On the limits of economic growth

The discussion of the growth limits frightens the public. The perspective to have no growth in the near future puts the lives of our children under a great danger of having no work and fun. It is really frightening. This assumption comes from the theory of economic growth based on technological progress as the driver of real GDP. Since the inception, the technology and its progress has been mainly associated with the production of goods. The portion of workforce and capital needed to produce all goods for a given society has been decreasing over time due to millions and millions scientific inventions and major breakthroughs in engineering. When this tendency is extended years ahead one may suggest that the production of goods will require just a handful of people and a fraction of capital.

The frightening thing – this tendency does exist. Figure 1 shows the evolution of a few ratios: the portions of services and goods (also split into durable and non-durable goods) in the U.S. gross domestic product. The portion of goods in the GDP has been declining since 1951, which is the start year of our graphs. The portion of durable goods is constant (around 10%) since 1951. The fall in the goods portion is chiefly related to non-durable goods. The rate of fall has been decelerating since the start of the 1980s.

The portion of services in the GDP has been growing along a linear trend since the beginning and is about 47% in 2012. There is some room for the further growth in the 21st century. The portion of goods may decline to 25% of the GDP. Currently, the deceleration in the fall of the nondurable goods portion is explained by the increasing share of the PCE in the GDP, as Figure 2 demonstrates. This increase is compensated by a falling portion of the government consumption expenditures and gross investment.

Extrapolating all trends in the future, one may assume that there is no danger to the growth in real GDP which is defined the growing portion of services, which include not only technological progress per se but also human resources. As long as Humans have personal creativeness to please other Humans real economic growth is not in danger.

Figure 1. The portions of services and goods in PCE.

Figure 2. The portion of PCE in GDP

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