Can an Economy Grow Forever?

[Music] today we live in a society far far wealthier than it was even fifty years ago and fifty years ago the world was far far wealthier than it was just fifty years before that ever since the Industrial Revolution started taking off in England in the 1700s the world has become a richer place decade on decade almost without fail we have embraced technologies like steam power fossil fuels automation long distance communication bulk shipping the internet and everything else that we take for granted today all of these advancements have meant that we are able to produce more

stuff more efficiently and support a larger population of more people who are in turn are able to produce more stuff more efficiently this massive increase in global productive potential has made some people extremely wealthy we are now in an age where individual men are wealthier than the entire planet was just a few centuries ago but perhaps more importantly than this sustained economic growth has meant that living standards have improved for regular people the world over the economic development of China just over the past thirty years has been responsible for pulling almost 1 billion people out

of absolute poverty so growth is great growth normally means more wealth for more people and this is why politicians push the idea so heavily but could it all be coming to an end we have started to all but assume economic growth is a constant over a long enough time frame sure we have ups and downs but leave it long enough in a 3% growth rate is kind of what we aim for in most developed countries around the world and the truth is it might just not be the case anymore the thing with a growth rate

stated in a percentage is that however small that percentage is it will lead to exponential growth and economy growing at 3% per year has to double in size every 24 years and anybody may be able to determine that long term that is just not sustainable but let's not get to doom and gloom just yet let's really break everything down and look at what may be bringing is party to an end growth is often a relatively abstract concept when it comes to economics and at its core it's supposed to mean that there are more goods and

services floating around an economy which is ultimately a measure of aggregate supply in an economy but weirdly enough we normally measure economic growth using GDP figures GDP or gross domestic product is basically a measure of the sum total of all transactions taking place in an economy which means of course it's a function of demand why do a crime us use GDP to measure growth in well it's easier for starters it gives you a nice figure to look at and also reacts quickly and it's much much easier to measure it's almost impossible to look at every

production line or building site or whatever out there in an economy to actually measure the supply output and one could reasonably assume that most players out there in a rational economy would not produce something unless they had someone lined up who actually wanted to buy whatever is that they are producing now this is all a very roundabout way of saying two things one good economists must look at more than GDP figures when assessing the well-being of an economy and to genuine long-term economic growth is really dependent on how much we can produce rather than how

much people can buy one year to the next so with that out of the way we need to look at what is going on to help us produce more and more stuff and these are the factors of production land labor capital and entrepreneurship so land is more or less a constant after the Western world colonized straya in the 1700s we more or less maxed out the usable land available to us on the planet so this one's pretty easy to put aside for now but it will be really important later on to make sure to remember

this the next up is labor which has actually been a pretty big one for two reasons for starters people are becoming better workers this is not to say that we are genetically better in any way to our ancestors and medieval times but rather the average world citizen today is far better educated than a person was from even a century ago and this is really really helpful instead of getting out there and toiling the field by hand we have learnt to operate in Maine combine harvesters which means that we can do the work of 100 men

were just one the other reason labor has assisted with sustained economic growth is that there's just more of us these days more people mean that we can get more work done this has in recent decades been more or less a positive feedback loop more people can produce more food and goods and services to support more people and the next up is entrepreneurship now a lot of economists consider entrepreneurship and labor as one single category but for the sake of this study the reason that we have separated them out again is to focus on this increase

in worldwide education people who have studied in fields like engineering or more recently computer science are far more likely to create innovation in these fields for example there has been a lot of talk about the productive possibilities of quantum computing but for anybody to make any kind of progress in this field they would likely have to be very very well educated a vast array of prerequisite subjects from computer science to quantum mechanics but in return we may unlock technology that is as influential in our life as a silicon chip that just came 50 years before

it now finally we have capital and of course this has been the most influential factor of production over the past 200 years or so we have gone from a society of basic hand tools to almost fully automated production lines we have machinery and ships trains planes cars global communication networks and everything else in between that works to make us more productive workers now you can start to see how all these factors feed off each other we wouldn't have been able to develop all these amazing capital goods without entrepreneurship and innovation and nobody would be able

