Steady State Economy

Categories: Econ

Bigger is better. True when it comes to offensive linemen. And wedding cakes. And brass bands. And the size of your, um...belt buckle. It’s also true in economies. Everyone likes economic growth. The faster the growth, the better. More production. Constant expansion.

But there is another option. The steady state economy. An economy with no growth.

Think of the steady state as the economic equivalent to that feeling people say they get from meditation. That zen state that purportedly purges you of all earthly worries. No desires. No wants. Just peaceful days spent in quiet, fulfilling meditation. Ommm. Imagine an economy sitting cross-legged on a mat, humming its mantra. That's the steady state.

The term "steady state economy" refers to an situation where physical wealth and population remain steady. An economy with 0% growth, or at least as close to 0% as it can get. Population doesn't grow. Birth rates run at replacement levels. That is, the birth rate matches the death rate. So the population of your country is 20 million in 2018. It’s 20 million in 2028. It’s still 20 million in 2218. More than just stable population, in a steady state economy, the per capita growth is at zero as well. Per capita growth refers to the amount of growth per person. You divide economic output, usually measured by GDP, by the number of people in the country.

You have a country of 20 million people with annual GDP of 1 trillion dollars. Divide $1 trillion by 20 million per capita GDP of $50,000. So your country has per capita GDP of $50,000 now. In a steady state, if you fast forward ahead 20 years. Per capita GDP is still $50,000. It stays $50,000 a hundred years from now.

In a steady state economy, production is only used to replace stuff that gets worn out. Your Chevy Nova breaks down. So the factory makes another one for you. You get to drive that one until the wheels fall off. There's no additional growth, everything only operates to replace things that have broken down.

There's another connotation to the steady state economy. It has to do with the environment. The steady state is considered more ecologically friendly. Because it doesn't grow, it doesn't burn through as many resources...compared to an economy that chases constant growth. Imagine a civilization in tune with nature. A small village separated from modern conveniences. One surrounded by lush forests and fertile riverbanks. The kind of civilization that uses the last remnants of a moose's entrails to make an organic water filtration system for their camp. Not exploitive of resources...only hunting as much as needed. Replanting every tree or crop they use. Everything done in a way that doesn't deplete the environment. That's a steady state.

In practice, a steady state would be difficult to maintain. It's more of a conceptual benchmark than anything that exists in nature. Like a helpful customer service rep. Or an honest politician. It would be difficult to hold population steady in any society, at least without resorting to authoritarian moves, like China's one child policy. Also, keeping per capita growth at zero would require significant limitations. It would also make the economy susceptible to recession.

It would be easy to slip from 0% growth into, uh...shrinkage. Small, closed societies in relatively isolated areas might be able to maintain a steady state. But it would be difficult for a large, modern economy.

So yeah...we keep coming back to the meditation thing. It's relatively easy to meditate in an isolated monastery on a mountaintop somewhere. Alone. Away from distraction. But try to meditate when you're surrounded by ringing cell phones and traffic noise and the smell of someone brewing coffee in the next room. It’s enough to give someone a Zen-ache.

Related or Semi-related Video

Econ: What are Steady State, Steady Stat...2 Views

00:00

And finance Allah shmoop What are steady state steady state

00:05

growth and steady state per capita growth Bigger is better

00:13

True when it comes to offensive lineman and wedding cakes

00:16

and brass bands and the size of your uh you

00:19

know belt buckle Well it's also true in economies Everyone

00:22

likes economic growth The faster the growth the better More

00:26

production constant expansion But there's another option The city state

00:30

economy an economy with no growth Think of the steady

00:34

state as the economic equivalent to that feeling People say

00:37

Yeah they get from meditation that Zen state that purportedly

00:41

purges you of all earthly worries No desires no wants

00:45

just peaceful days spent in quiet fulfilling meditation Now imagine

00:51

an economy sitting cross legged on a mat humming it's

00:54

mantra That's the steady state The term steady state economy

00:58

refers to a situation where physical wealth and population remain

01:01

steady An economy with zero percent growth or at least

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as close to zero percent is it Khun Get population

01:07

doesn't grow birth rates run it replacement levels that is

01:10

the birth rate matches the death rate So the population

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of your country is in twenty million people in two

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thousand eighteen It's twenty million In two thousand twenty eight

01:18

it's still twenty million in twenty two eighteen more than

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just stable population in a steady state economy The per

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capita growth is also at zero as well Per capita

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growth refers to the amount of growth per capita or

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person You divide economic output usually measured by GDP by

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the number of people in the country You have a

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country with twenty million people with annual GDP of a

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trillion dollars Divide one trillion buy twenty million and that

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gets you per capita GDP of fifty grand So your

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country has per capita GDP of fifty thousand dollars Now

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in a steady state economy a few fast forward twenty

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years per capita GDP is what Yes still fifty grand

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It's days fifty thousand dollars One hundred years from now

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we'LL in a steady state economy Production is on Ly

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used to replace stuff that gets worn out where Chevy

02:06

Nova breaks down so the factory makes another one for

02:09

you You get to drive that one until well you

02:12

know the wheels fall off There's no additional growth Everything

02:15

on ly operates to replace things that have broken down

02:18

there's another connotation to the steady state economy it has

02:22

to do with the environment Will the steady state is

02:24

considered more ecologically friendly because it doesn't grow It doesn't

02:28

burn through a CZ Many resource is compared to an

02:30

economy that chases constant growth Imagine a civilisation in tune

02:35

with nature a small village separated from modern conveniences one

02:39

surrounded by lush forests and fertile river banks the kind

02:42

of civilization that uses the last remnants of moose and

02:46

trails to make organic water filtration systems for their camp

02:50

Not exploitive of resource is on ly hunting as much

02:53

as is needed Replanting every tree your crop They used

02:56

everything done in a way that doesn't deplete the environment

03:00

That's a steady state In practice A steady state would

03:03

be difficult to maintain right It's more of a conceptual

03:05

benchmark than anything that exists in real life or nature

03:09

you know like a helpful customer service rap or an

03:12

honest politician It would be difficult to hold population steady

03:15

in any society at least without resorting to authoritarian move

03:19

like the one China did with their one child policy

03:23

Also keeping per capita growth at zero would require significant

03:26

limitations It would also make the economy susceptible to recession

03:30

It would be easy to slip from zero percent growth

03:33

into Ah you know shrinkage Small closed societies in relatively

03:37

isolated areas might be able to maintain a steady state

03:40

but it would be difficult for a large modern economy

03:43

to live that way So yeah we keep coming back

03:45

to the meditation thing It's relatively easy to meditate in

03:49

an isolated monastery on a mountaintop somewhere alone away from

03:53

distraction But try to meditate when you're surrounded by ringing

03:56

cellphones and traffic noise and the smell of someone brewing

03:59

coffee in the next room Yeah it's enough to give

04:02

someone a cynic You have been there done that going

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