3
$\begingroup$

Why do the U.S and other major Western Countries (e.g, Canada, Germany, in contrast to India, Australia, and China) have stagnated GDP growth? Comparing the GDP growth in the post-2000s from the 1990s and previous decades, the trendline seems to go down. Government debts have also increased by a lot among many countries. Is there a reason applicable to all of these nations that explains this?

$\endgroup$
3
$\begingroup$

The primary reason is that it is easier to catch up than it is to forge ahead. India and China have lower GDPs per capita, so they can copy what other countries have done and gain. But the United States, Canada, and Germany can't copy from India or China, as they are already higher. Copying would make them lower. And there's no one higher from whom they can copy. They can copy a little from each other, but not enough to maintain high growth.

A good example is Japan. Japan used to experience fast GDP growth. Then it caught up to countries like the US and Germany. Since then, it has stagnated.

Presumably this will also happen with China and India, but their high populations mean that it might not happen until their GDPs are bigger than those of the United States.

Note that China remains below the world average in GDP per capita. Presumably it can grow until it is closer to the US or Germany.

Of course, it is also possible that there is something about the Chinese system that will limit it before then. We can only speculate until their GDP stabilizes. Some have speculated that China's growth is stabilizing now (it's been decreasing steadily since 2010), but we will need more time to make that determination. At least ten years after it hits a steady rate, which it has yet to do.

| improve this answer | |
$\endgroup$
  • $\begingroup$ So countries in lead will be hard and slow to grow economy on its own? $\endgroup$ – PCModeActivate Jan 23 '18 at 2:42
1
$\begingroup$

Let us put these terms like GDP, GNP and other stated economic indicators aside for a moment. Saying that nations have "developed" is rather a very easy way to address the question of why growth rates have declined.

So our problem is low growth right, how do we achieve low growth. I mean we are living in a Utopia, everything is fine, prices are stable and low, production is high as usual, demand is high as usual, the credit rating of our country is good, our people have no debt, there are no people left in the economy unemployed, there are more and more people choosing entrepreneurship, meaning almost all problems of society are being addressed by free market, and finally; the government is not interfering in many of the day to day activities other than providing legal backbone to the market.

Now lets smash the utopia one by one. Suddenly the government changes its mood, says it needs to flex its muscle. It starts looking at the free market to start flexing itself, now remember, everything is hunky dory; but the government rather than providing LEGAL backbone, is now expanding further into moral space. Rather than letting the free market decide the demand and supply of goods and services, the government now tries to manipulate it to "Achieve Optimal Results". So how to control to market, well you just can't tie the hands and legs of the buyers and sellers, so you use your Legal power to make laws which control, that's right, price and quantity.

With price ceilings/floor, and restrictions/regulations on production in place, government ensures itself to be a significant (actually more than significant) member of the Erstwhile free market. Now count all the goods which government can price control on; commodities,raw materials, and, did you forget MONEY! Out of $S_n$ $total $ $supply$ of the economy, $n^{th}$ good is money.

The utopia is now feeling uneasy, the market cannot decide the rates for various stuff it trades, so we start experiencing volatility. Now a sane successful businessman has build his enterprise from his life blood and time, so that man will be there for his enterprise for a long long time. But this is not true for government, the man who is in government will stay there for say 4 years; and even before assuming office, will start thinking how to win the next elections.

So soon people will start speculating on the market. Corporations, fed up of being taxed will invest most of their profits back into the market, which will drive their prices high. Soon, due to regulations and bone-breaking taxes, production will become low, or it will become so efficient, that for a considerable interim period, there will be very few jobs.

Since now people start becoming unemployed, they need someone to take care of their basic needs like shelter, medicine, food, etc. Now government ain't saying nothing to help these poor folks, but then elections depends on votes of these folks. So soon government starts helping out these people, which not to say is a bad thing, but it just makes the problems worse. On an individual level, the incentive to work depreciates. This continues on in a vicious cycle and soon becomes a part of politics.

With not enough corporations to tax, government starts selling its contracts at a negative interest rate; flooding the market with more money, increasing the prices and thus making the poor more poor, and the rich, well marginally rich.

Now combine all the points above and see what the result will be. Yes India and China are having a higher rate, but what economic sense says that countries with already higher GDP's cannot grow? It sounds more like an excuse from charlatans than a rational, logical, sensible fact backed analysis.

And yeah, did I told you about $DEBT$

| improve this answer | |
$\endgroup$
  • $\begingroup$ So how are the "developing" countries better on this issue? Should they not also have these problems? $\endgroup$ – PCModeActivate Jan 23 '18 at 12:25
  • $\begingroup$ @PCModeActivate at least in the case of China, they have come from a more tightly regulated system to a freer market economy, so in terms of directionality you can expect their people to feel more confident in the future direction of the economy - because they started all the way at the communist end of the spectrum, realized it did not work, and started swinging the pendulum back towards capitalism. In the western world the pendulum keeps drifting towards socialism, which makes new entrepreneurs uncertain of whether they can manage the complex regulations and increasing (cont) $\endgroup$ – MAA Jan 23 '18 at 12:36
  • $\begingroup$ Overhead required to start/run their business. Especially when the trend is that there are constantly MORE regulations to comply with (Meaning it is easier and easier to accidentally break the law and lose everything as a result), and higher taxes to pay. While, might I add, just about everyone complains about the poor quality/efficiency of the government services that are paid for with taxes, which effectively create monopolies in those areas of industry, pricing out (but not really- it’s just that the cost is hidden) anyone in those industries in the private sector. $\endgroup$ – MAA Jan 23 '18 at 12:43
  • 1
    $\begingroup$ Funny mr,. I am from India, and an economics graduate. Despite your reputation here, please with respect mind your business rather than policing around. Contribute to the community rather than attacking it. $\endgroup$ – Kir'Shara Jan 25 '18 at 1:16
  • 1
    $\begingroup$ @denesp - I know that it is cool nowadays that when people express opinions slanted towards the conservative side that they are quite vehemently derided by liberals in an attempt to silence them. However, this answer is no different than the other posted answer. Both are primarily opinion based but at least they both attempt to use reasoning and logic to support their position. Unlike your comment, which is really a rant in an of itself, you made absolutely no attempt in any form to use reasoning or logic to support your statement. So why did you not also criticize the other answer? $\endgroup$ – Dunk Jan 25 '18 at 16:08

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.