to use them without a well-educated workforce but in terms of what has truly been the driving force it all had to have started back when we utilized machinery instead of animals or our own muscles to power our industry this is great and most people would have already had a basic idea that this technical innovation was what was driving us forward no huge surprises here but with that kind of GoSee assumption that won't we just keep on innovating forever will we develop new technologies that will make us even more efficient and make the world even wealthier

still well maybe but just as quickly as there have been forces of our own creation that have propelled us into this modern age of untold wealth there are forces of our own creation that may very well just keep us here or potentially even push us back most of us think that there was one Industrial Revolution and for the most part that is what the history books will tell us it started in England in the 1700s and then permeated throughout Europe and slowly today the influence of industrialization is still improving the lives of previously agrarian societies

and this is an easy understanding to have but to the contrary a lot of economists actually break down human innovation over previous centuries into three distinct revolutions the first one was the one that we all know and love that took place from the 1760s to the mid 1800s and involved building textile mills and all of that good stuff all across Europe the next was around the end of the 1800s and then on to the early 1900s when things like the internal combustion engine electricity and indoor plumbing became mainstream this was seen by economists as very

distinct from the steam powered revolution and if anything it had a lot more of an impact on the level of wealth in the economy than the first revolution did things like the internal combustion engine facilitated more efficient transport electricity made working throughout the night not only possible but workable so things like 24-hour factories became operational and indoor plumbing was instrumental in allowing larger city centers to come together without breaking down into cesspools of disease the third and final Industrial Revolution was the computer revolution this was the revolution that allowed humans to outsource some of the

thinking they did to machines and these computers were a lot better at certain types of problems and they were things like electronic mail computer-aided design heck even Excel spreadsheets have accommodated a level of wealth and business efficiency there was unthought-of a generation ago but all of that is starting to come to an end you see all of these revolutions kind of led to a boom and then a trail into obscurity textile mills and masonry factories were huge businesses in the early Industrial Revolution but not really a major concern to a global economy today next up

things like the internal combustion engine has really provided everything it can to us and sure we keep on improving and tweaking this technology but the leap and productive potential between a big v8 nur slightly more efficient forward four-cylinder is not as big as the difference between a horse and a car and hence the economic growth attained from continuing to evolve this technology is just not as great and finally the same process is kind of already taking place with computers today if we go back 50 years we would see a huge difference in the way business

was done because they were basically no companies that had computers outside of things like major engineering firms or whatever but if we went back 30 years well to be honest everything else would be pretty much the same sure the computers would be older and slower and they would make that awful noise when they were dialing up to the Internet but by the 1990s the commercial use of computers had basically delivered 90% of the utilities of businesses that it ever would and even today most innovation in the computer industry is channeled towards entertainment outside of very

niche fields like computer aided design or video editing or animation businesses only need emails Excel basic access to the Internet and perhaps some other types of operations software which realistically could run just as well on a Pentium laptop from the early 2000s as it could on your new 10,000 dollar gaming PC the innovation in the modern age to an extent that it genuinely increases our productive potential is more or less over and while it's impossible to predict what the future looks like it looks as if computers have given us almost everything they have to give

so we are starting to see diminishing returns on our technical innovation sure but that doesn't necessarily mean that growth will stop altogether it just means it will slow down but we already kind of knew this I mean look for example at countries like Japan and South Korea as they embrace modern technology they massively increase their growth rate but as soon as they were fully up to speed with the modern world they kind of just slowed down a bit nothing new here but what does potentially put a damper on this is when you combine this technical

slowdown with the economic forces that push us in the opposite direction the first is debt particularly in the United States and other developed countries the level of private and business debt has significantly alongside with growth and while debt in the short term can mean short bursts in economic prosperity eventually it all has to be paid back with interest putting a damper on future growth this is already factored into the regular business cycle that takes place every ten years or so but some economists theorize that there is a larger cycle that will take place over a

