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'grow Our Way Out' Fallacy

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Can someone please explain the 'grow our way out' fallacy to me.

So we maintain a large budget deficit, lets say 11% instead of cut to say 8% next year. We would probably get 3% growth instead of 2% if we are lucky.

So we gain 1% growth per annum at a cost of say 3% GDP debt.

So we improve today's position at a greater expense to tomorrow's position. Should we just run a deficit forever?

There is no logical or rational way to explain the growth fuelled by government debt method.

Zero or negative sum game.

Edited by ringledman

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Well, this is just the corollary of believing in infinite growth (ie. capitalism). I'm not sure it is necessarily utterly illogical, if you look at Major's debt bubble (such as it was) and a proportion of Brown's, these are both due to the contraction of the economy. I don't believe Major as such ramped up spending, its just that tax receipts fell. Would it not seem logical to think the same could apply in reverse? There is also a slightly deeper issue of what you think growth is "worth" as a long term investment, I'm not sure thinking it goes 1:1 with debt makes any sense, you are effectively comparing capital with mere money! Part of your problem, btw, is pricing growth in yesterday's money and plotting debt in tomorrow's money...

Edited by Cogs

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Zero or negative sum game.

I was in Asia in the late 90s and witnessed the IMF led austerity that was coupled with massive devaluations which allowed those economies to grow again ONLY because at the time the west was booming.

How a worldwide austerity is supposed to allow us to grow our way out of debt I have no idea.

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So we improve today's position at a greater expense to tomorrow's position.

That is the essence of deficit financing. The question is, whether the deferred cost is less than or greater than the current benefit. In your example you assume it is greater, but this is not necessarily the case.

Advocates of stimulus argue it is less, so the net benefit of deficit spending is positive; advocates of austerity argue it is greater, so the net benefit of deficit spending is negative.

The truth is, nobody knows for sure what the deferred cost is, because long term economic forecasting is none too accurate. That's why Taleb describes deficit spending as gambling with our children's money.

Edit-spelling

Edited by Hector

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Well, this is just the corollary of believing in infinite growth (ie. capitalism). I'm not sure it is necessarily utterly illogical, if you look at Major's debt bubble (such as it was) and a proportion of Brown's, these are both due to the contraction of the economy. I don't believe Major as such ramped up spending, its just that tax receipts fell. Would it not seem logical to think the same could apply in reverse? There is also a slightly deeper issue of what you think growth is "worth" as a long term investment, I'm not sure thinking it goes 1:1 with debt makes any sense, you are effectively comparing capital with mere money! Part of your problem, btw, is pricing growth in yesterday's money and plotting debt in tomorrow's money...

I dont believe capitalism requires infinite growth, rather it is our current debt based monetary system that requires infinite growth ... as demonstrated by the rest of you post.

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I dont believe capitalism requires infinite growth, rather it is our current debt based monetary system that requires infinite growth ... as demonstrated by the rest of you post.

rubbish. growth is the only way capitalism can return any profit without using unpaid slaves. That is, without making you an unpaid slave.

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Guest Steve Cook

Can someone please explain the 'grow our way out' fallacy to me.

So we maintain a large budget deficit, lets say 11% instead of cut to say 8% next year. We would probably get 3% growth instead of 2% if we are lucky.

So we gain 1% growth per annum at a cost of say 3% GDP debt.

So we improve today's position at a greater expense to tomorrow's position. Should we just run a deficit forever?

There is no logical or rational way to explain the growth fuelled by government debt method.

Zero or negative sum game.

Perpetual, never-ending growth is what our capitalist economic systems are based on and have been since at least the start of the industrial revolution.

However, growing resource contraints mean there will be no new growth.

The debts can never be repaid

Our economies are f*cked

And so are we

Edited by Steve Cook

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Perpetual, never-ending growth is what our economic systems are based on and have been since the start of the industrial revolution.

However, growing resource contraints mean there will be no new growth.

The debts can never be repaid

Out economies are f*cked

And so are we

I agree we're in a tight spot but I do think you err on the side of excessive pessimism steve.

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rubbish. growth is the only way capitalism can return any profit without using unpaid slaves. That is, without making you an unpaid slave.

Why?

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Guest Steve Cook

Why?

