22 March 2009

Debt and GDP.

Economic growth is a function of population growth plus improving productivity.

GDP is simply a nation’s output: it must grow if the increasing population is to be fed, and because we are an endlessly inventive and curious species, stuff gets invented all the time and new ways of doing things are found. New technology constantly improves productivity, which means the same number of people can produce more stuff by doing less.

The only problem that occurred over the past ten years – the only one in my view – is that debt grew faster than economic growth.

That is, the present generation borrowed excessively from the future to pay for a better life today. It’s now payback time.
Alan Kohler at the Business Spectator.

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