century as debt piles up even through these short-term ups and downs the second major consideration is educational attainment as we saw earlier a lot of our prosperity came from becoming smarter and been better innovators or been able to utilize more advanced systems to add more value to a society but the truth is most modern countries educational attainment has plateaued over the past 20 to 25 years this becomes especially apparent when things like tertiary studies become so unaffordable that people move into less technical professions like trades or basic labor sure with high populations comes more opportunity

to specialize but it is hypothetically possible that the next elem us just says screw it and goes into a more lucrative short-term role avoiding the kind of education that threatens to put them into our lifelong debt the second part of education is that people can realistically only learn so much even in countries like South Korea where education is held as a central tenet to one's life once you have a PhD you have become a hyper specialized individual the level of human knowledge has well exceeded anybody's ability to learn and even in incredibly narrow fields we

can't necessarily rely on our brains to keep on pushing the bounds of what's possible the third major force that a lot of economists will point to is a very very controversial one but it's the rise in inequality throughout the technical revolution we have seen the classes of people that get rich are people that have embraced modern technology to build companies like Google or Microsoft Oracle and the like all of these businesses have contributed untold levels of efficiency to the modern business world but the wealth is very concentrated you don't need nearly as many people to

run a company like Microsoft as you would a company like Standard Oil because it simply demands less labor what this is meant is that a lot of people have been left behind on very stagnant wages which I'm not going to argue as fair or fair or even good or bad but what it does do is limit these people from being able to purchase things beyond bare necessities which means that there is a decrease in demand for goods that will actually genuinely increase the quality of life for these regular people for example things like microwave ovens

dishwashers vacuum cleaners washing machines were all very expensive items just a few decades ago but we release them nonetheless because they would save a lot of time in the household and the average family was earning enough that they could fit this into their budget but controlling for inflation something like a microwave in the 1950s would have cost around twelve thousand dollars today but if hypothetically someone invented a fully automated kitchen robot that could cook you basic meals today and market it for that same twelve thousand dollars it's unlikely it would ever make it to market

why well even if I was rich enough to afford twelve thousand dollars which an increasing amount of people are not this buys me a lord of ubereats which you know like it or not is something taking advantage of a very poor paid delivery driver hence inequality stifling this type of innovation the final major force that most economists agree on is that of environmental issues let's face it we have become pretty wealthy and prosperous sticking it to Mother Earth in recent decades factories and cars and planes all spewing greenhouse gases and things like plastics filling up

our ocean it's all bad stuff from a humanitarian perspective but what's worse is what it means for our economy because all of this mess we made we now really need to work on fixing it which means things like emissions regulations and environmental laws have been put into place around the world which is great for avoiding the climate apocalypse but not so great for running a business in the most cost effective way a tangible example of this is to think about how we traveled in the 1960s airplanes at this time were much more expensive to travel

on they were actually faster than the airplanes of today because we fly slower today to be more fuel-efficient to further this point if hypothetically a climate crisis does become a reality things like rising sea levels and the major uptick in adverse weather patterns are really going to start to beat on our already downtrodden economy [Music] economic growth is something that is truly important to every global citizen today you are sitting here listening to the sweet support sound of my Australian accent today because of economic growth driven by innovation but it's not something to necessarily take

for granted we are not old long-term growth we have to earn it we have to keep on innovating keep on becoming more efficient and also seriously address some major issues that we are going to face in this next century if we want to make sure that we keep on getting richer and richer what are my thoughts well normally I don't really do this but personally I am more of an optimist sure we have rinsed all the extra prosperity out of innovations of the past and yes there is no doubt the generations that came before us

have left us some unpleasant baggage that I tend to believe very heavily in the human ability to build a better tomorrow chances are nobody in the 1950s thought these code-breaking machines from the war would mean much right as our on the precipice of the technical revolution and maybe the same is true today maybe we are in the midst of developing a technology that will give us the next boost of sustained long-term growth and we just don't even know it yet hi guys thanks for watching if you did enjoy please consider liking and subscribing and/or supporting

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