growth so important?
"One of the best answers to this question that I've ever read is in a paper published by Robert Lucas in the Journal of Economic Perspectives. That journal is meant to a be a place for experts to write about their area of expertise (in economics) for a general but still technically-minded audience. They recently opened up the journal as free to the public, which is a fantastic resource -- you no longer need a subscription to JSTOR (or whatever) to read it.  You can read the abstract to the paper, and find a link to it, here. One of the things that I like a lot about this paper is that it strips out absolutely everything even slightly unnecessary to thinking about a macroeconomy, and just discusses what one can arrive at with a very very simple model. Of course, with great simplicity come sacrifice about details. However, it does a great job of answering your question, ""why do people care about growth?"" A quick note: the key to understanding the answer to your question is to think about things in terms of ""the long term""  -- not even looking forward to the future, because we'll be dead by then, but looking back to the past. The key to the importance of growth is that, for the last ~200 years, the US has, on average, had maybe 2-3% ""real growth"" per year (I'm pulling these numbers out of my head; I think much better numbers are in that paper somewhere). On average, over that period of time, this growth has meant that the quality of life that one has, if one lives in a country experiencing this growth, is enormous compared to countries that do not experience this average growth over that period.  Statistically speaking, growth is also somewhat auto-correlated. Roughly speaking, if it was low the last few periods, you can expect it to be low the next period. Same thing if it's high.   Then, the reason we care about growth right now: if you have too many periods of low growth, pretty soon the average ""over the long term"" growth will be pulled down -- and then quality of life can't be higher in the future (which quickly becomes someone's ""present""). The paper above makes this point with a very simple model. Of course, none of this touches on distributional issues, which are another issue entirely. With respect to, ""The economy needs to grow to just keep up with its debt repayments,"" I think the answer is along the lines of, ""sometimes countries get into debt expecting that growth will increase their resources in the future, and thus they can pay back their debt."" That strategy is, of course, the strategy that anyone borrowing (""taking out a loan"") should be employing -- you should expect that your future income will be enough to pay back your interest+principle on a loan you took. Otherwise you're irresponsible. At the aggregate level, production is the nation's ""income"" -- it is what you have, all that you have (as a nation) to pay back any debt you've incurred at the national level." If you have an increasing population but a steady supply of wealth then there will be a perceived effect of decline.  As the average person can afford less and less.  If inflation is factored in this effect is accelerated as the value of money is reduced but the availability of that money is as well.  In this model those who have tend to accumulate as they produce. And those who do not have tend to lose wealth as they consume to fill basic needs, at ever increasing prices, with a declining source of income, exacerbating the effect.   If you control your population, prevent inflation and deflation, and maintain a constant production/consumption cycle that is perfectly in balance then you could have that utopian society.  But in practice there is waste.  That waste makes maintaining that balance impractical at best.  People have different desires and motivations.  So while that utopian society that you propose seems possible at the theoretical level when solely looking at the mechanics and economics, in practice it becomes more about managing the people.  Which makes the task virtually impossible. As for the debt issue that is the strategy of many of the western nations.  Most of them experienced growth over the last 50 years that was unprecedented in history.  Many of them simply assumed it would continue indefinitely and failed to plan for a downturn.  In addition they planned for the growth and borrowed based on the assumptions.  When the growth slowed several continued to use the same projections for their budgeting, with the effect of spending money they would not take in.  So in a way, yes the growth is needed to service the continued growth of debt, unless the government issuing that debt is willing to reduce its expenses. "Wealth is not distributed equally in any economy.  And, even if it were, differentiation between people would lead to different interests being expressed in different ways. As people either attempt to earn more (to improve their situation) or different people express those interests in different ways (saving money to go on a skiing holiday, or to put a downpayment on a house) people invite new products and services to be created to satisfy those demands. In addition, there is the problem of uncertainty.  People save money today to cope with uncertainty tomorrow (healthcare, pensions, education, etc.). Those savings don't remain idle, but are lent to others who believe that they can make a return through investing in new businesses or ideas. The point being that any dynamic economy will experience change in the amount of goods available to the people within that economy. From an economic perspective ""growth"" is just another permutation.  From a political perspective, ""growth"" implies that people are getting wealthier.  If that growth is asymmetrically distributed (e.g. the poor don't experience it and the middle classes don't feel they get enough of it) then that is a problem for politicians. The emerging markets of the world are trying to raise millions of people out of poverty.  Growth is a way of measuring how quickly they are achieving that end. Growth, in and of itself, is meaningless.  There are some people who believe that ""we"" (as some proxy of society) have enough stuff and growth is unnecessary but that implies that everyone is satisfied.  For as long as some people wish to have more wealth/stuff, and have the means to achieve this, there will be growth. And for as long as there is uncertainty growth will vary." "There is an economic principle called ""non-satiation,"" which translated into plain English means ""people always want more."" (This was best illustrated in the movie, Oliver Twist, ""Please sir, can I have MORE?"") Over time, most people won't be satisfied with ""things as they are."" Which is why growth is so important. Many behavioral economists would argue that it is not the LEVEL of utility, but rather the utility CHANGES (in calculus, ""deltas"" or ""derivatives"") that make people happy. Or not."
