Growth


Stuff I couldn’t stuff into the book,
but that I think is pretty interesting…
(mostly on the brain science around Growth)

It is interesting to me that Christianity’s Seven Deadly Sins are all about taking the Eight Great to extremes.

  • Lust might be seen as excessive focus on the sexual part of Life
  • Pride is excessive Individuality
  • Sloth (luxuria in Latin) might be seen as too much focus on fun and Joy
  • Envy is interestingly just wanting Equality with your neighbor, but it is perhaps “excessive” because you want EXACTLY what your neighbor has.
  • Wrath is excessive anger—long-lived human Relationships are never without anger, but when it gets to the level of vengeance and wrath, the relationship is probably on its last legs
  • And two of them are about an excessive emphasis on Growth: Gluttony and Greed
  • (also note that the early Christian church did not make a sin of excessive Stability or Belief—obviously, the church did not want people to think that those two could be over done!)

What does it mean that two of the seven sins are about Growth? Does that indicate that it is really easy for us to slip into excesses when it comes to this Good?

There certainly can be no doubt that at some basic level, we all believe that more really is more. Why?

For a long time I debated if Growth was really an independent Good or just part of Joy, Stability, Society, and Life. But I concluded that so many of us make decisions in this capitalistic world we live in based on Growth, that it is hard not to include it as a Good by itself. Sure, there are those who experience making money as a Joyful hobby, but most of us see it as a basic need or drive—as something that that we cannot live without—even if our basic needs for Life have already been well-satisfied.


Forestalling the future

The prefrontal lobe, the very part of the brain that most defines us as humans is also the most important part of the brain for helping us distinguish good Growth strategies from bad. This is not surprising. The prefrontal lobe is all about understanding and predicting the future. Our need for accumulation is based on some primal need to forestall any potential future disaster. We hoard grains from good harvest years in anticipation of bad years. The main Japanese currency until the 1800s was actually rice. You could store it, trade it and if you needed, eat it—much better than gold! If we didn’t worry about the future, as adults, we’d have no reason to gather things. We could just live for the day—“I’m hungry now, so I’ll eat something”—rather than wanting more than we can handle or might really need.

A little bit of this ability to make future-based decisions does exist in other animals. “Well, of course,” you say, “squirrels hoard nuts for the cold winters ahead all the time, don’t they?” It turns out that scientist don’t believe that this is a conscious decision—it is a preprogrammed, unthinking response to colder weather and shorter days. But there is some indication that lab rats will defer their gratification a bit to let their reward grow. In Your Money and Your Brain, Jason Zweig reports on studies at the University of Cambridge where lab rats get to choose whether to get one sugar pill now or four sugar pills in 10 to 60 seconds. In half of these cases, normal rats choose to wait for the bigger reward. But when rats have damage to their nucleus accumbens—a regulator that sits between the prefrontal cortex and the amygdala that determines emotion—they’ll choose the smaller, immediate reward 80% of the time.

While normal humans offered four times as much stuff for waiting a minute would almost unanimously wait, those who have damage to their nucleus accumbens would have trouble with that decision. So humans are not the only ones to be able to save and delay gratification—to allow rewards to grow over time. But we are the only ones that make conscious and long ranging decisions that we want to have more in the future.

Very good things from economic growth

Our natural drive toward growth is generally a good thing. The more we can store up, the better off we and our offspring will be. It is the basis of our modern economy and it has served the world very well. In a study by Diener and Oishi in 2000 (“Money and happiness: income and subjective well-being across nations” in Culture and subjective well-being. MIT Press) it was clear that across countries, when people are better off financially they are, generally, much happier. It is not just that we feel better about ourselves; the more economic growth there is, the less likely we are to go to war. In a study of African countries it was found that a five percentage point drop in economic growth rates leads to a surprisingly high 50% increase in the likelihood of civil war. (Edward Miguel, et. al. “Economic Shocks and Civil Conflict” Journal of Political Economy, v. 112, 2004)

However, there are some limits to economic growth and happiness. One study (Inglehart andKlingemann, "Genes, Culture and Happiness," in Culture and Subjective Well-being, MIT Press, 2000) found a strong correlation between income and happiness when incomes are low. But in developed nations the correlation between income and happiness was weak at best and above a per capita income of US$15,000, the correlation breaks down completely.

