Economic growth may one day turn out to be a curse rather than a good, and under no conditions can it either lead into freedom or constitute a proof for its existence. ~ German political philosopher Hannah Arendt in 1969
The belief system of all capitalists is that growth is good. It is a value judgment appraised on necessity.
A business cannot stand still. It is either going up – making more profit or going down – its capital draining away. Stasis is stagnation; an omen seldom sanguine.
The reason is confidence. Optimism spurs investments to improve capacities to deliver goods and services to existing and new customers. Such investments go unmade under uncertainty. Instead, belts are tightened by cutting expenses.
The gyre of business is spun from anticipation: businesses are built and abandoned by looking ahead. Supply is constructed from anticipating demand; hence expectation is the essential lubricant for the engine of capitalism.
Without growth, markets become stressed. Caught between the desire to avoid loss and creeping pessimism, pricing becomes tentative. Fiscal spillage – tolerated when a rising tide lifts all boats – evaporates. Facing the prospect of slowing growth, businesses reflexively cut costs. In all but the most capital-intensive industries, the single greatest cost for a business is its people; hence, employees are the first to feel the squeeze. As the fuel for a capitalist economy is consumption, reducing demand through layoffs and suppressed wages is the perfect way to shut the growth engine down.
Capitalism itself sputters when its growth engine stalls; then governments must step in to rig the confidence game again: to tilt expectation from “insufficient demand” to “more supply needed.” Not being able to flip that switch was what prolonged the Great Depression.
The optimism that engenders growth acts a self-fulfilling prophecy, at least for a spell. Because confidence is not naturally self-sustaining, especially in mature economies, capitalism is intrinsically cyclic.
Entrepreneurial intrepidity when the economy is on the upswing gives way to apprehension on a mass scale as economic growth falters. A downturn ensues for an indeterminate duration. Then, as diffuse consensus gathers that the doldrums have hit bottom, the cycle begins again.