FRB is a mechanism that allows people in a capitalist system to draw down as-yet to be realized profits. This allows them to invest more heavily in efficiencies of production today than they might otherwise. This inevitably involves new technology that allows production techniques that utilise inputs of resources and labour more efficiently. But, this displaces labour. Displaced labour is a danger to politics and they can't buy products and so reduce consumption and growth. So we need more consumption from those left with jobs to create growth to create new jobs and new industries.

While economies grow, social justice is unnecessary as lives can be improved without redistribution. While economies grow, people need not confront their elites. While economies grow, we can keep buying our way out of trouble. But, like the bankers, we put off trouble today only by multiplying it tomorrow via FRB.

To reiterate, FRB allows us to borrow the fruits of future production at punitive rates of interest today. It means that any carbon reductions we agree at the global level are quickly outstipped by the need for growth that such interest demands. Even if we manage to prevent climate breakdown, the need for economic growth means that it's only a matter of time before we hit a new constraint: oil, water, phosphate, soil. Weare now set to lurch from crisis to crisis....

Perpetual growth cannot be accommodated on a finite planet. We have painted outselves into a corner from which there is no escape. We needed a new economic model several decades ago. Now it's too late

Too late

Edit to add:

Some of the arguments, above, are a summary of the article below:

http://www.monbiot.c...is-is-about-us/

For a fuller explanation I urge you to read it.

Edited by Steve Cook

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FRB is a mechanism that allows people in a capitalist system to draw down as-yet to be realized profits. This allows them to invest more heavily in efficiencies of production today than they might otherwise. This inevitably involves new technology that allows production techniques that utilise inputs of resources and labour more efficiently. But, this displaces labour. Displaced labour is a danger to politics and they can't buy products and so reduce consumption and growth. So we need more consumption from those left with jobs to create growth to create new jobs and new industries.

While economies grow, social justice is unnecessary as lives can be improved without redistribution. While economies grow, people need not confront their elites. While economies grow, we can keep buying our way out of trouble. But, like the bankers, we put off trouble today only by multiplying it tomorrow via FRB.

To reiterate, FRB allows us to borrow the fruits of future production at punitive rates of interest today. It means that any carbon reductions we agree at the global level are quickly outstipped by the need for growth that such interest demands. Even if we manage to prevent climate breakdown, the need for economic growth means that it's only a matter of time before we hit a new constraint: oil, water, phosphate, soil. Weare now set to lurch from crisis to crisis....

Perpetual growth cannot be accommodated on a finite planet. We have painted outselves into a corner from which there is no escape. We needed a new economic model several decades ago. Now it's too late

Too late

As per my earlier post I agree the present monetary system requires infinite growth and I also agree that infinite growth is an absurdity. The "why" is why does capitalism require infinite growth? Are you saying capitalism requires FRB?

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Perpetual, never-ending growth is what our capitalist economic systems are based on and have been since at least the start of the industrial revolution.

However, growing resource contraints mean there will be no new growth.

The debts can never be repaid

Our economies are f*cked

And so are we

Austerity vs Deficit are often political choices. By the way, there is a deficit reduction, but there isn't any absolute government spending reduction in the UK. Gov spending

will go from current £600ish billion to £750 billion by 2015. There are winners and losers with either choice but UK debt can be paid back if the people (this means the

youngs and the boomers rather than you pay please, not me) wants to pay it back.

(Romania actually paid back a $4bn loan under the communist regime at the cost of frequent power shut down (no money to buy fuel) - a crazy choice

given the trade off, but that was how it was done)

As for economy is f* - I am pretty sure that you will still be able to buy British made food and shelter (probably cheap shelter) here 20 years out and the economy will still be functioning (though perhaps no easy and high life like 2007). The US Patent office commissioner said in 1890 that all that can be invented had been invented

and yet even a guy on minimum wage probably live better than Rocketfeller (rocketefeller didn't have TV, microwaves etc).

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Guest Steve Cook

As per my earlier post I agree the present monetary system requires infinite growth and I also agree that infinite growth is an absurdity. The "why" is why does capitalism require infinite growth? Are you saying capitalism requires FRB?

I'm saying that capitalism inevitably leads to a concentration of wealth in a few hands. This leads, ironically, to a collapse of demand by everyone else. This, in turn, leads to elites hanging from lamposts. The only way to square this circle is to keep an economy perpetually growing and so paper over the inherent flaw in capitalism. The only way to do that is to bring in extra money from outside the system to facillitate such growth.

