No 6  Growing the Economy

Growth. Growth sounds like a good thing. Unless it’s a bump on the head, or, maybe, economic growth.

For a simplified example of economic growth, think of a shoe manufacturing company which last year made and sold 265,433 shoes - mostly in pairs. (They do have a few one-legged customers.) 

The growth imperative - the need to pay interest on the firm’s existing debt - presses the management to cut costs somehow and/or to make and sell more shoes. They figure they cannot cut wages until the current union contract runs out (“If only we could get rid of the union.”) 

So they have borrowed another $200,000. to extend the factory floor and install better shoemaking machinery.

This year, with the new machinery they expect to make and sell an additional 20,000 pairs of shoes at a profit of $10 a pair - a $200,000 increase in profit. Great work Sampson! Smart management, Simpson. Enough to pay off the debt. Well, not quite. Remember the rent. By the end of the year the loan plus accumulated interest at 5% will stand in the bank’s books at $210,000. Oh well, maybe next year we’ll be able to give a dividend increase to our other creditors - the shareholders. (If we don’t, CEO Simpson will be replaced.)

Still, the company added 20,000 pairs of shoes in new wealth, and made a profit. They also added $200,000 to the GDP figures. Conventional economists are happy to see that. We want to see the economy grow, do we not?

Well, I don’t know. How many pairs of shoes does one person need? And why would anyone buy more shoes than they need? Next blog I’ll digress a little to give a short, suggestive answer to those questions , before going on to the main stuff.