Growth is considered the foremost driver of prosperity. The growth rate of Gross Domestic Product gives an immediate measure of how well a national economy is functioning. Such economic growth drives business expansion and job creation. Low US growth rates in recent years directly contributed to high unemployment rates. And actual unemployment is undoubtedly higher than the standard figure which does not include people out of work who have given up looking for jobs.
Countries with declining birth rates fear economic stagnation and recession. In many, aging populations raise questions of how a declining percent of working age adults will be able to support a modern economy. Among industrialized countries, the United States appears to hold a significant advantage with some projections showing population continuing to grow to 400 million people, driven largely by continuing immigration. This contrasts markedly with most other advanced economies. Indeed, in Japan the birth rate is already below replacement levels. Nevertheless, population growth from immigration does not significantly improve the economic standing of the existing population. Immigration does indeed drive economic increases, but much of this increase is absorbed by the immigrants themselves, with minimal boost to wages of the existing population. On the other hand an increase to 400 million Americans would mean a much more densely settled country, with attendant requirements for new schools, shopping areas, work places and roads. Physically, there is little doubt that the United States could accommodate such an increase, but this would put more and more stress on the environment. Why would the nation want that?
With an aging population living longer, the need for more working age adults seems self-evident. But thanks to modern production, the total needs of the population can actually be satisfied by a relatively modest percent of the population. As late as 1900, some 41% of the US work force was engaged in agriculture. Today, less than 2% of the work force feeds the country, as well as providing foodstuffs for export and raw materials for biofuels, particularly ethanol. Similarly, construction has been an important element of economic growth. But if the population is steady, then requirements for new homes, new roads, and new facilities significantly lessen. Many requirements shift from new construction to upgrading existing facilities or adding new amenities, meeting new "needs." In the 1950's, for example, the average new home was only 983 square feet; by the 2000s it was up to 2300 square feet, despite declining household sizes. This reflects higher standards for the number of bathrooms, the "necessity" of a family room and office or den. Household appliances and automobiles have considerably longer lives than past models, when a car with 100,000 miles typically seemed to be on the point of disintegration. Energy remains a critical requirement, but production is not so labor intensive. Overall major increases in productivity in recent decades mean that core requirements (food, shelter, clothing) can be met with a relatively small working force.
Growth is seen as an essential element of successful business, but there are other models. For many years "blue chip" utility stocks paid regular dividends and were considered a solid foundation for the overall economy. For many of these companies, growth was modest or even nonexistent. Zero growth did not mean stagnation, as new technologies were developed and implemented. Today, many of these utilities are involved in dramatic shifts, with coal plants being replaced by natural gas or renewables. But the utilities involved are not necessarily growing any larger. In actuality, growth is not an essential element of a successful advanced economy. Even in developing economies with widespread poverty, growth is often less important than a more equitable distribution of wealth.
Jobs are a central challenge of a steady state economy. So if productivity doubles over some period of time, a company can produce twice as much. Labor costs per item are cut in half, but profits do not necessarily rise due to competition among producers. And if demand does not double, better productivity simply means fewer jobs. Indeed, many sections of US industry now employ significantly fewer workers than in years past. Productivity increases often translate into employment decreases. This has become a critical feature of the US economy. Although there is a specter of an inadequate number of workers to support an aging population, reality is just the opposite: there is an excess of workers not needed in the economy.
While economic growth could absorb some of these excess workers, a steady-state economy does not provide the demand growth needed to justify expansion. The problem is exacerbated by the fact that many of the workers without jobs lack the specialized skills needed in a modern economy. If, say, 75% of the available workers can meet 100% of the national requirements, what to do with the other 25%? That is an essential task, how to absorb more workers into existing economic structures. Labor regulations offer one obvious approach. Shorter work weeks and longer vacations would require companies to hire more workers to maintain output. If all companies were required to do this, domestic competitive positions would remain largely unaffected. Prices would, of course, rise but so would total wage payments. Higher wage rates could also support more secondary jobs in the service and leisure industries: theaters, restaurants, vacation trips and social services would all provide additional jobs. Exactly how this could play out is uncertain. But what is certain is that there needs to be some basic realignments in the economy or unemployment will remain unacceptably high. Hard times increase hostility. The economic decline of a significant portion of the population coinciding with the immense accumulation of wealth by a few, creates a deep divide which can easily fuel widespread unrest. And it also fuels declining international respect for a United States no longer seen as a nation built on equality.
Growth also serves as a vehicle to move wealth from workers to privileged classes - those with significant financial assets. If someone buys a house for $100,000 and several years later sells it for $200,000, then there is a $100,000 capital gain that essentially represents no value increase at all. If the cost of everything doubled, then this capital gain would essentially be irrelevant. But if inflation is modest, then this is a windfall for the owner, a windfall not available to those without the financial assets to buy a house. If there are a million such transactions, then there are a million relatively well off people who are now even better off than they were, and some million(s) of others who are relatively poorer. Indeed the search for such unearned appreciation drove much of the housing bubble, with banks, mortgage brokers, and insurance companies profiting handsomely, protected from the eventual losses which resulted in many thousands of foreclosures affecting citizens with limited financial resources.
The same motivations drive much of the activity in the stock market, with the same wealth transfer effect but on a larger scale. While capital gains from real increases in company value provide real increases in worth, most gains from appreciation, like gains on real estate increases, simply do not represent any real increase in value. Much money put into the stock market is not put in to promote a business expansion, but is put in for speculation. People "make" money by "playing" the stock market. Typically, if someone wins, someone else loses. But with steady appreciation of prices, when someone wins, someone else also wins, but less. The losers are the people who cannot "play" efficiently, or who do not even have the assets to "play" at all. The net result is the same as with real estate, except on a much larger scale. Wealth again transfers from everyday workers, people without significant financial assets, to the privileged groups that do have the assets. So while dividend paybacks from the stock market largely reflect actual working profits, capital gains typically allow "investors" to "make" money, often lots of it, without making any real contribution at all to the economy. The ultimate in this trend is the rise of ultrafast trading where differences in milliseconds can result in large profits but provide zero economic benefits. Such economic "growth" goes not to decrease poverty but to increase the wealth of the privileged classes.
The core economic challenge of the XXI Century is not growth, but sustainability - creating an economy that provides a comfortable life for all its workers, supporting not an equal distribution of wealth but an equitable one based on each person's real contribution to society.