The way the world gained all its wealth is by innovation driven by the pursuit of profit/higher standard of living. If you remove that incentive then we will no longer keep progressing. That's why socialism always fails - you eventually run out of other people's money and innovation halts. Manufacturing *employment*. Manufacturing *output* has increased.  The people who used to be employed in manufacturing are slowly being shuffled to places where they can be more productive rather than taking up space in jobs where they have become extraneous due to productivity gains. This means a lot of retraining is necessary but there's really little alternative.  This has nothing whatsoever with the growth potential of the economy, so I'm not sure why you brought it up. The problem here is that the metrics that are used to track the economy are looking for things like growth and change. In a perfect world, everyone would have exactly what they need and there would no need for economists because the economy would be static. I think the straight productivity curve is supposed to represent the idea that the economy is always growing as opposed to shrinking overall, like you said. I beleive the video leaves out the idea of innovation to keep it simpler and cut down on length(Of an already half hour video). Thanks for the connection between innovation and productivity. Im new to this stuff and it hadn't occured to me. The President, Democrat or Republican, has very little effect on the growth or performance of an economy. The Federal Reserve has the largest impact, followed by Congress. Interestingly, if US government spending was not frozen in 2010, the US would have grown closer to the historical average of 3%. Government spending, which is controlled by Congress, brought down GDP growth. Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows.  GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out. Don't try because it's a moving target. A thriving economy on paper can be entirely valuation based. It tells you nothing about distribution of wealth in the economy. The majority would be destitute and we could still be talking of booming times if speculative markets can find creative ways of growing valuations of existing assets with credi growth. All that is needed is for two people to bid a painting to 100 million for the painting to have contributed positively to a growth in the value of goods and services in the economy. The same is done with intellectual property and corporate valuations. Good times are times when capital gains can be seized on account of expansionin of credit or government spending. Recessions are closer when governments try and pull in more than they spend and when lending can't expand. Government spending is increaasing these days despite talk of the contrary. The few short years of economic pain from the devaluation will produce a better and growing economy over the long run.   My thought with their devaluing of the currency is that more foreign capital would flow in and be used for investment which would lead to economic growth. What I think Warren means is that people like him are really good at making money and setting things up to continue being rich. In Warren's case he's very good at evaluating businesses and if they would be good investments. In the micro this isn't really a problem. Instead the problem is on the macro-level. When enough potential market participants (i.e. people / businesses) aren't enabled to participate in the economy in the same way. This feeds into a growing wealth inequality. The people who have the resources to continue playing the game can also continue with more chances. It's a Pareto Principle situation. No opportunity to play, little to improve, and a continually disadvantaged population. Add time into the soup. Rich get richer, the poor poorer, the gap widens more. Add inflationary mechanics, and the fact that being poor is more expensive. Add debt and an inability to purchase for long term solutions. You get a situation where 99% of the money is cycling around in the top 1% of players.  The other 99% of potential market participants are poorly utilized up to the point where their wealth is something they have trouble spending for things like...healthcare.  The idea of poorly utilized market participants is key. A growing economy wants more bandwidth. It wants more agents or market participants contributing to the flow. Get rich enough and you'll find you can't spend more than the interest on investments. On the contrary if you don't have very much money, it's easy as hell to spend it quickly! It's straightforward to say that if more of the global population weren't in debt, if they weren't in a state where they can't participate in economic growth, then maybe the economic growth of human society wouldn't be so bottle-necked. I mostly agree with everything you said except the part regarding debt.  The whole point was that continued growth would pay off debt, not that individuals would go into more debt than they can pay off.  The second idea would be illogical as debt holders want to get payed back. That's like saying corporations ruin the economy because they employ people that could otherwise start their own successful business.   Why didn't those people start a successful business? Why do people work for corporations?  Building infrastructure in poor countries adds to the resources that these people can tap into and also adds value to their community. Some innovations increase productivity quite a bit. So in the long run, innovations is a main driver or economical growth. And innovation is fueled by, indeed, debt.  The straight curve in the video, the economical growth, should not be a straight line, but a upwardly curved one. It cannot go down because innovations in productivity are not lost (I challenge you for an example contradicting this.  Normally, every upward cycle should create an extra increase in productivity. The government also plays a role in stimulating innovation.  I loved this video btw. Hurricanes are not good for the economy. They might be good for GDP, but GDP is not a good measure of the economy in cases of natural disasters.   [The increase in GDP is due to rebuilding and replacing things that existing prior to the disaster](http://www.marketwatch.com/story/no-hurricanes-are-not-good-for-the-economy-2017-08-28). There is no increase in the size of the economy or improvements in living standards. Also see: [the parable of the broken window](http://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp) for why disasters are not good for the economy. "Economics is built on the assumption that people make rational decisions based on the desire to increase their economic well-being. While economists have long known that isn't strictly true, Thaler was a pioneer in studying why people sometimes make irrational decisions, and how they can be encouraged to make smarter ones. He's made economics more human,"" said Peter Gärdenfors, a member of the commitee that awarded the prize.""    So how come the business world still ignores him? And treat humans like machines?" A growing economy should become more efficient because of increased opportunity for division of labor: specialization. External regulation or monetary policy external to the free market can cause parts of the economy to grow in response to said regulations.  This creates inefficiencies that are wrung out of the economy after the policies reverse.  A couple of examples: Tinkering with the economy causes the inefficiencies.