Growth for the Sake of Growth

I caught an article on the New York Times today that really illustrated an important idea.

Growth for the sake of growth doesn’t get you anywhere.

The article takes a look at the Florida economy, and explains that after generations of a “growth-driven” economy, the population in Florida has begun to level out, and it’s taking the state’s economy with it.

The loss is more than a data point. Growth gave Florida its notorious flip-flop and flower-print swagger. Life could be carefree under the sun because, as a famous state tourism advertisement put it in 1986, “The rules are different here.”
But what if they are not? Or if those Florida rules — an approach that made growth paramount in the state’s sales pitch, self-image and revenue structure — no longer apply?
“It’s got to be a real psychological blow,” said William H. Frey, a demographer at theBrookings Institution who predicted that census data in December would confirm the findings. “I don’t know if you can take a whole state to a psychiatrist, but the whole Florida economy was based on migration flows.”

This is the fundamental problem with looking at housing as a core economic sector. Housing is only valuable if there’s significant population growth, and the industry can only grow if population continues to increase.

Do you see how this is a vicious cycle? As the economic downturn becomes more severe more people will leave, making the situation that much worse.

Now, Florida is fortunate to be a very scenic place with nice weather in a country where there are a lot of wealthy people who value such things. In the long term, I expect Florida’s population will at least be stable, as an economic dip will likely produce bargains that will attract buyers who otherwise might have looked elsewhere.

But the idea of housing and population growth as primary drivers for the economy is unfortunately a nation-wide delusion. The best way to be sure that our economy stays strong is to be a nation that exports value to the rest of the world.

Core economic activities create intrinsic value. Agriculture is the simplest and best example: people will always need food, so agriculture will always be valuable. If the population levels out the demand for food would level out – not decrease. With housing this is not the case, and that’s why it is not and cannot be thought of as a primary economic sector.