Thus economic growth, in general, is not only good for us as individuals, but also as a society. And when whole nations can continue to boast economic growth, they can avoid the situation of an overall zero-sum gain environment in which individuals, and companies, can only grow if another entity is losing. This is the point at which economic growth—even though our brains don’t understand this point very well—becomes counterproductive. But as long as basic sources of overall economic growth are in place, individual strivings to grow can be a very good thing.

Five Mores of economic growth

There was a time when supply was the main constraint to economic growth in the world. Although in mature economies, supply is a relatively unimportant constraint for growth—excessive inventories, underutilized capacity, capital availability, access to raw materials, unemployed labor, et cetera. Whole nations like Japan, European countries, the US—as well as rich segments of the earth’s population—have learned to depend on the demand side of the equation for their growth prospects. Chances are that the Five Mores of the demand side of the growth equation are the elements driving growth in your “world.”


More People

We all enter this world as screaming balls of want—we want to be taken care of, we want food, and we want clothing. Put a human population and an economic growth chart side by side, and there can be no doubt about the relationship between the number of us and economic growth rates. We explain a lot, if not most, of the economic growth over the course of human history. But it is not a one-to-one relationship: economies have been growing faster than populations. Part of the reason is that people are important on both the supply and the demand side of the equation. More people mean more production; and during the 20th century, more people—combined with increased productivity—freed up the supply side of growth. Nevertheless, without more people to consume the products, we would have made a lot of stuff that was never used—and more importantly never bought, which is the basis of economic growth.

More Stuff

Before man discovered agriculture, hunter-gatherers didn’t have a concept of their own territory. People moved from location to location based on what plants and wildlife were “in season” in those places. Observe a tribesman from an African hunter-gatherer tribe even in our modern era, and you’ll see someone who cares little for personal property. If you’re constantly on the move, it is burdensome to own anything more than the tools you use for hunting and gathering and the clothes on your back (and the less of them, the better!). Being human does not require us to own a lot of stuff. But for millennia now, much of human kind has worked hard to acquire more space to hold more stuff.

More space in the form of more land, bigger houses, and even bigger waistlines, means more room for consumption. The housing boom of the last ten years was the perfect antidote to slowing population growth. More and bigger homes meant more and bigger stuff to go in them: the entire economy benefits when there is more storage space. Japan may have been among the first developed countries to see a slow down in domestic consumption partly because, as a nation with one of the highest populations per habitable-land ratios on earth, the Japanese simply ran out of space.

More Time

Time is a particularly important driver of growth in developed countries. If we have some extra time—because we’ve become so efficient that we don’t need to work all the time—we usually want to fill those extra hours with some form of entertainment. Rarely do we fill our free time with no-cost activities like watching clouds float by. Our favorite pastimes all cost money—sports, books, learning, music, TV, video games, dancing, drinking, eating, hobbies, et cetera. Freeing up more time from a limited number of people with their limited amounts of space has become one of the main sources of growth in developed nations.

More Technology

Periods of high growth in any society—growth that exceeds population increase—have been driven by technologies that enhance efficiency and productivity. Those technologies, in turn, drive supply and demand. Then there are the technologies focused on convenience or luxury—these are known as upgrade technologies—horse drawn carts upgraded to cars, washing boards upgraded to washing machines, and so on. In almost all upgrade technologies, a level of diminishing returns is eventually reached—the technology is refined to a level where any extra investment yields lower and lower returns. The first generation of the Sony Walkman was a truly innovative product packed with new breakthrough innovations. But successive generations added “bells and whistles” at slower and slower rates. To end Walkman’s life-cycle, a completely different technology was introduced—CDs—which obsolesced cassette players during the following decade. And then CD technologies started down their own path of diminishing technological returns.