FRB allows the clever trick of borrowing from future production. That's bad enough in that "borrowing from the future" could just as easily be redefined as "stealing from the future". However, it's worse than that. FRB requires interest meaning that even more is owed than is represented in the capital borrowed. And so we very quickly end up in a situation where new money must be borrowed to pay the interest on money we have already borrowed previously. In other words, we get into an insane situation where we must borrow from the day after tommorow to pay for the money we borrowed from tommorow that we wanted to spend today.

Until, that is, we hit the wall of resource contraints on a finite planet

At which point all hell breaks loose

Edited by Steve Cook

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Perpetual, never-ending growth is what our capitalist economic systems are based on and have been since at least the start of the industrial revolution.

However, growing resource contraints mean there will be no new growth.

The debts can never be repaid

Our economies are f*cked

And so are we

On another thread you said someting about looking forward to a brighter future. Now on this one we are all f*cked. Are you just depressed?

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Guest Steve Cook

On another thread you said someting about looking forward to a brighter future. Now on this one we are all f*cked. Are you just depressed?

I was using the royal "we".

For "me" personally, I'm preparing myself and my family as best I am able for what's coming down the pipe and so have nothing to be personally depressed about. Depression is a symptom of learned helplessness. I'm not helpless.

Though, I do worry about the degraded world my grandkids will likely find themsleves in.

You do what you can....

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FRB is a mechanism that allows people in a capitalist system to draw down as-yet to be realized profits. This allows them to invest more heavily in efficiencies of production today than they might otherwise. This inevitably involves new technology that allows production techniques that utilise inputs of resources and labour more efficiently. But, this displaces labour. Displaced labour is a danger to politics and they can't buy products and so reduce consumption and growth. So we need more consumption from those left with jobs to create growth to create new jobs and new industries.

good summary

While economies grow, social justice is unnecessary as lives can be improved without redistribution. While economies grow, people need not confront their elites. While economies grow, we can keep buying our way out of trouble. But, like the bankers, we put off trouble today only by multiplying it tomorrow via FRB.

its not just FRB. The existence of vast public debts is effectively allowing the private sector to park the unsustainable profits it has extracted 'off balance sheet', by depositing them with the taxpayer which means that those profitts don't have to be found a home via private sector investment.

also even a capitalist system not employing FRB has the same essential issue. Profits can only be extracted from consumers via a consumer current account deficit. Clearly this makes consumers bankrupt rather quickly and collapses the economy. So in the case of a full reserve type banking system like spaniard wants, the government can print new specie in line with economic growth and everything is OK, if there is growth (leaving aside the other reasons why full reserve could never work).

The underlying ponzi scheme that leads us to seek growth is the seeking of profits. It should be obvious that aggregate profits cannot be extracted from an economy that is not growing.

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FRB allows the clever trick of borrowing from future production.

Only if you piss it up the wall and allow someone to sell todays production to your future self. FRB does breed capacity today - unfortunately the balance between making your own capacity and letting someone do it on your behalf is schewiffy.

Having said that - we do need to be building less capacity fullstop merely for the sake of mother earth.

Edited by Alan B'Stard MP

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Having said that - we do need to be building less capacity merely for the sake of mother earth.

or rather we need to switch to building capacity in peoples capabilities and increased capacity of our social and governmental institutions.

Trouble is all that kind of thing is damn hard to turn a profit from.

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or rather we need to switch to building capacity in peoples capabilities and increased capacity of our social and governmental institutions.

MMMmmmmm.... Government should be tolerated and not embraced. Give someone an inch and all that ;)

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I'm saying that capitalism inevitably leads to a concentration of wealth in a few hands. This leads, ironically, to a collapse of demand by everyone else. This, in turn, leads to elites hanging from lamposts. The only way to square this circle is to keep an economy perpetually growing and so paper over the inherent flaw in capitalism. The only way to do that is to bring in extra money from outside the system to facillitate such growth.

FRB allows the clever trick of borrowing from future production. That's bad enough in that "borrowing from the future" could just as easily be redefined as "stealing from the future". However, it's worse than that. FRB requires interest meaning that even more is owed than is represented in the capital borrowed. And so we very quickly end up in a situation where new money must be borrowed to pay the interest on money we have already borrowed previously. In other words, we get into an insane situation where we must borrow from the day after tommorow to pay for the money we borrowed from tommorow that we wanted to spend today.

Until, that is, we hit the wall of resource contraints on a finite planet

At which point all hell breaks loose

Thanks for the post, I agree with most of it but I am unconvinced about your opening statement.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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