Instant Gratification and GDP

In the previous article, we briefly understood as to why the GDP system is completely opposed to the laws of the environment. In this article we focused on the environmental issues and touched the economic issues briefly. In this article, we will look at the economic issues in slightly more detail.

Expectations of Perpetual Growth

There have been many famous quotes which bring forward the situation of the absurdity of the expectation of perpetual growth. Some of the famous quotes are:

Growth for the sake of growth is the ideology of the cancer cell”. This quote compares mindless growth in economic expenditure to the economic equivalent of caner, which it really is.

Another famous one states “Anyone who has expectations of perpetual growth is either a mad man or an economist”. This quote explains how the expectations built in the GDP system are unnatural. Humans experience growth, maturity and then decay and so do plants or seasons or anything created by nature.

Economics is the science of utilizing the gifts given by nature efficiently. Then how is it that economics has the expectations of perpetual growth? Consider a simple example. Let’s say you have an apple tree that gives 10 apples every week. You have accumulated some of the apples and have 50 apples now. Also you are very fond of eating apple pie and would like to eat as much as you can. How many apples should you utilize?

The logical answer would be to ensure that your consumption never goes beyond 10 apples per week. Any more consumption will eat into your reserves of 50 apples and soon you will no reserves left and apples will be in drastically short supply. Now imagine if you had the pressure to always increase your consumption of apples. If you ate 10 this year, then it must be 11 the next year and so on! Wouldn’t your consumption policy be exactly opposed to the way production i.e. nature works?

Nature is finite. A good economic system understands this fact and does not build expectations of perpetual growth. This expectation is leading the human race to run through the scarce reserves of precious resources.

Overusing Resources: Does It Help ?

The next question to be answered is whether overusing the resources helps us in the long run. The answer is an obvious “No!” In fact overusing resources today is the most surefire way to run into economic troubles tomorrow.

If we understand the basic economic premises, the answer is kind of obvious.

Premise #1: The resources that we have on hand today are limited and scarce.

Premise #2: These resources take time to renew.

Hence, overutilization of resources obviously means that there is indeed growth. But this is the growth in the rate at which we are running towards to end! If we keep on increasing production faster and faster today with no regard for tomorrow, the resources will soon run out.

What will be worse is the fact that these resources will not even be fully utilized. In our over-enthusiasm to use these resources “right now”, we would have wasted a significant portion of them. Instead if we focused on efficiency rather than production, the world would be a much better place.

Then Why Are Resources Over Utilized ?

So, now we are sure that using resources indiscriminately is irrational. Using common sense and economic fundamentals we have ascertained that over-utilization is a peril that must be avoided. Then why is it that countries fail to follow this simple maxim in practice. Here are some of the reasons mentioned:

  • Meeting Current Targets: Governments have set targets for GDP growth. They want to achieve let’s say a 7% growth in GDP. This means a 7% increase in output. However, no one in measuring the input. Many times governments would end up increasing the input by 15% to meet the 7% growth forecast. Obviously, this is not wise. However, since only the outputs are being measured, the entire economy and all its participants are forced to behave in an irrational manner.

  • Political Incentives: The political incentives to maintain the illusion of growth are high. Every government promises a better growth rate than its previous government thereby perpetuating the myth of perpetual growth. Also, governments tend to introduce welfare schemes for political reasons. Many of these schemes are simply unviable. However, they end up favoring a certain section of the population ensuring votes for the perpetrators. In the meanwhile, this wasteful expenditure also shows up as growth on the report card!

The Economy Becomes Uneconomical!

This instant gratification syndrome wherein more efficient utilization of resources is less preferable to immediate utilization of resources is uneconomical. However, this is what the GDP system promotes. This truly explains the beauty of the concept. One simple change of definition which equates expenditure with growth and the meaning of economics is changed upside down. Resources are wasted and people fall into a cycle wherein they create wastage today and poverty tomorrow!

Economics, once meant saving for a rainy day and generally being frugal. GDP economics means splurging as much as you can today and then repeating the same thing tomorrow!

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