Posted: Oct 06, 2013 6:28 pm
iamthereforeithink wrote:There is some degree of truth in the OP article, but it's obscured by the fallacies that it contains. The fact is that economic growth, like other kinds of non-cancerous exponential growth, is self-limiting by nature. There are both balancing as well as reinforcing feedback loops in operation. And there is a reason why 10% annual growth is expected from China, but not from the US or Western Europe, where 2-3% growth is seen as acceptable. Eventually 2-3% growth will also be acceptable in China.

The primary fallacy is to club all industry categories under "economy" and talk about their growth as a singular whole. The "economy" includes industries that experienced rapid exponential growth in an earlier era, but are now stable/ stagnant or declining. It also includes other industries that are now experiencing exponential growth but will eventually stagnate or decline. The nature of exponential economic growth is encapsulated by variations of the "diffusion of innovations" bell curve:


If you look at the growth of the global steel industry, for example, you will find it grew exponentially in the early part of the 20th century in most of the western world (incl. US, Germany and Japan), reached maturity and stagnation in the 70s, and is currently not growing at all. In China and India on the other hand, exponential growth in the steel industry took off on the 70s/ 80s, and will eventually see a similar maturity and stagnation. A similar story is seen for the auto industry, with a slightly shifted timeline. The smartphone industry (for example) on the other hand, is currently witnessing exponential growth in the western world but will see a similar maturity at some point in the future.

Another fallacy is conflating different kinds of growth. Most industries that are currently experiencing exponential growth are service industries, whose growth depends much more on the growth of intellectual capital, than on the increasing exploitation of natural resources. There are also constraints and negative/ balancing feedback loops applicable to this kind of growth, but they are not necessarily related to the finite nature of natural resources. I could go on for several pages, but in summary, the real story is a lot more complex than is encapsulated by the OP article.

Well, it actually isn't.

Economists refer to growth on the whole, or as the net average of all the different rates of growth you mention. It doesn't matter if one industry or economic sector is growing at 10 per cent and another is growing at three per cent, what matters is the net effect on the whole of an economy. And that's what the article was referring to.

There can be all sorts of diffeing growth dynamics going on within an economy, but it's the whole that economists and policymakers are concerned with and what they mostly talk about. To go inside the net overall effect sidetracks the discussion; because it doesn't matter how much differentiation in growth rates among various sectors or industries goes on, they still net out to an overall average for an economy, and it's that overall average that economists use to measure or describe economic health. They can and do break it down to what's going on in various industries or sectors as they attempt to explain the overall average, but it's the net effect on the average with which they are concerned, and the level at which the OP addressed the question.