Question

Efficiency and Stability in a Modern Economy

481 total words    

2 minutes of reading

 

Ed. Note: We are happy to share this reader response, which is part of a series submitted by undergraduate students at Loyola University Chicago from a course called ENVS 363: Sustainable Business Management.

Economic growth is idolized in today’s modern economy. Continuous gross domestic product (GDP) growth is homogenous with job growth, domestic investments, and consumption. However, continued economic growth does not always correlate with optimum efficiency. Market efficiency is the key for a stable and sustainable economy, relying on models that increase the ease of transactions and removing barriers. GDP growth in itself does not take into consideration the social or moral implications that construct a healthy economy, but rather whittles livelihoods down to a qualitative measurement. With global market volatility rising due to increased pressure on the energy industry as well as environmental concerns, efficiency is key for a steady and viable economy.

GDP is representative of a linear model, which is primarily based via growth, production, and consumption. This model focuses on the ideal of continuous economic growth, regardless of resource abundance or efficiency. Globally, resources are being consumed at a rate of 50 percent faster than we can replace them.[1] Yet we continue to use the same business models that are built on an assumption of plentiful supply, and to measure success in terms of the assets that we have exploited These models do not represent effectiveness within the economy, but rather represent an archaic way of thinking. An efficient market would increase stability versus increasing volatility via the current linear model. 

Efficiency has presented itself within the marketplace to vastly improve markets and gains. The implementation of electronic trading completely revolutionized the 1980s and altered the future of the financial industry.[2] This new trading platform allowed for higher volumes and faster access to bids and offers, allowing financial markets to flourish. With more buyers and sellers, efficiency was amplified and forever changed the financial industry. The invention of electronic trading did not re-invent the act of trading itself- but rather transformed the financial industry into an efficient powerhouse. The revolution that Wall Street experienced is translatable to the current day economy. New economic models, if implemented, have the ability to shift the current “business as usual” mindset into the future, just as electronic trading demonstrated.
 
The current “grow-or-die” mentality needs to be reanalyze and reimagined. Growth does not equate to economic success, but efficiency has the ability to run the economy at optimal levels. Economic growth is an incomplete indicator of well-being, only demonstrating achievement via numbers. There is a sharp tradeoff between a healthy stable market and continued economic growth. The future of global markets depends on the ability to adapt to a new changing economy. 


[1] Chapple, Alice. “Finding a sustainable model of economic growth fit for the future.” The Guardian. 2013. 
[2] Simpson, Stephan. The Death of the Trading Floor. Investopediea. 2011.

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