If an industry can increase the speed of replacement buying, it can continue to grow. But if a product requires replacing less frequently, the industry slows rapidly. For instance, when the period between average car buys increases from four to five years, the industry goes bankrupt! There is an interaction effect between population and technology. A big population that lags technologically can drive enormous economic growth. Moreover, the population need not be growing quickly—see China! However, once the majority of a society, like the Chinese, reaches developed nation levels of absorption of current technologies, economic growth will have to depend on the other Mores.

More Price

This means customers are willing to pay more money to meet the same basic needs … not to be confused with a mere trade-off. You would be making a trade-off, for example, if you switched from Brand Old soap to the same-priced Brand New soap. Your decision would drive growth for Brand New, but Brand Old would lose the same amount of revenue that Brand New gained. In a trade-off, the soap industry and the national economy do not grow at all—your brand decision is zero-sum. And if Brand New is a lower price than Brand Old, you have actually caused the industry and national economy to shrink! Low cost competitors in any industry tend to have a negative impact on that industry’s revenue growth rate. All of the cut-rate retailers in Japan during the last two decades have improved the average Japanese lifestyle, but hurt GDP figures in the process.

More Price growth occurs when you, as a soap customer, decide to buy the higher-priced Brand Super—because it offers luxurious scrubs with a beautiful highbrow odor—instead of your usual Brand Old. As a result, while Brand Old will experience decreased revenue because of your decision, the industry as a whole will have grown because you switched to a more expensive brand to fulfill the same basic need—this More is often related to More Technology. There will be new companies and industries born—e.g., digital music players like iPod—that will experience tremendous real growth, but often at the expense of another industry—think CDs.

The logical limits of growth

National economies like those in Europe, Japan—and now the US—have probably come to the end of the More People and More Stuff ropes. Even the More Technology lever is threatened—the biggest hope currently for this More is the Green Movement, which will potential drive replacement of household and commercial products before they reach obsolescence.

More Time and More Price demand drivers may still work in the short term. Nevertheless, in the years following the onset of the Global Recession in 2008, you might have thought that unemployment and underemployment would help with the More Time driver for growth. And it would, if people felt they had the money to spend to fill their excess time. But for many of us, time is money. Therefore, when we aren’t spending our time working, we’re not making money. And if we’re not making money, we hoard the money we have already accumulated—fearing that we’ll run out before we start making money again—so we’re not willing to spend. If we’re not willing to spend, we’re certainly not going to be participating in More Price growth either.

Although the Global Economic Crisis clearly showed how the emphasis on economic growth needed to shift to demand, the basis for Growth demand actually slumped in the US after the crisis. There is generally not a growing population in developed economies. One difference between the US and Singaporean recoveries from the Financial Crisis might be the immigration rates—the biggest population driver in both nations. In the US, immigration dropped by 60% in one year from 2008 to 2009, while Singapore’s immigration rate barely dipped during that same period; and the More Stuff driver lost steam with a simple pin- prick to the Housing Bubble. The More Technology driver may have worked to some extent, but people needed more money to pay for it; Americans had more Time on their hands when they were unemployed, but then they had no extra money—and if they did keep their jobs, many employees found themselves working longer hours than they had in the past meaning they had less time to spend their hard earned cash. Finally, while a luxury market still exists for the rich, even during a crisis, the average person is going to actively seek lower cost sources of their usual products. Wal-Mart notch up sales by 1% during the first fiscal year after the downturn because it is known as a low-price place to shop. Japan’s “discount” market has grown from non-existent to a significant portion of the retail market of the country during the last twenty years of slow growth.

While our brains may want more, more, more, our physical and financial environments simply can’t accommodate as much as our brains want.

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