Saturday, 23 May 2009

Does economic growth create goods from nothing or take them from someone else?

An economy grows at a certain percent per year; the extra or better quality goods must have come from somewhere. If the goods cannot be newly created by some method, they must have been taken from someone else, so that an economy’s growth comes at the cost of someone else’s impoverishment.

An economy can be considered as a machine powered by energy from the Sun and other raw energy sources. The machine produces goods. Some of the goods are broken down (consumption). Some of the goods are put aside to make new goods (accumulation), so that the future stream of new goods is higher. Other goods are used to try different arrangements of the machine’s mechanics to see if the different arrangements increase the stream of new goods (technological improvement).

These last two steps create new goods from the raw energy sources, not from nothing. When they lead to economic growth, what is measured is the extent to which rearrangements of resources in the last year have caused the energy to be used in a particular way. Growth can be viewed as a measure of change in use, not of creation.

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