Economics/Economics

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Question
I think the first thing for me to say is to THANK the brain(s) behind this forum; this is educative, and very laudable especially for students like me- a budding economist.
To my question, please what can possibly be the reason(s) why will a country with yearly growing GDP have yearly incremental rate of unemployment and a fall in living standard of its people, even as inflation rate declines almost yearly?

Answer
This is a great question because a lot of people forget that growth is not the same thing as development.

Growth refers to increases in a nation's total production, as you may already know.  This is usually measured using GDP which isn't a perfect metric, but it's good enough to be useful.  Development, on the other hand, refers to the average quality of life in a nation, and is generally measured using HDI, which isn't bad but there has been a recent focus on developing a more useful measure of quality of life.  Common things to include in development metrics usually relate in some way to health, wealth, and education, though each varies.

Growth measures such as GDP per capita or income per capita are always included in development metrics because growth must come before development.  When a country's economy grows at a rate faster than its population growth, then they have more resources per person with which to create a higher standard of living.  The real question is whether they will succeed in accomplishing this.  It's quite common to see that increases in the size and efficiency of a labor force, and increased demand for exports will contribute to growth.  Increased efficiency is often the result of pay cuts, degrading working conditions, lower labor or environmental regulations, or replacing workers with technology; things that decrease development within a nation, but which can increase total growth.

As economists are fond of saying, though, "there's no such thing as a free lunch".  If a nation makes economic gains at the cost of the environment, then the costs of repairing that damage will come back in a very big way in the future as that particular resource becomes no longer available for safe usage, reducing the total resources available within the nation.  If growth gains are made as the result of decreasing real wages, then domestic demand will decrease as people can no longer afford to purchase goods, decimating company revenues.

The problem is that no individual company has incentive to increase their operating costs, since there's no guarantee that the investment will generate any returns in the form of increased revenues; the increased costs will help the industry as a whole (including competitors) and the economy as a whole, but while also reducing profitability, possibly reducing revenues, and making the investing corporation overall less competitive.  That's why the government takes an active role in managing the business environment, while businesses operate within said business environment.  Whether the government is effective at doing so varies from nation to nation but, generally speaking, they are terrible at their jobs.  Unions can be quite effective at assisting with fighting for fair wages and working conditions, but they also have their flaws, one of which is their limited focus which will not contribute greatly to overall development, since development often relies on public goods such as law enforcement, schools, hospitals, etc.

So, to answer your question, the scenario you describe is not an ideal one.  In the US, this exact scenario contributed to both The Great Depression as well as the 2008 Financial Collapse.  It will always be temporary, though, because at some point in the future the costs associated with making these abnormal growth gains will always come back and the economy will find equilibrium again the hard way.  Growth must occur along with development, and both must happen relatively evenly across all people within a nation for any of it to be sustainable.

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Michael Taillard

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Accepts most economic questions

Experience

Economic Consulting: American Red Cross; US Strategic Command -- Economics Lecturing: Bellevue University (Bellevue, NE) Huijia College (Beijing), OPII Schools (Omaha), Madonna University (Livonia), Schoolcraft College (Livonia), ZomBCon (Seattle), Zombiefest (Lincoln) -- Media Appearances: Dead Man Working (2012 Movie documentary), The Heartland News (Omaha local news outlet)

Organizations
American Economics Association, Business Networks International, Midwest Writer's Guild, Zombie Research Society

Publications
Economics and Modern Warfare: The Invisible Fist of the Market (Palgrave Macmillan) -- 101 Things Everyone Should Know about Global Economics (Adams Media) -- Corporate Finance for Dummies (Wiley) -- Psychology and Modern Warfare (Palgrave Macmillan) -- Analytics and Modern Warfare (Palgrave Macmillan)

Education/Credentials
PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

Awards and Honors
Philanthropy awards and nominations for the OPII Schools economic experiment

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