Does a growing economy mean the economy is becoming less efficient?

Question

I started watching Zeitgeist, moving forward:

http://www.imdb.com/title/tt1781069/

It's got amazing reviews, the content is pretty heavy going but fascinating.

One of the claims in the film is that a growing economy is becoming less efficient, contrary to the belief that it is becoming more efficient. Can anyone expand on this? Is it true?

Answer 1

It's a kook movie made by folks who combine conspiracy quackery with repackaged socialism. If you're into socialist theory, read Marx or some other intellectual socialist.

That said, growth and efficiency are not the same thing. If I'm running a lemonade stand, I can grow by hiring more people at $X/hr or increase efficiency by purchasing an electric juicer and hiring fewer people.

Answer 2

Growth and efficiency can occur independently of each other. For instance, if an economy consists of one inefficient business and then a second more efficient business opens to compete agains the first the overall efficiency increases while the economy grows.

New industries tend to be inefficient at the beginning (since initiation is more important than optimisation) and then become more efficient over time. Agriculture is an amazingly efficient business if you consider how many people now produce the amount of food we consume in comparison to only 100 years ago.

Plus, efficiency is not only about producing extra widgets. You could produce the same number of widgets for lower cost. Outsourcing to China (taking advantage of their lower cost of production) increases the efficiency of the US economy, but also increases the efficiency of the Chinese economy (since extra work is created producing more things).

Lower costs in the US lead to increased investment in other production. Increased production in China leads to the rising wages there. Growth can be achieved in both places for very different reasons.

So, no, growth doesn't have to come about through less efficiency.

Answer 3

A growing economy should become more efficient because of increased opportunity for division of labor: specialization.

External regulation or monetary policy external to the free market can cause parts of the economy to grow in response to said regulations. This creates inefficiencies that are wrung out of the economy after the policies reverse. A couple of examples:

• The "cash for clunkers" program artificially boosted automobile sales as people turned in their old beat-up cars for more than their fair market value.
• The low FED overnight lending rate (held at 1% for over a year last decade) drove mortgage rates down, and sent housing prices through the roof (no pun intended). The real estate industry and related financial services expanded to meet the demand.
• The homebuyer tax credits spurred home sales this past year or so.

Tinkering with the economy causes the inefficiencies.