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Just imagine a baker in a village of 100 people. Every day he bakes 100 loafs of bread that he sells to the villagers for 1 euro per bread. Every one is happy, every villager has bread to eat every day and the bakery has an economic situation of 100.
For some reason one day there is a shortage of wheat and the bakery cannot make 100 breads, he makes only 80. Due to the wheat shortage the cost price went up and the baker had to sell his bread for 1,50 euro. People were not happy but paid the difference. 20 of them came late and were left without bread. The baker did not really care. His turnover had gone up to 120. The wheat shortage continued. The local population reacted by purchasing half a bread instead of one whole. They had become conscious of the shortages of wheat and realized that they could perfectly well survive with half a loaf since they had been throwing away part of the other loafs anyway. They called their social responsibility “sustainability” but the bakery was not happy at all. He had sold 100 halfs at 75 cents = 75 euro. His economy had dropped despite the rise of the price and he had to throw 30 unsold breads away. Thinking that the market had reduced he decided to stimulate the market again with some marketing and kept the reduction of his production due to the wheat shortage. Due to the marketing costs he had to increase the price a bit more, to 2 euro.
Half the people bought half’s and half bought whole breads. So 50 halves against 1 euro = 50 euro and 50 whole breads against 2 euros = 100 euro. The baker was happy. Marketing works he said. His turnover had grown to 150 euros, double the previous sales! And he only had to throw 5 breads away this time. Market working they call that in economics, and all the consumers had something to eat.
The world market of wheat was struggling further and he had to compete to get his resources. The energy costs were rising too so he ended up reducing his average production to 50 breads against a sales price of 5 euros. Some angry people were buying bread by the slice now and some could not afford bread at all anymore. The 20 richest people of the village did not want to reduce their consumption and offered 8 euro per bread. The baker loved this deal and sold all his bread every day now with a turnover of 20 x 8 euro = 160 euro for the rich people and 30 x 5 euro = 150 euro for the normal people. The economy of the bakery had grown to 310.
The local village council was worried because a number of people had no bread to eat but happy with the growth economy. They could raise the local tax on bread to help the 50 people that were starving and gave them some social help with money. The baker was making a lot of money after all. Government treasury was doing fine as a consequence too. With all his profit the baker had bought a nice house with a large mortgage. The city council had invested in a bit more bureaucracy to assure that the growth economy was properly taxed and invested. People complained about to increase of the cost of living and blamed the baker. He blamed the increasing costs of wheat, production and marketing. But also the tax pressure. The government hammered on economy of growth to be able to tax more and cover the expenses of the socially needed. Meanwhile poverty and social unrest was rising. People were meeting to see what they could do about it and someone threw a stone through the window of the bakery. The next round of baking the baker could make only 30 breads but the population was already in front of his door claiming the entire production for equal distribution. He had no turnover that day and his bakery was damaged. The rich got no bread that day and were furious. They lobbied with the local government to see if their taxes could properly used and get bread from elsewhere. The baker went broke, couldn’t pay his mortgage anymore so the bank went broke too. The government had no one to tax anymore while the bread market got into the hands of the Chinese. After a period of economic growth the village got into a severe recession and chaos.
This simple, funny but realistic story gives a view that economic growth does not solve anything when resources are running out. The only option left for the villagers would be have been to grow their own wheat to eliminate their dependency on outside forces. But what did they know? If they can’t produce their own they have to find something else to eat. But for all they new everything was fine, the economy was growing after all, wasn’t it? How do we deal with this in the big cities around the world where money rules the systems and the dependencies of the people? How aware are people of the world wide shortages if the only point of measurement is the local supermarket and one’s own cash availability? How aware are governments when the economy of growth, tax and social welfare is their only worry?
Moral of the story: A growing economy does not necessarily get you a daily loaf of bread.